ICYMI: The Free Trader's Case for Trump's Reciprocal Tariffs
Today is Trump's much-heralded "Liberation Day". He may do more for free trade than all others before him.
NOTE: Today is Trump’s “Liberation Day”, the day on which his reciprocal tariff regime takes effect. It thus seems right that we republish this important Deep Dive on what the President is trying to accomplish and why it just might work.
He’s already scored one huge win: rather than face the new tariffs, Israel announced yesterday that it is dropping ALL tariffs on U.S. imports. Think of all the years of effort put into negotiating “free trade deals” that weren’t even really free. President Trump just pulled off a 100% free trade deal without having to negotiate at all.
UPDATE (11:30 am): Vietnam — which is absorbing much of the manufacturing capacity fleeing China — just announced a virtually identical elimination of tariffs on U.S. goods, AND Ontario Premier Doug Ford says he’ll eliminate his tariffs if Trump will (and blames China).
Additionally, it’s worth noting that, as with Trump’s one-off tariffs against Mexico and Canada — averted in February by their newfound willingness to secure their own borders against fentanyl trafficking into the U.S. — the President has rebuffed any carve-out for the United Kingdom, saying “No free trade without free speech.” In case you wondered whether J.D. Vance’s Munich speech was serious, now you know.
Final note: the strong implication of Trump’s message is that there are terms on which a total or near-total free trade deal could be worked out, clearly with Britain but (as Israel’s announcement shows) everyone else too. That more than validates the thesis of this Deep Dive.
Happy “Liberation Day”. We’ll be back tomorrow with an all-new Deep Dive on China. You won’t want to miss it. — RDM
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The Free Trader's Case for Trump's Reciprocal Tariffs
by Rod D. Martin
March 19, 2025
Donald Trump’s announcement of reciprocal tariffs, scheduled to take effect April 2, predictably flummoxed globalists and free traders alike. Yet in fact, both groups should be thrilled. The real question is why they didn’t think of it first.
(And yes, there’s an answer to that.)
Tariffs may indeed be a tax on consumers, but only if they buy the products subject to the tariffs. This is the part lost on many of my free trader friends, and I don’t blame them because I am a free trader and for a long time it was lost on me. But if they don’t buy those products — because the tariff prices them out of the market — consumers don’t pay that tax at all. They just shift their consumption to cheaper goods.
Now in the long run, there’s no question that trade barriers are bad for everybody, including American consumers. The issue isn’t just prices: it’s also the gradual increase in inefficiency and reduction in quality that develop as a result of the lack of competition, the sort we endured in American automakers in the 1970s, a time in which they’d been unencumbered by any real competitors for decades.
American cars are great today. You can thank foreign competition for that. I remember very well when my dad sold my beloved Buick Skyhawk at 60,000 miles because “it won’t last past 80,000.” Today, people buy cars like that at 250,000 miles and drive them for years after.
But if fewer trade barriers are good, why don’t our trading “partners” shed them? Why do Americans still face enormous tariffs everywhere we turn? Are those countries just stupid?
No. We are.
The truth is — and I’m saying it again for the kids in the back — tariffs are only a tax on consumers if the consumer buys the products. And when Canada charges a 300% tariff on American farm products, Canadians aren’t buying from our farmers. What Canada has actually done is ban our farmers from competing with theirs: they’ve just said it nicely. And all that despite decades of NAFTA and the USMCA.
That’s why Europe charges four times the U.S. tariff on cars. It’s why Japan charges a 154% tariff on American rice, and why India charges a 100% tariff on American motorcycles. The list goes on and on, but make no mistake: these aren’t actually taxes. They’re bans on American goods, unless the targeted American sellers just absorb the tariff to stay competitive, in which case tariffs become a tax on exactly who the government said: the American seller, and thus the American worker, not the domestic consumer.
And honestly, that’s just unacceptable.
