President Donald Trump‘s unilateral imposition of the steepest tariff regime in about a century has not caused the dramatic increase in excess inflation expected by more Keynesian economists. Neither have the tariffs decimated our economic growth, thanks to Trump’s tens of billions of dollars in savings just in deregulation.
But Trump is rediscovering the fact that trade wars are not actually “good and easy to win,” as he once boasted. In a retaliatory response that absolutely everyone saw coming, China ended its American soybean purchases for the first time in 20 years, leaving more than a quarter of the nation’s soybeans — and a majority of its soybean exports — without a buyer.
The problem is not that Trump imposed tariffs on China. On the basis of national security alone, it is indeed imperative that we extricate the communist-led dictatorship from global markets. But in also imposing unprecedented and not remotely “reciprocal” tariffs on the rest of the world, including our allies, Trump did the opposite of furthering that goal.
Because the rest of the world understands that Trump’s tariffs are illogical ends in themselves, not tools to cajole trading partners into mutually reducing tariffs down to zero, other countries have had zero incentive to cower to American demands. The sole exception is Mexico, which, along with Canada, is uniquely protected by the USMCA free trade agreement; other countries have not iced China out by following suit in imposing tariffs on it. Instead, Chinese exports to Latin America, Africa, India, and the Association of Southeast Asian Nations have hit all-time highs.
Similarly, China has been able to look elsewhere for soybeans. Brazil, which we slapped with a comical 50% despite its crucial status as a Major non-NATO ally, has supplied China with 95% of its early-season soybean needs, leaving American farmers in the dust.
Don’t say the soybean farmers didn’t warn Trump; shortly before “Liberation Day,” a consortium of farming groups, including the American Soybean Association, warned that new tariffs “that result in trade retaliation will create financial hardships for U.S. farmers, ranchers, growers and agribusinesses who are already operating on very thin or negative margins.”
But unfortunately for Trump, he can’t bail his way out of this one.
The only macroeconomic benefit of the tariffs thus far is the $214.9 billion in revenue delivered to the Treasury since the start of the year through September. While this number only covers 18% of the $1.15 trillion increase in the federal deficit since Trump took office, it’s not nothing. In fact, there’s ample evidence that the fiscal relief from Trump’s tariff revenue is the only reason bond investors are allowing Trump to add to the $37.6 trillion national debt with interest rates on borrowing of less than 3.5%.
The only thing a swamp monster loves more than taxing your money is spending it. In a redux of the dumbest policy from former President Joe Biden, fellow traveler Sen. Josh Hawley (R-MO) wants to send $600 of tariff revenue to each American, while Trump wants to waste it on bailing out farmers “who are, for a little while, going to be hurt until the tariffs kick into their benefit.”
HIGH-SKILLED IMMIGRANTS ARE NOT, IN FACT, STEALING OUR JOBS
But the reality is that the tariff revenue, like every other cent that goes to the Treasury, is already gone. In fact, it was already spent years ago, when Republicans decided they no longer cared about reforming the mandatory spending that has driven our interest payments to consume more than 20% of all federal revenue.
And the bond market knows it. Trump thinks he can take over the Federal Reserve, but even if he can, the central bank no longer controls the long end of the curve that determines the interest rates he cares about, namely the 10-year Treasury and the 30-year fixed mortgage rate. The only way markets will continue to stomach the legal and political monstrosity that are the tariffs is if Uncle Sam can use the revenue to pay off the bills.