This piece originally appeared at Second Best.
Ever since Liberation Day, Oren Cass has been in the unenviable position of having to defend Trump’s tariffs in the abstract while disagreeing with their implementation in almost every detail:
- Cass favors the universal 10% tariff but thinks it should be statutory.
- Cass supports a strong decoupling from China but believes the tariffs should be phased-in and not apply to U.S. allies.
- Cass supports pairing tariffs with proactive industrial policies, such as the CHIPS Act that Trump has taken to denigrating.
My own view is that Trump’s tariffs are disastrously bad and that Cass’s preferred regime wouldn’t be much better. Tariffs and trade deficits are a distraction from the deeper source of the US-China current account imbalance, namely capital flows. If rebalancing is the goal, we should tax and restrict Chinese in-bound investment directly. On the other hand, if reindustrialization is the goal, we should focus on building-up strategic industries through public investments like the CHIPS Act, and avoid tariffs — which raise costs for U.S. manufacturers — like the plague.
These twin goals — rebalancing and reindustrialization — can either work together or at cross purposes. Large, universal tariffs can shrink America’s trade deficit by making imports prohibitively expensive, but they also drive de-industrialization. Conversely, inviting BMW to build factories in the U.S. can help us re-industrialize, but also add to our financial account as a form of foreign direct investment, thereby worsening our current account deficit.