Did I mention we’re being stupid? Because we are. Our dogma has long been that we mustn’t respond tit-for-tat because it might spark a trade war.
I’m here to tell you: we’ve been in a trade war for decades. We’re just not fighting it.
But we have the power to end it, or at least dramatically reduce it. We just have to be a little more creative.
Enter Donald Trump.
Who Actually Needs Whom?
Before we go on, it’s important to distinguish between the President’s two different tariff strategies.
The first is targeted at specific bad behavior. For example, both Mexico and Canada are complicit in allowing massive amounts of Chinese fentanyl to be smuggled across the U.S. border. These are not the acts of friends, as the President has made clear, hitting all three countries with tariffs aimed at compelling corrective action. If they comply, the tariffs go away. It’s that simple.
The reason this was immediately effective in February (though not effective enough as yet) with both Canada and Mexico is very simple: both countries are dependent on their ability to sell into the U.S. market.
You would think that would be obvious, but most people don’t know the numbers, and are scared by spooky stories of the Smoot-Hawley Tariff from the before time, in the long long ago.
But the world has changed a bit since 1930. America today has just 4% of the world’s population but creates 26% of the global economy. And that’s not export-based: exports make up just 10.8% of that $30 Trillion. America’s economy isn’t just the world’s largest: it’s the world’s largest consumer market, and there’s no one who’s even close.
By contrast, most of America’s key trading partners are export-driven. Over half of Germany’s economy is exports: any significant drop would spark a depression. The U.S. is Germany’s chief trading “partner” outside the EU.
Likewise, exports make up 32% of Canada’s GDP: 75% are sold to the United States. Mexico is even more extreme: 39% of its economy is exports, of which 80% come here. Both countries’s economies are functionally dependent on us.
And all of that is fine…if it’s fair. But it isn’t, as we’ve seen. The playing field is completely lopsided, meaning American sellers (and American workers) don’t have the same chance to compete in those foreign markets as their competitors get here. That has to change.
In point of fact, even the countries with whom we have “free trade” deals — like Canada and Mexico — aren’t really free. And that’s the point I’ve made for years now: the United States has never signed any trade deal — other than the U.S. Constitution — creating actual free trade. Pretending otherwise makes a mockery of the very concept.
What’s the net effect? American workers pay taxes to pay for an enormous military that defends all these countries, none of whom are carrying their own weight in that regard either (and yes, even China relies on the U.S. Navy to patrol the sea lanes on which its economy depends). We are indirectly subsidizing German labor unions, British welfare programs, and Canadian censorship and socialized medicine.
Meanwhile, we are not allowed to compete freely in any of those countries.
It’s a travesty. There’s a reason for it. But it’s not a good one, at least not anymore.
This All Made Sense in the Before Time, in the Long Long Ago
Once upon a time there actually was a reason for all this. In the aftermath of World War II, America’s allies (and former enemies) were flattened. For a time, the United States wasn’t just 26% of global GDP: it was fully half. And at precisely that moment, a new enemy arose, the Soviet Empire, which spent the next 45 years seeking to subjugate the world.
The U.S. response to this was calculated magnanimity. We rebuilt our allies and enemies alike in Europe and Japan. We created defensive alliances for which we paid the lion’s share, and placed our allies under the U.S. nuclear umbrella: should London or Tokyo be nuked, America promised to strike back with at least that much force against Moscow and Leningrad, thus almost certainly losing New York and Los Angeles: kind of a big deal.
But perhaps most importantly, America created a global system of lopsided trade deals, encouraging the growth of allied economies so that they could recover from the war and stand on their own feet. This was partly charitable, partly out of a desire for them to be able to field decent militaries again and thus strengthen the alliance, but above all, to prevent Communist subversion and revolution.
And it worked. The West won the Cold War, the Soviet Union collapsed, and the world collectively exhaled for the first time in 45 years.
The thing is, that ended 35 years ago.
