Nice post. Here’s an additional twist.
You might wonder why getting lots of goods from abroad in exchange for fewer goods that we send them (a trade deficit) wouldn’t be a fantastic bargain for the US. Especially when unemployment is low. You might even wonder how that is even possible - why would foreigner’s do such a thing? You might get confused once you reflect that for every dollar sold on the foreign exchange market, a dollar must be purchased. What is going on here?
If we’re buying more goods from abroad than we’re selling, we must be selling foreigners something to make up the difference. That something would be financial assets – stocks and bonds. We’re doing that because our domestic savings is less than our domestic investment, our domestic purchases of factories, machinery, office construction, R&D. In terms of math:
Net exports == Exports - Imports = (S-I), aka the savings-investment gap.
What is savings? Savings is the difference between output and consumption. What tariffs do is reduce consumption, thereby increasing savings. You can also bring the savings-investment gap back into balance by sharply reducing investment. That happens during recession.
A President who seriously wanted to improve US competitiveness without embracing industrial policy would focus on reducing the federal budget deficit by increasing taxes and reducing spending. That would increase national savings directly. Reagan did the opposite (tax cuts, plus a military buildup), which led to a degree of de-industrialization. China’s decision to buy lots of US bonds during the 1990s and early 2000s also hollowed us out.
Other than Peter Navarro, Trump’s economic advisors probably grasp the above. But Navarro has the President’s ear, and his other advisors are chosen to flatter their mad king, tell him what they think he wants to hear.