How to Eliminate the Trade Deficit Without the Trump Tariffs!

“The trade deficit is NOT caused by foreigners engaging in unfair trade practices. It’s homegrown.” — Steve Hanke (Johns Hopkins University)

“No nation was even ruined by trade.” — Benjamin Franklin

I made my first appearance as “America’s Economist” on Newsmax’s “American Agenda” TV show earlier this week, discussing the trade war/tariff debate. It lasted only three minutes. Watch it here.

Last year, the trade deficit in goods (exports minus imports) hit a record high of $1.2 trillion.

President Donald Trump blames foreigners for the gap and has issued a series of executive orders imposing massive tariffs on imported goods, including steel and aluminum, and is threatening to impose more duties on Canada, Mexico and China.

But his trade war won’t work and can only result in hurting the American economy. Here’s why:

First, tariffs are nothing more than taxes, paid for by American importers and consumers. It will raise costs, which manufacturers will try to pass along to consumers.

Second, on net balance, it will reduce jobs in the United States.

During Trump’s first term from 2017-2020, he imposed tariffs on steel. According to a recent study, the 25% steel tariffs in 2018 created 1,000 new jobs in the U.S. steel industry but caused a loss of 75,000 jobs elsewhere in the economy! (Source: AP News)

In fact, the trade deficit actually widened during the first Trump administration.

‘A Tax on Imports Is a Tax on Exports!’

One fact we learn in international trade is that a tax on imports also acts as a restraint on exports. (And the opposite is true: a country promoting exports will result in higher imports!)

Douglas Irwin, professor of economics at Dartmouth College and the world’s expert on trade policy, states: “A tax on imports is equivalent to a tax on exports. Any restraint on imports also acts, in effect, as a restraint on exports.” There are many reasons for this effect, some related to the exchange rate and the ability of foreigners to buy U.S. products. Also, the cost of intermediate products used in the production of U.S.-made goods rises and thus hurts U.S. exports.

But There’s a Better Way to Reduce the Trade Deficit

But here’s the good news: it is possible to reduce and maybe even eliminate the trade deficit in goods and services without resorting to imposing higher taxes and creating a trade war.

According to Steve Hanke, a distinguished professor of economics at Johns Hopkins University, there is an easy solution.

Hanke notes that, according to trade theory, “the United States’ negative trade balance, which the country has registered every year since 1975, is ‘made in the USA,’ a result of its savings deficiency and federal budget deficits.”

Attracted by high interest rates, foreigners invest in the United States, which causes the dollar to strengthen. The strong dollar makes imports cheap and exports expensive, resulting in a growing trade deficit.

According to Hanke, increasing savings and eliminating the federal budget deficit can eliminate the nation’s current account deficit. How? Increased savings and reducing the sale of Treasury securities on the open market will cause interest rates to fall.

The decline in interest rates will reduce the demand for the dollar and imports and encourage exports — causing the trade deficit to reverse itself.

Currently, the federal budget deficit is around $2 trillion, forcing the Treasury to raise rates when it tries to refinance the federal debt this year. Cut the deficit and the trade deficit is likely to decline.

Economists are in almost total agreement that the government should be running a surplus, not a deficit, during times of full employment.

Kudos to Elon Musk and the Department of Economic Efficiency (DOGE) for cutting government spending by $2 trillion — sadly, it’s easier said than done.

I should also point out that one of the main reasons the United States has outperformed the rest of the world is that it has a free-trade zone inside the 50 states and has gradually adopted a near-free-trade policy with foreigners. See my Skousen CAFE article here: This Little-Known Section of the Constitution Made America the World’s #1 SuperPower – Mark Skousen.

‘Economic Logic’ to the Rescue!

There’s a lot of misinformation about the trade deficit and tariffs. The best source for understanding the great benefits of free trade and globalization is chapter 26 of my guidebook in sound economics of “Economic Logic,” now in its 6th edition.

It’s entitled, “Globalization, Protectionism and Free Trade.” Free trade and globalization are one of the triumphs of free-market capitalism that has made all nations better off.

