He can gratuitously claim all the economic “golden ages” he pleases, but when it comes to economic policy the Donald is an unhinged ditz and then some.

In fact, he’s also a statist wolf in sheep’s clothing—pretending to be the savior of the people from the depredations of the Washington Swamp. Yet he now proposes to capriciously monkey-hammer the buying and selling of goods on the free market, and to the tune of hundreds of billions in higher consumer costs or lower exporter output, employment and profits in order to further dubious government policy goals. And all without any legislative debate and approval at that.

We are referring especially to the reasons cited in his announcement that he will slap a 25% tariff on most imports from Canada and Mexico: The Origins of Totalit... Hannah Arendt Best Price: $8.49 Buy New $12.90 (as of 06:35 UTC - Details)

“We’ll be announcing the tariffs on Canada and Mexico for a number of reasons,” said Trump, adding “Number one is the people that have poured into our country so horribly and so much. Number two are the drugs fentanyl and everything else that have come into the country. Number three are the massive subsidies that we’re giving to Canada and to Mexico in the form of deficits.”

“We don’t need the products that they have. We have all the oil that you need. We have all the trees you need,” said Trump, referring to major imports from Canada.

Well, no, goddamnit!

It is absolutely not the president’s prerogative to determine what goods the American economy “needs” or doesn’t “need”, and from where they are sourced as between the north or south side of the Rio Grande, Lake Ontario, or any other place on the planet.

Free enterprise is at the heart of capitalist prosperity and the Donald is just plain kicking it in the ass.

In 2023, for example, US businesses large and small exported $676 billion worth of merchandise to Canadian and Mexican buyers, which was distributed among the categories shown below. Self-evidently, tens of thousands of US firms found a way to efficiently produce items ranging from electrical transformers to organic chemicals that consumers and businesses operating in our two neighboring economies found attractive.

Combined 2023 US Exports to Mexico and Canada:

1. Electrical and electronic equipment: $81 billion
2. Machinery, nuclear reactors, boilers: $97 billion
3. Mineral fuels, oils, distillation products: $74 billion
4. Vehicles other than railway, tramway: $86 billion
5. Plastics: $37 billion
6. Optical, photo, technical, medical apparatus: $21 billion
7. Commodities not specified according to kind: $25 billion
8. Articles of iron or steel: $15 billion
9. Cereals: $30 billion
10. Organic chemicals: $11 billion
11. All other: $199 billion
12. Total US Exports To Mexico And Canada: $676 billion

But now these US exporters may find themselves struggling to sustain their sales if, as they surely will, Mexico and Canada respond with retaliatory tariffs or other economic barriers. That is to say, the Donald proposes to take millions of US jobs and billions of investment hostage as grand bargaining chips so he can play “art of the deal” from the Oval Office.

That’s right. For the greater good, allegedly, of stopping the flow of willing immigrant workers or fentanyl to the US the Donald doesn’t mind shit-canning jobs, profits and investment values in any of the industries listed above.

That’s because he totally misunderstands the fundamentals of constitutional government in America and the philosophical underpinnings for sustainable liberty and prosperity across the land. To wit, America does not need a hyper-active bully-boy, playing the role of mega-CEO and dashing about in a frenzy of threats, head-fakes and deal-making.

What ails America is way too much costly and intrusive government—an ill that can only be ameliorated by de-activating, de-energizing and defunding the state, thereby allowing the free enterprise of the people to flourish.

In this framework, of course, the Fifth Amendment needs to reign supreme—the idea that the Federal government absolutely cannot take your property without just compensation. But then again, we don’t see much indication that the Donald has read the Constitution, Adam Smith nor much of anything else.

And yet and yet. There are undoubtedly hundreds, if not thousands, of small businesses producing reconditioned boilers, plastic moldings, medical test equipment, customized delivery trucks, rice and barley, stainless steel wire, hot forgings etc., who have painstakingly built up an export business in Mexico or Canada but will now face a “rug-pull” compliments of the Donald.

And we do mean rug pull. For instance, here is the list of $155 billion of US exports to Canada in 2023 that will be subject to the already announced 25% retaliatory tariff by Canada.

Needless to say, we do not think the Canadian government threw darts at a board to choose the passenger vehicle, household appliance, fruits, dairy, aerospace and plastics categories of US supplied goods listed below, which categories account for about 44% of the $353 billion of US exports to Canada in 2023.

To the contrary, in trade wars you retaliate against items that can be most readily produced at home or procured from alternative foriegn sources at prices only slightly higher than the current prices of items to be subjected to the retaliatory tariff. That is, you minimize cost increases to your domestic consumer and business purchasers, even as the impact of the retaliation is to sharply raise the landed price of the targeted exporter, thereby shifting sourcing to other suppliers.

Accordingly, it is likely that output, jobs and wages in the US plants represented in the export categories below will shift to Canadian based plants or to alternative foreign suppliers not subject to the retaliatory tariff. And yet that would truly be a rug pull: These US exporters were doing nothing more than earnestly endeavoring to produce products at a competitive cost that allowed them to sell $155 billion of goods to Canadian customers.

