Part of the reasons the US wants import tariffs is not only to rebalance trade but also to increase government revenue (hence the proposed 10% flat import tariff even if the US run a trade surplus with a country).
Disclaimer: The analysis below is drawn from ChatGPT o3âs Deep Research review of the latest data and studies; the conclusions presented do not necessarily represent my personal views.
Donald Trumpâs 2025 tariff blitz â a blanket 10 % import tax plus punitive âreciprocalâ rates that push many Chinese goods above 100 % â will indeed help shrink next yearâs trade gap, but it lands like a giant self-inflicted tax at home:
- GDP: leading macro models shave â 0.8 â 0.9 percentage points off 2025 growth as cost shocks and weaker demand bite [1].
- Inflation & consumers: the tariffs lift the overall price level 2 â 3 %, stripping roughly $2,700 â $3,800 a year from the average householdâs purchasing power [2].
- Imports: Tax Foundation economists project a 23 % slump (â $800 bn) in 2025 import volumesâmechanically narrowing the trade deficit [3].
- Jobs & investment: Cleveland-Cliffs has laid off 1,200 steelworkers, and auto-parts groups warn of wider factory layoffs as input costs surge [4].
- Allies & rivals: French President Macron insists ânobody wins a trade war,â while China has hit back with an extra 34 % tariff on all U.S. goods, signalling an escalating tit-for-tat [5].
Bottom line: Yes, the tariffs can shrink the trade deficit, but they do so by slowing growth, raising prices, destroying jobs, and fraying Americaâs alliancesâa Pyrrhic victory for the U.S. economy.
Sources
[1] Yale Budget Lab, âFiscal, Economic and Distributional Effects of All U.S. Tariffs Enacted 2025â (Apr 2025) â real-GDP impact â 0.8 â 0.9 pp.
[2] Yale Budget Lab, idem â average 2.3 % CPI bump â $3,800 per household (pre-substitution).
[3] Tax Foundation, âTrump Tariffs: The Economic Impact of the Trump Trade Warâ (Apr 2025) â imports fall 23 % / $800 bn.
[4] Manufacturing Dive, âCleveland-Cliffs lays off more than 1,200 workers as tariffs hit demandâ (28 Mar 2025).
[5] Reuters, âMacron says he left Washington with very little hope on U.S. tariffsâ (28 Feb 2025); Reuters, âChina will impose an additional 34 % tariff on all U.S. goods from Apr 10â (4 Apr 2025).
Geov,
My simple understanding is that the U.S. trade deficit is largely sustained by other countries purchasing Treasuries and other dollar-based assets.
I understand the short- and long-term downsides of tariffsâand whatever oneâs views, I think itâs fair to say Trumpâs approach might land better if it came with less drama.
But it raises a broader question: How long will countries like China continue to fund our deficits by buying U.S. bonds? And assuming they do, does this model carry long-term risks weâre not fully acknowledging?
At what point do we stop calling ourselves a ârich countryâ if we run persistent deficits while others accumulate our debt? Or is that the wrong way to think about it?
This isnât my area of expertiseâjust a genuine question.
Again, I understand the concerns about tariffs. But maybe itâs also fair if some of our trading partners start asking whether the U.S. should produce more than just arms and financial services (without relying on unfair trade barriers). Maybe we could start making a few things theyâd actually want to buy in storesâor produce more of our own natural resources in an environmentally responsible way, without asking other countries to take the environmental hit. Maybe we should stop leaning so heavily on the reserve currency advantage while weâre at it. At some point, donât we need to rebuild some capacity for real, tangible production? Would that really be so wrongâfrom a moral perspective?
In any case, arenât manufacturing concerns only tangentially related to tariffs?
Hi Jim,
I'm curious; are you really eager for a $10,000 - $20,000 tax increase this year? Really? Because tariffs are taxes.