So why are we still paying 70% of the costs of defending our allies? Why are we still letting Canada block our dairy farmers from competing in Calgary and Quebec?
It’s not that we don’t want an alliance: we do, but with real partners, not haughty grown children living in our basement. And it’s certainly not that we don’t want trade: the U.S. Navy exists in large measure to control the world’s oceans so that global trade is secure and global prosperity made possible. No country in human history has invested so much in facilitating free trade as we.
But inertia is the most powerful force in the universe. And not many people in Washington are very creative. “Never give a bureaucrat a chance to say no.”
So I repeat: if the best argument against reciprocal tariffs is that they might spark a trade war, that’s no argument at all. All of our partners depend on access to our market, whereas we depend on them for very little we can’t produce at home. They can only afford to bluster for so long.
That’s the formula for forcing the issue: if free trade is what we want — more opportunity for American workers to compete and profit around the world, and more prosperity for everyone — then let’s use our disproportionate position to force positive change.
That is exactly what Donald Trump has set out to do. “Reciprocal” means exactly what it says: in his words, “if they charge us 300% we’ll charge them 300%; if they charge us less, we’ll charge them less.”
Yes. All the way down to zero.
Reagan and the Zero Option
True free trade means ending all trade barriers. That exists among our 50 states. It doesn't exist between us and anyone else.
Those of us who believe in actual free trade would do well to learn from Ronald Reagan.
In the 1980s, Democrats were apoplectic when Ronald Reagan refused to continue the fake "arms control process", which in two prior treaties — SALT I and SALT II — had given the Soviets the right to massively expand their nuclear forces while restricting the growth of ours. This is Washington's idea of "progress" and "a good deal".
Faced with enormous Soviet nuclear deployments against our European allies — intended to split the NATO alliance and isolate the United States — Reagan took two out-of-the-box steps. First, he (with the strong support of Margaret Thatcher) deployed U.S. missiles to Europe to counter the Soviets and put American “skin in the game”. But second, he proposed something so radical the whole world laughed: the “Zero Option”, a plan to eliminate all intermediate range nuclear weapons whatsoever. All, as in “zero”.
For the first he was branded a crazy incompetent drooling warmonger fascist. Literal millions marched in protest in the capitals of Europe and in Washington and New York (an anti-nuclear movement funded, it turned out, by the KGB), but notably not in Moscow or Leningrad. For the second, he was just dismissed as a doddering old fool (unlike Joe Biden, who as you know is sharp as a tack).
Because of course.
And then, to the utter and total shock of the Uniparty, Reagan got the Russians to sign two real arms control treaties: one (START I) that dramatically reduced the number of nuclear weapons on both sides (and to an equal number), the other (INF) that eliminated an entire class of nuclear weapons, the only treaty in history ever to do so.
Yes, Reagan achieved his “Zero Option” in just six years.
He did this by making America strong again. He pushed the technological limits, researched missile defenses with which the Russians couldn't keep up and which the Beltway Establishment said were "terrifying" and "destabilizing". He did this by walking away from a bad deal — literally walking out on a summit — at Reykjavik, to the universal condemnation of Washington and the Enemedia. He did this by calling evil evil, and convincing everyone he was ready and willing to back his words with strength. Not "soft power": the real thing.
It might be worth remembering all that in considering President Trump's approach to trade.
Milei and Trump: Zero-Zero Trade
So how would this work? Simple: if our partners need our markets more than we need theirs, and we’ve promised to charge exactly the tariffs they do, they are incentivized to reduce their tariffs. Everybody wins.
One of Trump’s new best friends is all-in. Argentine President Javier Milei, a libertarian free trader who has pioneered the sort of draconian cuts in the size and power of government that Trump and DOGE are now applying here, wants Argentina to be the first country to formally enter Trump’s Fair and Reciprocal Trade system.
At CPAC 2025, Milei announced Argentina’s intent to pioneer a zero-zero trade agreement with the U.S. — the first of its kind. Like Florida and Georgia, the U.S. and Argentina would no longer impose any trade barriers on one another at all.
