Tariffs! Team Reshore vs Team Negotiate

Article #12 Purple Wayz: Navigating to the Center

Like many of you, I’ve been scratching my head for a while about ‘The Tariffs’. As an Economics major years ago, I learned quickly that fewer and smaller trade barriers are far preferred. It’s a rare topic on which liberal and conservative economists agree. As we read in the headlines about Trump’s Tariffs, it’s been very encouraging to learn that the vast majority of international leaders and US politicians seem to accept this too.

Except for a few key people in the White House…

What’s the Goal?

Currently, the world is dealing with a key uncertainty: What really is Trump’s goal here? Does he want reshoring at any costs? Does he want to get rid of trade deficit and barriers? Is it about the tax revenue? Is this another negotiation to show his art of the deal? He and his advisors seem to move in and out of these 4.

Reshoring, eradicating trade deficits, and raising new tax revenue all sound like good goals, but they are narratives based on faulty assumptions. Reshoring takes way too long and involves low-labor-content manufacturing. Getting rid of trade deficits is impossible given global GDP levels and international consumption/savings patterns. Raising tariff revenue would happen, but at the expense of material price increases, which is a new regressive tax on Americans.

So almost everyone not named Peter Navarro or Howard Lutnick hope that Trump wants to negotiate better trade deals.

But at least for right now, the goal is reshoring and eradicating trade deficits. Trump keeps the negotiation angle open as his escape hatch. But you can’t have it both ways. You’re either a protectionist or a free trader. So the minute he starts to negotiate in earnest, we’ll know they’ve abandoned their primary directive.

How long will he hold out?

It’s clear that if Trump continues to double down on large tariffs, he will tank the economy and US standing, along with many Republican political careers. It already has been great for the left in Canada. It will be great for the left in the US and Europe too. How long will he hold out? That’s impossible to say.

Cheer for Scott Bessent and Elon Musk. They both have Trump’s ear. And they both are on Team Negotiate. Root hard against Navarro and Lutnick. Although they have a point on some trade barriers with some countries, the rest of their arguments ring hollow. Economic isolationism has always been a very bad idea.

Team Negotiate will carry the day

Trump will continue to fight it, but logic will prevail. They’ll have no choice but to Negotiate. They’ll get easy wins with ‘Low Major’ countries like Vietnam who have huge dependencies on exports to the US. They’ll get minor improvements with ‘Mid-Majors’ like Europe, Canada, Mexico. And they’ll have a bona fide trade war against China when the dust settles.

Will it have all been worth it?

Absolutely not. There has been real damage done already in the form of slowdowns and price increases. And the US’ global alliances are now unstable, in need of repair. The Negotiate strategy will yield materially better trade deals for Low Majors, slightly better for Mid Majors, and a Trade War with China. This could have been done with a lot less bluster and damage.

Sledgehammer approach so far is 0-2 (DOGE, Trade).

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Some great statements I’ve found in the past 5-6 days since the ‘Liberation’ announcement:

• Vietnam’s leader said in a telephone call that his country “wants to cut their Tariffs down to ZERO if they are able to make an agreement with the U.S.” Translation: Vietnam is saying ‘Take me, I’m yours.’ By the way, woulda been a lot easier to just pick up the phone and call them first. Given their massive reliance on exports to the US, countries like Vietnam will always say YES!!!

• Economics professor and former NEC Head, Larry Lindsey: If other countries eliminate their tariffs, and the U.S, does, too, he said, “it’s just making a deal, then we don’t raise any revenue nor do we get any businesses to relocate to the United States. If it’s a permanent revenue source and trying to get businesses to relocate to the United States, then we’re going to have these tariffs permanently. So the president can’t have it both ways.” Translation: Lindsey knows the current goals are reshoring and eradicating trade deficits. But he also knows Trump will eventually cave.

• "If you take on one of us, you take on all of us". Ursula von der leyden, President of the European Commission. Translation: the strong Mid-Major countries like France and Germany are protecting the weaker ones like Spain, Italy, and Greece. They will stick together. It will be hard to isolate any European Commission countries.

• “The consequences of this are real. If the outcome of this is a multi-trillion dollar tax increase on American consumers, I think that is really consequential and really harmful.” Ted Cruz, TX Republican Senator. Translation: Republicans had Trump’s back on DOGE and some other early executive orders. But not on this one.

• “The formula underpinning Trump’s sweeping reciprocal tariff plan is the country’ trade deficit with the US, divided by its exports, then divided by two. Trump also implemented a 10% baseline tariff on almost every country.” CNBC Saturday April 5. Translation: the formula was based on the trade deficit, showing that Trump and Navarro are indeed focused on the 2nd goal of eradicating them. Note: some think tanks noticed flaws in the calculation which grossly overestimated the elasticity of price responses to tariff increases. That’s too technical for this article, but the punchline is this misread likely caused Trump tariffs to be 2-3x too high.

• “Almost everything Mr Trump said this week–on history, economics and the technicalities of trade–was utterly deluded. His reading of history is upside down.” The Economist. April 3. ‘Nuff said.

• “We are in the process of destroying confidence in our country as a trading partner, as a place to do business, and as a market to invest capital.” Hedge Fund investor Bill Ackman. No translation needed.

• “I wouldn’t even bother to give them advice for a very simple reason: President Trump is impervious to advice on trade. There have been a number of books written about his first term in which some of his economic advisors try to explain why a trade deficit is not a bad thing, or how tariffs are not taxes on other countries but taxes on American citizens who buy the goods. He’s been presented with that information, and he rejects it, and he thinks he is right, so there’s no point in a conversation.” Douglas Irwin, Dartmouth Professor on Int’l Trade

• “This is not a negotiation. This is a national emergency based on a trade deficit that’s gotten out of control because of cheating.” Peter Navarro, US Senior Trade Counselor on Fox News last week. Translation: Navarro is on team Reshore and Eradicate Trade Deficits and Barriers. He is a protectionist through and through. The only value he’s providing is shining light on some lousy trade policies of our trade partners. He’s way too far into Trump’s ear.

• “China has announced a slew of countermeasures against tariffs imposed by the US President Donald Trump, including additional tariffs of 34% on all goods and curbs on the export of some rare earths….” official China announcement April 4. Translation: China considered holding back, but decided to counter aggressively. They have a longer term view.

• “CHINA PLAYED IT WRONG, THEY PANICKED–THE ONE THING THEY CANNOT AFFORD TO DO” Trump in reaction to China’s aggressive move. Translation: He’s right. It’ll hurt China. But he assumed they wouldn’t do it. Now that they have, his negotiating position is worse.

• “HANG TOUGH, it won’t be easy, but the end result will be historic.” Trump on Truth Social Saturday. Translation. Trump knows people will NOT hang tough. Reminds me of Kevin Bacon’s character at the end of Animal House (‘REMAIN CALM, ALL IS WELL’). Trump will hold out a bit longer with the Beautiful Reshoring talking points. But since it will take 10-20 years to reshore, and he only has a few months, he’ll cave and negotiate and pretend that was the goal all along. The stock market will go back up. Elon will go back to Tesla. And we’ll move along to tax cuts so he can declare more victories on bad policies.

Apologies to all the protectionists. You can probably tell that Tariffs fall into a similar category as Modern Monetary Theory for me.

Next time I want to get into taxes ….