I am personally flabbergasted that a Republican administration would be leveling a $6,000,000,000,000 (six trillion dollar) tax increase on the American people. I should've known, the roles would eventually change completely and someday the American public would terrorized by the "tax and spend" Republican Party. Apparently, that day is today.
Note: The hit to the average American taxpayer from tariffs will be around $5,000 per year (for an average $58,000 income). But reading through the forum I have gotten the impression that you are a doctor, hence my higher-bracket estimate of what you'll pay in these new taxes.
Food for thought...
1 Like
I think you misunderstand my posts.
How so? You sounded supportive of the tariff concept. If I misunderstood, I apologize.
â
âA billion here, a billion there, and pretty soon youâre talking real money.â
â Attributed to Everett Dirksen
Just to clarifyâI was not advocating for tariffs.
What I was questioning is how ârichâ a country the U.S. can truly claim to be if it produces relatively little for exportâaside from arms, financial services, and agricultureâwith limited manufacturing.
I was simply asking whether trade and fiscal deficits eventually become a problemâand under what circumstances. Thatâs a sincere, open questionânot a rhetorical one.
I donât think this forum is the best place to debate possible solutions, which I suspect are complex and multifaceted. But again, just to be clear:
I never suggested tariffs as a solution.
In fact, my understanding of tariffs comes from my Economics 101 courseâwhere minimal tariffs are considered ideal because they allow for specialization and comparative advantage. I believe thatâs probably true, and I have no basis to question it.
Honestly, I donât know enough about the specific tariff situation before Trump to say whether the U.S. was being treated fairly or not. But in any case, I would always be against unfair tariffsânot for them.
Iâm open to learning more. But I do have sincere concerns about our fiscal and trade deficits, and I think they deserve more than a shrug.
Thank you for the opportunity to clarify what I was meaning to say.
Chawasri,
I believe Jim probably did 1 term in Economics 101 at UC Berkeley 50 years ago when the state of US economy was very different than today.
Since Doctor Rinne is probably in the top 1% club (pls see CNBC link below), the new tariff
will fall into the your estimate of higher-bracket on new taxes.
I am also eager to hear your view about Trump administation plan to Annex Greenland, make Canada the 51st state and use troops to control Panama Canal. Is this a bluff or the current US administration is planning to threaten Canada, the European Union and also China.
Many thanks for your reply in advance.
Regards
James
How much wealth do you need to join the 1% club in your country?
So this is not longer true about tariffs?
I am going to respectfully ask that you re-read what I actually said and revise your post to discuss the economics of tariffs without getting personal. Tell me if you disagree with what I have quoted if you think the teaching has changed on minimal tariffs being desirable with regard to theories on comparative advantage and specialization.
My point wast to agree with Chawasri about tariffs and to add that his point on tariffs is Economcs 101 (that he is right about that on a very basic level as far as I know). A point of agreement. I will delete the reference to the University where I took the course as that was irrelivant.
BTW, it is Rinne and I wish it were true that I was even close to the top 1% Monaco club. That seems personal and not related to the discussion of tariffs and the sustainability of deficits.
Thanks for the invitation but I don't think I willl revise my post.
I think most ppl who major/minor in finance and economics know that fiscal and trade deficit are complelety different.
Tell me what you think about deficits without the hostility please.
I will let Chawasri answer you questions.
He will come back.
James,
Ummmm... Can I call it insanity?
I don't know what will happen, but I am very disturbed by the rampant overrunning of the US Constitution and Executive Branch lawlessness in the last 100 days. (Only 100 days! Even Hitler required six months to overthrow the German democracy!)
That said, we are in year 249 of the American Empire, and the average age that empires have lasted throughout history (with the exception of the Roman empire) is 250 years.
I guess I should have expected this outcome the way things were heading over the last 20 years. But the rapidity of the transition from a democracy to a dictatorship has been mind-boggling. They had four years to plan it all out, and I am actually impressed by their execution.
