Donald Trump announced on Sunday that his administration had reached a trade deal with the European Union, which would place a 15 percent tariff on all goods Americans buy from Europe and require the EU to purchase a certain amount of oil and weapons from some US firms.
Although European officials clarified that this was a legally non-binding outline and the two sides are still working out some details, Trump is characteristically celebrating the “deal” as a major win for the American people.
But it really isn’t.
Every supposed benefit that comes from the agreement applies only to a small subset of the country while leaving the American public, as a whole, worse off.
First, while it is true that Trump’s opponents in the establishment are using weak and sometimes ridiculous arguments against tariffs, they really are bad for the country as a whole.
Tariffs create shortages because they make it unprofitable for foreign companies right on the margin to continue selling their goods to Americans. That drives prices up higher than they would have been in the absence of the tariff.
Even if domestic producers pivot to fill the shortage, that requires resources to be drawn away from whatever domestic production they were previously used for. In other words, the shortage can be moved, but never eliminated. Economic theory is clear that this negative effect of tariffs is unavoidable. The economy is made weaker than it would have otherwise been. And real-world data is backing that up.
The absolute strongest argument that had been advanced in favor of Trump’s tariff strategy had been that he was actually using tariffs as a way to negotiate our way to a world without tariffs. But now Trump has permanently raised tariffs on the European goods and resources that American consumers and businesses buy. And the EU accounts for a lot of the total volume of US trade—even more than the much-maligned China.
The only Americans who will benefit are the handful of businesses that can now charge their fellow Americans higher prices without worrying they will switch to a less expensive European alternative. But even they won’t be untouched by the artificial shortage of goods and resources and the higher prices that result from it.
Similarly, the fact that this deal ensures that more American oil and more weapons from our dwindling stockpiles will be sent over to Europe will only have targeted benefits here at home. The government helping to further enrich some well-connected energy companies and weapons manufacturers is great for those companies, but not the American people as a whole.
Even worse is the money going directly to the government. Trump built both of his campaigns on the (correct) idea that the federal bureaucracy in Washington, DC, is best viewed as a separate entity that is ripping the American people off. He promised he would roll that back, or “drain the swamp,” as he put it.
Now, he’s bragging about all the new money he’s moving into the Treasury Department’s account as if it’s now all of “ours”—as if it’s enriching all Americans. It isn’t. It’s fueling the corrupt federal bureaucracy that he had once claimed to oppose. He’s flooding the swamp and acting like we should all be grateful.
Sure, this new revenue shrinks the deficit a bit. However, the national debt is only a symptom of the actual problem, which is that government spending has reached such absurd levels that it cannot realistically be funded with money directly taxed out of the economy without the economy collapsing. Leaving virtually all of that spending in place and raising one kind of tax—under the false pretext that its burden only falls on foreign producers—moves us no closer to solving that problem.
Trump is either genuinely trying to help the American people but is letting flawed economic theories derail his effort, or he is actually committed to protecting and even expanding the crony racket at the heart of our system that he has so far claimed to oppose. Either way, this latest trade deal with the European Union is not worth celebrating.
