The Tariff Pause

National Review Online

Wednesday, April 09, 2025

 

Well, it turns out that enormous tax hikes are bad for the economy. After Donald Trump unilaterally imposed one of the largest peacetime tax hikes in American history — his “reciprocal” tariffs of “liberation day” — the stock market tanked and bond yields rose, reflecting investors’ reduced faith in the U.S. economy and the U.S. government, respectively. Trump has now paused part of that tax hike for 90 days, which he says was in response to the markets’ reaction.

 

Still in effect will be a 10 percent minimum tariff on all imports. Non-USMCA trade with Canada and Mexico will still be taxed at 25 percent (the “fentanyl” tariff). The tariff rate on Chinese goods is supposed to be around 125 percent. There are also sector-specific tariffs on industries such as pharmaceuticals and metals that are yet to be announced.

 

The “reciprocal” tariffs were supposed to be negotiable or nonnegotiable, depending on whom you asked. Republican members of Congress seemed to believe they were negotiable, but they have been largely cut out of the process and have made no decision to impose tariffs. Members of the administration, such as Secretary of Commerce Howard Lutnick and Trump’s trade adviser Peter Navarro, insisted that they were not.

 

The purpose was “the reordering of global trade,” said Lutnick, who also told CNN, “I don’t think there’s any chance Trump is going to back off his tariffs.” Navarro told CNBC, “Let me make this very clear. This is not a negotiation.” Both of those statements were made less than a week ago.

 

Trump’s executive order seemed to suggest the purpose was to reorder global trade. It talked of trade deficits as a national emergency, and the “reciprocal” tariff formula was not based on tariffs at all, but only on trade deficits and the volume of imports. The variability of the rate was supposed to be a selling point, as Deputy Chief of Staff Stephen Miller said, “We will apply a reciprocal tariff based on the degree of your misconduct.” Jamieson Greer, the U.S. trade representative, did not seem to know the pause was coming, as it occurred during his testimony to Congress.

 

Now that the pause has come, the question is: Why? Remember, the administration’s stance isn’t that there are some things it would like to work on with other countries to improve the terms of trade for the U.S. Its stance is that the current status of global trade is a national emergency, justifying the usurpation of Congress’s tax and trade authority. That would suggest the drastic actions that the White House was just praising as positive and necessary should stay in effect.

 

Grounded in reality rather than in Peter Navarro’s overactive imagination, the pause also doesn’t make sense. Nothing about the trade deficit, the state of manufacturing, or the principles of economics will change in the next 90 days. Even when both countries are willing to make a deal, trade agreements take years to negotiate. There is simply no possible way that a handful of people who can’t agree with themselves on what their own policy is will be able to restructure global trade by early July. (Nor should we want them to, by the way.)

 

So every business involved in international trade — which is most businesses — is yet again stuck in limbo as the president decides whether he will stick to the poor trade policy he currently has or revert to the truly awful trade policy that he announced last week.

 

The 125 percent rate on Chinese trade might just as well be an embargo. While there are some national security concerns with respect to China in certain industries, there’s no real reason to essentially prohibit the import of toys, shoes, or clothes from China, which is what this tariff will likely do. There’s certainly no reason to punish Americans for buying Mexican and Canadian goods at more than triple the rate of any other non-China country. And Mexico, China, and Canada are the three largest origin countries for U.S. imports, accounting for over one-third of the total. This is still incredibly damaging to the U.S. economy.

 

The 10 percent minimum tariff is probably not high enough to encourage domestic production, and it probably won’t shift much trade from the countries to which it applies because it is uniform, so you can think of it as pretty close to being a simple tax hike. Republicans’ top priority should be making sure taxes don’t go up, which they will for nearly all Americans if they don’t pass a tax bill by the end of this year. Yet Trump continues to burn political capital on this tariff plan that his own administration can’t even get straight.

 

A few things that would really reassure the markets and set up Republicans for future success: Rescind the “liberation day” executive order, fire Peter Navarro, don’t let Howard Lutnick back on television for the next few months, and focus all attention on solidifying the 2017 tax cuts as quickly as possible. Congress should end the president’s bogus emergency declarations and retake the tariff power that belongs to it under this little-read document called “the Constitution.” If none of that happens, we’ll see you back here again in three months.