It has full reports on:

–The benefits of free-trade agreements between the United States and other countries, including Canada and Mexico.

–Who says that America doesn’t export manufacturing goods anymore? My guidebook provides proof that, despite low import duties, exports of manufactured products are alive and well in the United States. I include a list of billions of dollars’ worth of U.S. exports in airplanes, cars and trucks, chemicals, furniture, machinery, jewelry, scientific instruments, sporting goods and, yes, even crude oil and other fuels — even televisions!

–Why almost all economists are opposed to protectionism and support free trade. The long-term decline in tariffs, led by Adam Smith, is perhaps their greatest achievement.

Free trade and globalization have resulted in the largest decline in poverty in world history.

What Economists Are Saying

“An excellent balance of theory and the real world that no other text has achieved.” — Charles Baird, CalState East Bay

“Better than any book out there! Skousen presents real business economics in a clear, provocative and logical fashion.” — Ian Mackechnie, University of Wales

“Perfect for any economics student — designed to maximize learning while minimizing monotony. Simple, direct and comprehensive.” — K. Au, Homeschool instructor

“My college econ classes, filled with perplexing theories like the paradox of thrift, GDP and Keynesian fiscal policy, were completely refuted by this excellent free-market textbook. Students, if your professors don’t use this text, get it for yourself so you can really understand the concepts of sound economics.” — Amazon review

For more information on “Economic Logic,” go here.

For a special rate of ONLY $44 (66% off the $129.99 full price) with FREE SHIPPING in the United States, go to: SkousenBooks.

Good investing, AEIOU,

Mark Skousen

You Nailed it!

Success Stories at the Las Vegas MoneyShow

by Mark Skousen

“Plant the tree, and let it grow.” — T. Rowe Price (Maxims of Wall Street, p. 133)

“The best way to put odds in your favor is to invest long term.” — Dick Davis (p. 135)

This year’s MoneyShow in Vegas was most enjoyable. I spoke four times to large crowds. I was inundated by subscribers and long-time friends. We added a lot of new subscribers to my newsletter and trading services and sold out three boxes of “The Maxims of Wall Street.”

Many old-time subscribers came up to me and told me some success stories about their experiences as investors.

A couple from Gilbert, Arizona said they were able to retire after investing in my two favorite high-dividend paying stocks in Forecasts & Strategies. She said, “My biggest problem is that we make too much money, and are now in the highest tax brackets.” It is a nice problem to have!

Mike Tyler of St. George, Utah, told me that, years ago, he bought several stocks using my recommendations in Forecasts & Strategies for his daughter, who was in junior high school at the time. Her original $10,000 investment turned into $200,000, enough to pay for her college education!

Garn Morrell of Kaysville, Utah, is a day trader and swing trader with Schwab. He said that he refers to my book “The Maxims of Wall Street” every day for practical advice. He also enjoyed reading my history, “We Three Boys,” about my early years growing up in Portland. And his wife loves Jo Ann’s book, “Matriarchs of the Messiah,” about the women ancestors of Jesus Christ.

Another man, Ira Victor, a technology expert living in Las Vegas, said, “I love your new GIANTS book about your uncle Cleon. I especially noticed your wife’s style in editing the book. It’s a wonderful read!”

Finally, Bill Cadwallader, an engineer living in Las Vegas, told me, “Your book, ‘The Making of Modern Economics’ is one of my favorite books of all time!”

I was overwhelmed with these positive comments at the MoneyShow.

Last but not least, a man whose name was Yogi Patel bought a copy of “Maxims,” and asked for my picture. See below.

I entitled the picture “From a yogi to a guru!”

All of these books are available at a discount at www.skousenbooks.com.

P.S. Something big is coming. A $104.8 trillion AI shift is underway, and everyday Americans have a unique opportunity to position themselves for massive potential gains. Keep an eye on your inbox for an email with the subject line: “A new era is creating the next trillion-dollar tech companies…”—you won’t want to miss this.”