But then out of the blue comes the “art of the deal” man pissed-off about what? Drugs or terrorists sneaking across the Ambassador Bridge from Windsor to Detroit?

For crying out loud, Trump’s chief economics clown at the White House, Kevin Hassett, even claimed on bubble vision that this is not a trade war but merely a “drug war”.

No, it’s actually a senseless tax war on the American economy emanating from the economic quackery wafting about the Oval Office. If Hassett had an ounce of integrity, he would have resigned on the spot after this weekend’s exercise in Trump-O-Nomics demolition.

2023 US Exports to Canada Subject To 25% Retaliatory Tariff

1. Passenger vehicles and trucks: $57.7 billion
2. Machinery, nuclear reactors, boilers: $19.8 billion
3. Electrical and electronic equipment: $15.4 billion
4. Mineral fuels, oils, and their distillation products: $5.7 billion
5. Household appliances: $5.2 billion
6. Steel and aluminum products: $7.5 billion
7. Fruits and fruit juices: $4.0 billion
8. Certain fruits and vegetables: $4.0 billion
9. Beef, pork, and dairy products: $5.9 billion
10. Optical, photo, technical, and medical apparatus: $6.6 billion
11. Aerospace products: $8.7 billion
12. Plastics: $3.6 billion
13. American beer, wine, and bourbon: $3.5 billion
14. Clothing and sports equipment: $2.8 billion
15. Recreational vehicles and boats: $2.9 billion
16. Articles of iron or steel: $2.0 billion

Indeed, what the Donald’s fatuous trade “bargaining” gambit involves is every bit as condemnable as the worst of the green energy or woke regulatory interventions of the

Bidenites. That is to say, an ideological vision of how society should be reshaped by the coercive intervention of the state.

In the Donald’s case it involves a primitive view that homespun goods are better than imports and an erroneous presumption that trade deficits are due to foreign malefactors and cheats. Actually, as we address below, they are the product of central bank fostered inflation a home, not the nefarious machinations of foreign governments and competitors abroad.

Likewise, there are tens of millions of consumers and business buyers in the USA who purchased $910 billion of merchandise from Mexico and Canada in 2023. They will now have to pay $200 billion extra to get the same products allocated among the major categories of imports shown in the table below.

And, no, Donald, it is not the Mexican cartels or Justin Trudeau’s compatriots who will pay these massive up-charges. Tariff taxes are paid by importers and are largely passed on to domestic consumers or business buyers of these parts and supplies.

Moreover, in this case it’s likely to be a 100% pass-thru to domestic purchasers because the fact that these products are currently coming from Mexican and Canadian vendors means they aren’t available at lower prices from domestic producers; and that if they were to now to be supplied by either domestic vendors or even more distant sources in Europe or China, it would only be at far higher prices propped up by the Trump tariff umbrella.

Combined $910 Billion of Imports from Canada and Mexico in 2023:

1. Machinery & Transport Equipment: $402 billion
2. Refined Fuels & Lubricants: $145 billion
3. Finished Textiles, Apparel, Furniture, Appliances, etc.: $85 billion
4. Other Miscellaneous Manufactured Goods: $70 billion
5. Food & Live Animals: $68 billion
6. Chemicals: $45 billion
7. Other Commodities: $48 billion
8. Crude Materials (excluding fuels): $16 billion
9. Beverages & Tobacco: $13 billion
10. All Other Imports: $18 billion

As per the listing above, $402 billion or nearly half of the imports taxed at 25% would be accounted for by the more detailed product lines shown below. Accordingly, domestic buyers of finished autos would be hit by the 25% or $17 billion tax on $69 billion worth of assembled vehicle imports, even as domestic auto assembly plants would also pay nearly $25 billion more for auto parts and engine components shipped in from north and south of the border.

In fact, in 2023 more than 16 million finished light vehicles were assembled in North America from a dizzily complex network of parts, materials and sub-assemblies that flow back and forth and back again among thousands of plants located in Mexico, Canada and the USA. Now the Donald’s sledgehammer is going to make mincemeat of the very production machine that his new and improved NAFTA deal from last time around allegedly facilitated.

Likewise, the $25 billion Trump tax on the $101 billion of electrical machinery and equipment would hit both consumer goods and business purchasers alike. The array of products so taxed would range from smartphones to laptops, refrigerators, washing machines, medical equipment, routers, switches and other telecom devices and power generation equipment, among dozens of others. Again, US consumers will get socked and business supply chains will be hammered.

Breakout of $402 Billion Machinery & Transport Equipment category:

1. Vehicles (cars, trucks, SUVs): $69 billion
2. Auto parts: $78 billion
3. Aircraft and spacecraft: $30 billion
4. Engines and engine parts: $25 billion
5. Railway and tramway equipment: $20 billion
6. Shipbuilding and marine equipment: $10 billion
7. Bicycles and other cycles: $5 billion
8. Other transport equipment: $8 billion
9. Other machinery: $56 billion
10. Electrical machinery and equipment: $101 billion

So, US purchasers of this vast array of products are being handed the privilege of paying $200 billion more because why?

