The primary policy implemented under the Trump Administration that I believe has the potential to destroy the US economy is tariffs. The very people who are supposed to advise Trump do not comprehend the global nature of the economy and the repercussions of tariffs. Treasury Secretary Scott Bessent recently came out to say that China will simply “eat any tariffs that go on.”
“Well, we don’t know yet because it’s path-dependent, but what I can tell you is that I’m not worried about China,” Bessent said. “China will pay for the tariffs because their business model is exporting their way out of this inflation.” Our own Treasury Secretary does not understand that tariffs are inflationary.
Trump’s tariffs on China were meant to correct the so-called trade imbalance. Yet, as I’ve repeatedly pointed out, tariffs do not address the core issue—capital flows. America’s trade deficit is driven by capital inflows, not trade policy. Foreign nations invest in US assets, which results in a capital account surplus. By imposing tariffs, the US government added to inflation, raised costs for American businesses, and forced manufacturers to seek alternative supply chains in Vietnam and Mexico rather than returning to the US.
Economic power shifts not through tariffs but through capital investment and confidence. China simply will redirect its exports elsewhere, while American consumers pay higher prices. We saw this happen during the first US-China trade war when Trump first entered the White House.
China is prepared to take retaliatory measures against the US. “If the U.S. insists on its own way, China will take all necessary countermeasures to defend its legitimate rights and interests,” a Ministry of Commerce spokesperson told CNBC. America has already lost China as its top trading partner, but what’s worse is that American politicians on both sides have caused the Chinese to stop purchasing US debt.
Trump is keen to see capital flowing back to the United States and must realize that these tariffs will have the precise opposite effect. I am less concerned about his tariffs on China than about his proposed tariffs on Europe. The tariff on China is more about the cost of production since “Made in China” means it was made cheaper with cheap labor and domestic (Chinese) parts.
