Trump’s tariffs are ‘woke economics’, confuse Americans

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All economists, whatever the political stripe, agree on one principle: disposable income increases when the individual household spends less of their income on food and energy. The standard of living decreases when these costs increase.

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For example, a household that spends more on food and energy has less to put their children in hockey, piano lessons or travel. United States President Donald Trump’s tariffs will increase the price of food and energy for the average American consumer, thereby lowering the standard of living. For the lower-income bracket of the population, tariffs are a consumption tax. This is the bottom line.

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Economist Adam Smith wrote The Wealth of Nations in 1776, which coincidentally was the same year as the U.S.’s Declaration of Independence. Some economists may not agree with the whole book, but there is one profound statement that all agree on.

In every country, it always is and must be the interest of the great body of people to buy whatever they want from those who sell it the cheapest. The proposition is so very manifest that it seems ridiculous to take any pains to prove it. Nor could it ever be called in question had not the interested parties of merchants and manufacturers confounded the common sense of mankind. Their interests are directly opposite to the great body of people.“

To quote economist Milton Friedman, “Tariffs are very protective. Tariffs protect the consumer from lower prices.”

The interested parties that want tariffs are very concentrated. Let’s use steel as an example because it’s one of Trump’s favourites.

In the U.S., there are approximately 235 steel companies, but three companies produce 70 per cent of the steel. It’s Pareto distribution. The three main players can meet in a hotel lobby and decide steel policy with Trump. Steel tariffs benefit the big three companies.

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The parties that don’t want tariffs are spread out and have no voice. For example, if the price of a car increases because of higher steel prices, you will not have the time, effort or funds to lobby the government to lower the price of steel so that the price of cars drops.

The parties that want tariffs will go through great lengths to confuse or confound the common sense of mankind, just like Adam Smith said. This is why I called tariffs woke economics. Tariffs are the reverse of common sense. Trump has cried out “America first, build in America, bring back jobs to America.” It’s always under the umbrella of job growth and protection, but neglects consumers, who are the larger party.

The non-partisan Peterson Institute for International Economics estimates that the cost of the Trump tariffs for the average household will be about US$1,200.

Since December 2021, the U.S. unemployment rate has been hovering near historical lows. U.S. wages during January 2025 were up 4.1 per cent from 12 months earlier. There were more than seven million job vacancies in the U.S. at the end of December 2024. U.S. corporations had record profits during the second, third and fourth quarters of 2024 as equity markets traded at or made fresh historical highs.

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The trade policies that have been in place have been very good for Americans. However, Trump wants Americans to believe otherwise. According to him, the trade agreements that were in place have hurt Americans over the past few years.

The truth is that Trump’s trade policies will hurt the American consumer. Walmart Inc., Home Depot Inc. and Target Corp. have all raised concerns about weaker consumer spending, which comprises about two-thirds of U.S. gross domestic product (GDP).

The Conference Board and the University of Michigan sentiment polls say consumer confidence is waning. The Federal Reserve Bank of Atlanta’s GDPNow economic model projects U.S. first quarter GDP at minus 2.8 per cent. This comes after a solid eight quarters of stellar growth with GDP in the range of positive two per cent to four per cent.

Trump’s other fallacy has to do with the U.S. trade deficit or trade imbalances. The terms can be misleading. He believes that if a country imports more than it exports, this is unfavourable. According to him, the U.S. should export more than it imports.

Let’s look at this from a practical view. If a factory or a household sends out more than it brings in, the factory or household is worse off. Sending out more goods than are coming in is not feasible long term. Common sense tells us that it’s more favourable when the factory or household brings in more than it sends out. This is wealth accumulation.

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Tariffs erode wealth. Trade deficits or trade imbalance can have negative connotations, but that’s not the case in economics and trade. A U.S. trade deficit with a specific country is not negative for the U.S. consumer.

Trading nations are the most prosperous nations. Resources are put to their most efficient use when countries trade.

Look at your breakfast; there are products from five countries. Look at your clothes; they come from all over the world. Trading builds wealth. Wealth is taxes, health care, the symphony, the arts, the roads, the bridges, food and everything in between.

Trump’s tariffs of 25 per cent are punitive and restrictive. These tariffs are high enough to cut off trade and run the U.S. into a recession. Give it six months.

Trump is changing America’s mindset to make them believe tariffs will benefit America. Americans who once totally and vehemently opposed him are now coming onside without thinking. These types of organizations or institutions usually implode from the inside, just like Justin Trudeau and the Liberal Party.

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After five quarters of negative GDP on a per capita basis, the Liberal Party decided it was time for a change in policy and leadership. We can only hope that the same happens south of the border.

Jerry Klassen has been a commodity trader for 30 years. From 2010 to 2019, he was chief executive of Canadian operations for Swiss-based GAP SA Grains & Produits Ltd. He was chair of the Grain and Oilseed Exporters Association for four years from 2017 to 2021.

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