President Donald Trump’s Cabinet has coalesced behind his plans for increased tariffs in the name of national security. The stated goals are to return to the U.S. production of strategically crucial industries such as steel and aluminum or blunt the level of imports from aggressive adversaries such as the Chinese Communist Party.
These goals have won sometimes reluctant Republican adherents in Congress, who have remained largely silent as the stock market tanked due to the business community’s uncertainly over the U.S. economy, spurred by the Trump tariff regime. They’ve come to see tariffs as a geopolitical tool to move away from trade dependence with China.
Still, the significant recent stock market dip is starting to catch up to Trump in his second, nonconsecutive term. The president’s approval ratings are falling, while Republicans hold a tiny House majority and a comfortable but hardly overwhelming Senate edge, 53-47, over Democrats. That’s because the Trump White House has ceded outsize influence and authority to the administration’s senior counsel to the president for trade and manufacturing, Peter Navarro, rather than a business titan in the administration such as Treasury Secretary Scott Bessent or Commerce Secretary Howard Lutnick.
With U.S. trade wars against Mexico and Canada rising, Navarro does not simply favor tariffs as a tool for securing the southern border, isolating China, or shoring up specific national interests. Navarro supports tariffs on imports from even our closest allies as an inherent good. His entire economic worldview is built on the pernicious falsehood that trade deficits are inherently bad because they detract from the gross domestic product.
White House trade counselor Peter Navarro speaks with reporters at the White House, Tuesday, Feb. 25, 2025, in Washington. (Alex Brandon/AP)In a revealing white paper published back when he was gunning for a seat in the first Trump administration, Navarro seemed to indicate that he believes that every dollar of goods imported into the country deducts one dollar from our GDP.
“When net exports are negative, that is, when a country runs a trade deficit by importing more than it exports, this detracts from growth,” Navarro wrote. “Reducing this ‘trade deficit drag’ would increase GDP growth.”
Navarro purports that tariffs would reduce that “drag” by artificially increasing the cost of imports, but the premise of his policy is incorrect.
Take a simple example of televisions, the price of which has fallen by 99% in the past quarter-century, in no small part because some 99% of TVs in the United States are fully made in and exported from Asia. Televisions are often cheaper in the U.S. compared to Asia to due factors including economies of scale, lower import duties, and a highly competitive market, allowing manufacturers to produce and sell TVs to Americans at lower costs.
Navarro also keeps claiming that imposing tariffs is cutting taxes for Americans — they’re not. This saber-rattling between governments and subsequent stock market panic could be worth it if the end goal were for us to back off as long as Mexico or Canada or [insert ally here] blink first and deliver whatever it is that Trump already wants. The problem for investors is that they have seen Mexico’s left-wing president bend the knee to Trump and crack down on the cartels, delivering him 29 wanted cartel operatives and helping to bring February’s southern border crossings to the lowest number on record.
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They additionally have seen Canada’s Labour Party slash illegal immigration from the Great White North by two-thirds and finally pledge to spend 2% of GDP on defense. And despite Trump getting what he has correctly demanded, his administration went forward with slapping 25% tariffs on our top two trading partners anyway, albeit with random retroactive exceptions and walkbacks that only made markets even more confused.
If Navarro gets his way and America retreats into autarky, GDP probably won’t actually go up, but prices, which Trump was voted into office to reduce, certainly will rise. In the longer run, America could no longer rely on our former allies and enemies alike to bankroll a national deficit that neither party has any interest in balancing.
