It seems that, for President Donald Trump, the key for economic growth is demand for goods and services. In this view, the greater the demand, the greater the supply is via production and consumer spending, and thus the greater the economic growth. Now, part of the demand for domestically-produced goods and services originates from overseas. The meeting of this demand is called exports. Additionally, local residents exercise demand for goods and services produced overseas, which are imports.

According to this view, an increase in exports and a reduction in imports (i.e., the improvement in the trade balance) strengthens overall demand for domestically-produced goods and services. As a result, this strengthens economic growth in terms of the gross domestic product (GDP). Therefore, the rationale follows that the imposition of tariffs that curtails imports will greatly benefit the US economy. …

In a free market economy, individuals’ decisions regarding buying and selling goods and services (i.e. their exports and imports) is made voluntarily, otherwise it would not occur. The emergence of an exchange between individuals implies that they expect to benefit from it. According to Rothbard, “There is therefore never a need for anyone to worry about anyone else’s balance of payments.”

The current practice of lumping individuals’ trade balances into a national trade balance is of little relevance to businesses. What possible interest can an entrepreneur have with the national trade account balance? Will it assist him in the conduct of his business? According to Mises,

While an individual’s balance of payments conveys exhaustive information about his social position, a group’s balance discloses much less. It says nothing about the mutual relations between the members of the group. The greater the group is and the less homogeneous its members are, the more defective is the information vouchsafed by the balance of payments. …

The only situation with which individuals should be concerned regarding foreign debt is when the government incurs the debt. The government is not a wealth-generating unit and, as such, derives its livelihood from the private sector. Consequently, any foreign government debt incurred means that the private sector will have to foot the bill in the present and sometime in the future.

Conclusion

What drives the tariffs policies of the US president is a concern that the trade deficit undermines the growth rate of the Gross Domestic Product (GDP). Government and central bank policies designed to reduce the trade deficit can only lead to the misallocation of resources and the lowering of living standards.