President Trump responded with enthusiasm. That’s not the reaction of a mercantilist.
A zero-zero agreement with Argentina could be the test case and perhaps the tipping point for real free trade worldwide: every other major trading partner will be pressured to cut or eliminate their tariffs, or risk being left behind.
This is the part to which Trump’s critics are oblivious. They see only the stick. They miss the carrot. But Javier Milei misses very little indeed.
Energy Dominance: Key to Finally Erasing America’s Trade Deficit
You will note that so far, I haven’t even addressed America’s $1 Trillion annual trade deficit — how much more we buy from our trade partners than they buy from us. The number is not as important as the causes. But it’s also not sustainable.
Reciprocal tariffs can solve a lot of the problem, one way or another. But the answer is not merely removing legal impediments to American sales: it’s actually selling more.
As I described last month in “America: The World’s Energy Powerhouse”, America is now the globe’s largest energy producer and exporter. In 2008 we were the largest importer. Technology and innovation — primarily fracking — changed all that.
Most of our allies — and even enemies like China — are energy importers. They mostly depend on relatively hostile sources in the Middle East or Russia.
But why? As Trump warned the Europeans during his first term (to general derision), becoming dependent on Russian energy was a strategic disaster: since the beginning of the war, EU countries have actually spent more on Russian energy than they have on aid to Ukraine.
It would be farcical if it weren’t so damaging. Europe is literally funding Putin’s war machine, while nagging the U.S. for more aid.
It doesn’t have to be this way. America can sell these countries what they need. Yes, we’ll have to expand production, and yes, we’ll have to build pipelines (we’re already expanding LNG terminals). But we could make all of our allies more secure while cutting off their funding of our enemies, redirecting that to Texas and North Dakota.
How much better is that?
Here’s an idea of the scale of both the problem and the opportunity:
All of this while enhancing security for our allies and defunding our enemies.
Of course we want to sell our partners countless other products too, but energy exports are a game changer. It’s not like we’re asking anyone to spend new money: they’re spending this money regardless. But energy is something most of our wealthiest partners (other than Canada) have no choice but to import, and it’s stupid to import it from their enemies instead of their friends.
It’s a no-brainer. And Trump is moving on it aggressively. But the truth is, we’re going to need to insist. Allies willfully subsidizing Russia and Iran while running trade surpluses with us and refusing to meet their minimum commitments to their own defense aren’t really allies at all. And if we care about the alliance, it’s time we change that. A partnership has to be good for all the partners, not just a few.
And gentle persuasion having failed, perhaps tough love will succeed.
A New American Century
The aim of trade, like all selling, entrepreneurship, and innovation, is to solve someone else’s problems in a sustainable way. I only have so much to give you if I can’t make a living while I help you. But if I build you a house, or sell you a car, you benefit — get richer — in the exchange, and so do I.
America set up a lopsided trading system deliberately: we needed to win the Cold War. But we did win, and it’s over. It’s time for Americans to expect its partners to act as equals and not as bratty sugar babies.
Trump’s reciprocal tariffs force the issue. Perhaps they won’t spark a round of global tariff cuts, at least not immediately. Reagan didn’t get his Zero Option immediately either. But he got it, because he had the guts to buck arms control orthodoxy. It was the right idea at the right time, and it forced the Soviets to do something positive they’d have never otherwise considered.
Our trade orthodoxy has been similarly well-meaning, and similarly a failure.
The truth is, reducing and (better) eliminating trade barriers will make everyone richer, safer, freer. The theory isn’t wrong. It’s the execution that’s been whack.
So as improbable as it seems, Donald Trump is likely to become history’s foremost champion of global free trade, even if his rhetoric seems the opposite.
And that, I’m sure, was not on your bingo card.
Outstanding
It almost feels like something has to be missing here because this makes so much sense. Well written!