The orange man has completely emasculated Congress and the Republican party throughout the country, and Dems are completely left out in the hinterland, so there has been no pushback at all. The courts seem to be trying to establish a constitutional firewall, but since the courts are reliant on the Executive Branch to enforce it's rulings, and Trump is giving the middle finger to the Supreme Court and all lower courts, it's clear to see that's not going to happen.
Besides speaking out right now, we may be left with nothing we can do but chomp popcorn and watch on TV in the coming years as we bear witness to our cherished country and social conventions torn apart.
This has happened many times in the past in other countries, but authoritarian regimes and don't tend to last too long. Best of luck all, but I'm exhausted by this discussion so I'll bow out. It's late, so maybe I'll come back when I've had some rest.
(That is, unless they come knocking on my door soon because of my concerned posts. 
)
1 Like
Hi Mr. Rinne,
Since I've been asked, I'll share some information and opinion. I have a little background in the subject of taxes, budgets, and economics. I was able to persevere through a Master's in Finance from Princeton what seems like a lifetime ago.
The argument against "minimal tariffs," as I see it, amounts to these two points:
- The US is a mature economy and has wage levels that are far too high to be competitive with far less developed countries like China, Vietnam, Thailand or many South American countries.
Regarding China, from Gemini:
In the manufacturing sector specifically, the wage disparity is evident. As of March 2025, the average hourly wage in U.S. manufacturing was approximately $28.92, suggesting an annual wage of over $60,000 for a full-time worker. In contrast, average annual manufacturing wages in China for 2023 were reported to be approximately $10,000 USD in the private sector.
These figures highlight a significant wage gap, with average wages in the U.S. being several times higher than those in China. This difference is influenced by various factors, including the different stages of economic development in the two countries, varying levels of productivity, different costs of living, and different economic structures. While China's wages have been increasing as its economy has grown and industrialized, they are still far from reaching parity with wages in more developed economies like the United States.
I have been fortunate to travel widely and have visited China about a half-dozen times over the years for business, and I can assure you, you don't want to go back to the economic conditions of China just to compete with them.
Neither minimal tariffs nor maximal tariffs will ever be able to make up a 600% manufacturing-wage differential between the US and Chinese economy. There will be no new factories opening because of tariffs.
- Mr. Trump has established himself as the "tariff decider." No single man has ever had such a grip over the country as Trump has now and he is wielding his new power in an unbridled fashion. Many believe this is extremely dangerous because of Mr. Trump's highly capricious nature. The tariffs could be dramatically increase â or eliminated â at one man's whim.
President Trump decided on his own, by himself, that tariffs were going to be a part of the American economy. No one talked him into it. There were no exploratory committees. I'm sure you've seen the clips of him advocating for tariffs repeatedly over the last 40 years. Unfortunately, Mr. Trump is SO WRONG about the advantages of tariffs.
Tariffs will NOT convince business executives to build factories in the US because they can never compete on the world stage with emerging economies that have a six-times lower wage basis than the US.
With Mr. Trump single-handedly the "decider" about tariffs, announcing enormous new sales taxes on all imported products on "Liberation Day," he watched the stock and bond markets sell off at a rate comparable to the Covid Pandemic and the 1929 market crash, and had second thoughts. He then announced a 90-day waiting period and somebody said to him, "We'll tell them this was planned all along and it'll be a negotiation period!"
Trump ran with it, and the market has somewhat recovered in fits and starts. Genius! But in the next couple of months this major economic change is going to come home to roost. Small businesses that relied on imports to provide affordable products to Americans are closing their doors in droves. Many economists are predicting that unemployment is going to shoot skyward. Store shelves for many products will be empty.
However, if you were a business executive that actually has some pricing power in your product and might - might be able to justify making a product in the US, would you bet the farm and raise millions of borrowed dollars to build a new factory over the next few years knowing that ONE MAN can change directions again at any moment and take away the thin margin you were betting on? I sincerely doubt it. Nor will banks risk capital on such a fragile business plan.
