Donald Trump’s 60% solution

Someone has to talk Donald Trump down off the ledge.

In a February 12 Fox News interview, the once and maybe future president was asked if he really wanted to slap a 60% tariff on imports from China. “No, I would say maybe it’s going to be more than that,” Trump answered.

Of course, it won’t happen. The US can’t put a 60% tariff on imports from China, any more than Trump can fly off the Trump Tower roof. The consequences of trying either stunt, though, would be similar.

When Ronald Reagan was president, imports of capital goods came to about one-tenth of total US spending on business equipment. By 2023, imports had risen to a jaw-dropping 63% of all US spending on business equipment. The US imports more capital goods than consumer goods.

China is no longer America’s biggest source of imports. Mexico is now in first place, mainly because it imports Chinese components, assembles them, and ships them to the US. But the US imports vast amounts of capital goods from China: the circuit boards that run everything from tow trucks to toasters, electric generating and switching equipment for utilities, industrial turbines and, of course, raw materials hard to source elsewhere, like rare earth metals – you name it.

Trump wants the US to shrink its trade deficit, which has widened steadily for the past thirty years. Eventually, it will have to; the US sells its assets to foreigners to make up the difference in what it earns and pays in commerce, and it has run up a net foreign investment position of nearly $20 trillion.

But the shock treatment he proposes would push American businesses off a cliff. A huge tariff on Chinese goods wouldn’t prompt American businesses to invest and produce the same goods at home. Before American firms