Well, apparently, because the Donald wants to do things by bluster and bombast, when the proper way to stop the import of fentanyl is to end the war on drugs. If you did, the price of drugs subject to prohibition like heroin and cocaine would fall sharply, and no one would need to buy or lace them with deadly fentanyl.

More crucially, the proper way to handle the flood of migrants at the borders is to open up the current minuscule quota of 4,000 per year for fully vetted low and moderate skill migrant labor. That’s because the US economy desperately needs more workers, but these are not being supplied from native born households owing to an iron law of biology. To wit, the number of available native-born workers is shrinking, not expanding, because they were never born 20, 30 and 40 years ago.

So the hordes at the border are a function of economics and the laws of supply and demand. They are being overwhelmingly attracted not because they think America is a good place to practice the criminal arts, peddle “illegal” drug or even to get free welfare. The overwhelming numbers at the border are working age people and their families who want jobs at US chicken processing plants, construction sites, restaurant kitchens or lawn-care operations that otherwise go begging.

Still, the real solution is straight-forward—centered upon an expansive immigration quota for fully vetted low-skill workers along with a strict prohibition on all Federal welfare payments to undocumented immigrants. In combination with closure of the asylum program for the next ten years, termination of the failed war on drugs and the arrest and return back to their home country of anyone else who crosses the border without a visa, these measures would eliminate 95% of the migrant hordes at the borders that have triggered the Donald’s misguided wrath.

To be sure, these latter measures are undoubtedly more difficult to execute but they are proper state actions. Arbitrarily stealing income, jobs and wealth from free citizens in order to play deal-making games from the Oval Office is not.

At the same time, it needs be recognized that the standard free trade argument against the Donald’s tariff blunderbuss is pretty much bogus, as well. America’s industrial economy has been massively hollowed out by continuous giant trade deficits since 1975 and these deficits are the measure of good jobs and middle class incomes that have been off-shored.

So we aren’t much impressed by today’s Wall Street Journal Op Ed written jointly by our “fresh water” Keynesian friend, Phil Gramm, and our “salt water” Keynesian nemesis, Larry Summers. These guys say not too worry because trade deficits don’t count for a hill of beans, and, besides, no harm has been done to America’s industrial economy:

Contrary to the repeated claim, there has been no hollowing out of American manufacturing. Industrial production in the U.S. is at an all-time high. The U.S. is producing 2.5 times as much real industrial output as it did when we last ran a trade surplus in 1975.

The fact is, in the last 18 years there has been zero growth in industrial output, even as real GDP has purportedly expanded by 40%. That juxtaposition is hardly an indication of blooming health in the industrial economy.

More specifically, actual manufacturing output is -6% lower today than in was in Q4 2007 on the eve of the Great Recession, even as US real PCE for goods has grown by +61% during the same period. That is, if you produce 6% less goods and consume 61% more goods, why then you absolutely do have a “hollowing out” problem.

Index of Industrial Production and Manufacturing Output, December 2007 to December 2024

At the end of the day, there has been a massive economic canyon opened up in the US industrial sector owing to a relentless inflation of domestic costs and wages, even as huge new low-cost industrial production zones arose in Mexico, China and the global supply chains in which they participate. Large chunks of the US economy were consequently off-shored because inflation-ridden domestic producers couldn’t compete.

The culprit, however, is not the allegedly “stupid” trade bureaucrats who gave away the store in international negotiations per the Donald’s bombast. It was the far more dangerous central banking bureaucrats domiciled a few blocks away in the Eccles Building. The Myth of American I... Robinson, Nathan J. Buy New $13.99 (as of 02:51 UTC - Details)

The latter have embraced a destructive pro-inflation Keynesian policy ever since Greenspan became Fed chairman in August 1987. But that was the opposite of what the US economy actually needed at that juncture, which was a through, deflationary purge of the bloat that had built-up in the domestic price/wage/cost structure during the two decades after the dollar’s link to gold was severed by Tricky Dick Nixon in 1971.

Consequently, domestic unit labor costs are now 72% higher than there were in 1990. And that was the source of the massive off-shoring and resulting trade deficits that hollowed-out the US economy.

So unlike the fresh water Keynesians (viz. Milton Friedman disciples) who support inflationary central banking or the salt water Keynesians who are even greater inflationists, we think the answer lies in abolishing the FOMC. That is, getting the Fed out of the business of rigging interest rates and massively monetizing the public debt.

After all, it is this Friedmanite/Keynesian central banking that is the true source of the inflation-evil that now plagues the US economy. And it’s also the economic source of the MAGA movement and the folly of Trump-O-Nomics.

Stated differently, the cure for massive trade deficits and the loss of millions of high productivity/good paying industrial sector jobs is not punishing tariffs, but sound money.

And that, in turn, requires root and branch reform of the Fed, as we will address in Part 2.

Index of US Unit Labor Costs Since 1990

Reprinted with permission from David Stockman’s Contra Corner.

The Best of David Stockman