Moreover, the case could be made that the current administration only has four years in office remaining according to the constitution. So any tariff plan made by Mr. Trump alone will likely be gone when those four years expire. How much time would a business executive have to earn enough to pay for that shiny new factory? Maybe a year or two before those tariffs are repealed? Again, there will be no new factories opening because of tariffs.
DEFICITS
Regarding trade deficits, they matter not one iota. America is the wealthiest country by a huge margin and trade deficits are normal. Because we are wealthier, we buy more from other countries than they buy from us. So what? We are FORTUNATE to have trade deficits - it means we are wealthy!
Regarding fiscal deficits, these have been increasing at an parabolic rate since America decided that we preferred low taxes over a balanced budget in the 1980's Reagan Revolution and during the 45 years since.
From 1917 to 1981 the US had a top marginal tax rate that hovered around 60% to 80%, reaching a whopping 88% to 94% from 1942-1944 to fund the war effort. It stayed around the low-90% range until 1982 when Reagan twisted political arms to get congress to lower it to 50%. In '87 it was dropped to 38.5%, and it has been in the mid-to-upper 30% range ever since. And we've been running budget deficits ever since.
The US has a $6.2 trillion annual budget, yet we only collect $4.5 trillion in revenue from taxes, resulting in an annual deficit of $1.7 trillion. This approach has resulted in US debt of $36.22 trillion as of last month. The US GDP is currently around $29.98 trillion, so debt is now at 121% of GDP.
If we decided to resolve the debt situation, the only option is to increase income taxes on the very wealthy. Politically, that's not very likely. Because of the low marginal tax rate that has caused the budget deficit, we are truly living at a time of American oligarchs. Since donations fund the political world, we have the best government money can buy.
The wealthy are political donors to get what they want from government, and that money buys ever-lower taxes for them. Of course this only exacerbates the wealth gap, in which today the wealthiest 1% have more money than the lower 90% combined.
Moreover, there is a budget bill moving through congress now which will provide an extension of the last Trump tax cuts (2017) and extend them further. The proposed budget will cut $800 billion from the Medicaid program that provides very basic healthcare for the poorest among us, likely wiping it out entirely (Medicaid has a budget of $890 billion).
The proposed tariffs are an additional force that will cause a further exacerbation of the wealth gap that has occurred since the top marginal tax rates were lowered from 90% to 35% in the 1980s.
Tariffs punish the poorest Americans because they are an extremely regressive tax, taking a huge wallop out of the budgets of those who have the least and who can only afford basic necessities like food, clothing, cleaning supplies, etc.
The US transitioned from a tariff system Trump is claiming had America in a "golden age" in the late 1800s before the Federal income tax was instituted in 1913. But America transitioned from Tariffs to an Income Tax BECAUSE the latter could be progressive, with the wealthiest paying more because they could afford it without impacting their lifestyle, while tariffs, again, punish those with the least.
I imagine that we will see tariffs instituted in America because of the current political environment. In fact, Mr. Trump is now advocating for getting rid of income taxes COMPLETELY. But I would also wager that these tariffs are going to cause the relative demise of the US economy (compared to what we've known all our lives). Tariffs will bring in a fraction of what income taxes generate in revenue each year, and the debt will quickly skyrocket to $60 trillion or more as the economy contracts and America begins a new, very challenging period where perhaps everything is lost.
We may in fact live through what the world's most successful hedge fund billionaire, Ray Dalio, envisions (from Google AI Summary):
Ray Dalio, founder of Bridgewater Associates, expresses significant concerns about the current economic climate, particularly regarding the potential for a recession and the possibility of something worse than a recession occurring. He attributes these concerns to factors like high debt levels, rising global power dynamics, and the impact of tariffs. Dalio suggests that these issues could lead to a breakdown of the existing world order, similar to what occurred in the 1930s.
