CHANGE: Trump’s Tariffs: Rewriting Economic Thinking About Free Trade.

With the OBBB rewarding income generation and tariffs penalizing consumption, the combo is revolutionary in modern times.

Since Lyndon Johnson launched the War on Poverty, the U.S. has transformed into a consumption-driven service economy with increasing income redistribution, i.e. social welfare programs. Apparently believing that a dead-end formula, President Trump is trying to reverse all three elements: less consumption, more production and less income redistribution. The idea is that more production will generate more income at all levels, reducing the need for social welfare programs. Take note, Democratic Socialists.

Will it work? There are no guarantees. Tariffs could unleash inflation, or, worse, stagflation or, even, recession. Will it be easy? Trump himself has said it will involve some pain, mostly the aforementioned risks. More worrisome is the President veering off-course to use tariffs as an instrument of non-economic foreign policy, penalizing Canada for its Mideast policy.

In the main, though, strategic use of tariffs is rewriting economic thinking about free trade. When first developed, free trade theory did not contemplate the mobility of capital. Yet, under globalization, capital can move swiftly to locations with the lowest labor cost. Over the last two to three decades, capital moved to China to leverage its low labor costs. The result is a manufacturing juggernaut, which has an absolute advantage that overwhelms the notion of comparative advantage central to free trade theory.

Putting American workers in competition with low-cost labor three decades ago led directly to Trump.

Turning a potential rival like Communist China into a manufacturing powerhouse was just stupid.