OK, well, I guess that's enough from me. I congratulate those who persevered through that boring economic-history and opinion piece. Sorry it was such a downer. I guess you can mark me down in the "Anti-Tariff" camp for the reasons above. Not that it ill do any good... 
4 Likes
To clarify again by minimal I meant minimal or none. Lower than what was in place before Trump took office for sure. No tariffs for most if not all countries.
Not a fan of tariffs!
Youâre rightâhe does have concerns about debt. In fact, heâs been pretty clear that weâre in serious trouble if we donât get the deficit down below 3% of GDP. I was aware of this quote when I wrote my earlier posts:
âI think there was a pretty broad recognition that unless the budget deficit is cut to about 3% of GDP, the supply of debt will be much greater than the demand for it, and debt service costs will severely squeeze out the governmentâs ability to spend.â
â Ray Dalio
That said, I donât always agree with Dalio. He can be a bit of an alarmist at times. I was looking for other people's perspective on this.
Thank you for your perspective!
1 Like
How Fast Does the Earth Spin? Earth revolves around the Sun at a rate of about 67,000 miles per hour (107,000 km/hr or nearly 30 km/s). At the same time, Earth rotates around its axis at about 1,000 miles per hour (460 m/s or 1,600 km/hr) at the equator.
Hi Jim,
Here is a historical overview of the US federal debt to GDP ratio based on the information gathered (by Gemini AI):
- The U.S. began with a significant debt from the Revolutionary War.
- According to the Cato Institute, the federal debt was about 30% of GDP in 1790.
- Debt fell to around 6% by 1811 before increasing again due to the War of 1812, reaching 10% by 1815.
- By 1930, the debt held by the public was about 16.5% of GDP.
- World War II: The ratio peaked during and immediately after World War II. Wikipedia indicates it was 100% in 1941 and rose to 117.5% by 1945. It was 112% in 1945 and 118.96% in 1946 according to other sources.
- The 1980s saw a notable increase in the debt-to-GDP ratio. (Because of the previously mentioned -60% reduction in the marginal tax rate during the Reagan years and beyond.
Based on data from FRED and Macrotrends, here are some recent annual figures:
- 2019: Approximately 100.1% - 105.2%
- 2020: Approximately 124.7% - 126.0%
- 2021: Approximately 119.9%
- 2022: Approximately 110.4% - 118.6%
- 2023: Approximately 119.0% - 122.3%
As I said before, I don't believe a factory will EVER be built in the US because of the Trump tariffs. I also think it's unlikely that America will ever get out from under the debt monsterâunless we enter into a war with the rising challenger (China), which almost always takes place throughout history when an empire is declining, and then who knows?
Or perhaps Trump will treat America's creditors like he treated his business creditors throughout his career and simply default. Nail in the coffin...
Who knows? Trump may wake up tomorrow and say, "Ha! Tariff FAKE-OUT! Just kidding!" Nuff said. 
Chawasri
1 Like
Chawasri,
Pls check your P123 message box asap.
A message was sent to you.
Regards
James
Sorry, I don't see anything new. I answered all I'm going to answer in this thread. I believe I'll take a nice multi-week break from posting. I've got more work to do getting up to speed on this site.
I don't think we will be seeing "empty shelves". It will all be re-adjusted soon to something like a 10% or so tariff. Just enough for some companies to start building factories....
In 5 years, when factories are ready, they will be all full of robots which will make them 100% competitive with factories in emerging economies.
Now if we could just have robot doctors to fix the real problem in USA: healthcare.
Interesting and accurate statistic. Probably not actionable 
That does not put the USA at an advantage. Some of the good are only made in China. Are we going to stop buying microwaves? No, we won't. We'll just pay the tariff. China will get the same amount of revenue, if not more, with high tariffs. They have the upper hand in this. So we must back down for now; and start building robot factories.
China is no longer producing junk. I'm happy with the things I buy made in China. Their robots look great. Their new plane seems legit. They study and work harder. It will all work out unless complacency sets.