Does Trump's Tariff Gamble Threaten Global Economic Prosperity?

An imaginary exchange between economic masters on Trump's tariffs

To help frame the dramatic events of the past week, as the USA attempts to impose a new international trading order by fiat, I have taken an uncommon course. This is in the form of two open letters, both imaginary, arguing the tariffs but from opposing perspectives.

The first below is an imaginary letter to President Donald Trump, written as if jointly penned by three deceased masters in Economics, Ludwig von Mises, (Sept 29th 1881-10th Oct 1973) Friedrich Hayek, (May 8th 1899-March 23rd 1992) and Henry Hazlitt (November 28th 1894 -July 9th 1993).

The second letter is a response by Robert E Lighthizer, who appears to be Trump’s Tariff Tsar and, evidently, father to the strategy, but it could have just as easily been penned in a different tone by John Maynard Keynes (June 5th 1883-April 21st 1946) who believed in temporary tariffs but to assist in resolving deficit crises.

I give my own conclusion at the end of the exercise.

What is yours?

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Letter One of Two

April 2025

Donald J Trump
President of the United States (Emeritus)
Mar-a-Lago
Palm Beach, FL 33480

Dear President Trump,

As devotees of the principles of economics and a free society, we find your approach gravely misguided. Far from liberating the American people, your tariffs will erect barriers to prosperity, freedom, and reason; thus your course, if unaltered, will harm the nation you champion.

Tariffs are not tools of liberation but instruments of coercion. They distort the market’s natural order, which, as Hayek has shown, emerges impulsively from countless individual choices, not from the edicts of a single authority. Tariffs override the voluntary exchanges essential to wealth creation, forcing consumers to pay more and producers to misallocate resources. US economic and geopolitical power, even if applied temporarily to enforce renegotiation of trade, is blind to the mechanics of the global marketplace and its complex interdependencies in a myriad of supply chains that reach deep into all US domestic marketplaces. One cannot reverse this by fiat without causing great harm to the USA and to the rest of the world.

Here there is no path to greatness; it is instead a descent into fallacy. Mises’s work demonstrates that such interventions defy the logic of human action in the attempt to substitute it with your central planner’s whim for all manufacturing to be bounded within your geographical borders. This cannot substitute the price-setting machinery and wisdom of the market, which means the results will put the USA in jeopardy as it seeks to alienate itself. Hazlitt’s pragmatic lesson rings clear: you see the jobs ‘saved’ in protected industries, but you ignore the unseen losses—this is crucial; in other words, the higher costs for families, disabled exporters and a weakened global trade network, one rallying against and hostile to the USA. Your tariffs may have initial political benefits in creating a domestic victim narrative to rally the uninformed, but it cannot long last before the public, burdened by stagflation, see through it.

Your ‘Liberation Day’ is a paradox. Liberation implies freedom, yet tariffs bind the hands of entrepreneurs and consumers alike. Mises long argued that true economic strength lies in open markets, where individuals, not governments, determine what is produced and traded. Your policy, by contrast, empowers your team to pick winners and losers—a step towards the centralised control that Hayek warns inevitably leads to serfdom. We ask: how can a nation be liberated by shackling its citizens to artificial prices and diminished choices? The irony is stark; the consequences will be sterner still.

You impose tariffs to punish foreign barriers or protect domestic firms, yet the retaliation—already evident in past trade wars—slashes American exports. Farmers, manufacturers, and workers in open industries suffer, their livelihoods sacrificed for a mirage of self-sufficiency. The consumer, too, bears the burden: every dollar spent on pricier goods is a dollar lost to other pursuits. This is not wealth creation but wealth destruction, a lesson history has taught from Smoot-Hawley’s folly in June 1930, which raised historically high tariffs on 20,000 imported goods. Recall that despite more than a thousand economists’ petitioning President Hoover not to sign, he did so under domestic political pressure and lived to regret the trade war that it triggered, deepening the Great Depression.

We recognise your intent—to buttress America—but intent cannot rewrite economic law. Mises’ critique of socialism applies here: no leader, however astute, can calculate the multitudinous needs of a nation better than the market’s price signals. Tariffs, like all interventions, breed inefficiency and invite corruption, as vested interests clamour for favour. Hayek’s insight cuts deeper: such policies erode liberty itself, granting the state powers that, once taken, are rarely relinquished. What begins as a tariff today may end as a nasty burden tomorrow, the very totalitarian impulse that you rail against.

Abandon this course. Dismantle the tariffs, not in part but in full, and embrace unilateral free trade by negotiation, not by fiat. Let America lead by example, as Hazlitt urged, showing the world that prosperity flows from openness, not isolation. If others persist in their folly, their loss is our gain—our firms will outcompete, our consumers will thrive. Mises would insist that only a free market aligns production with human desires; Hayek would add that only such a system preserves the freedom you claim to defend.

Together we beseech you to reconsider your 'Liberation Day' not as a triumph of tariffs but as a chance to unleash the true potential of a free people. The correct path lies not in walls but in bridges—bridges of trade, choice, and reason.

Yours in the cause of Liberty and Truth.

Ludwig von Mises
Friedrich A. Hayek
Henry Hazlitt

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Letter Two of Two

Dear Messrs Mises, Hayek, and Hazlitt,

The arguments in your open letter, while elegant in theory, fail in the face of practical reality and the urgent needs of the American people. Your insistence on unilateral free trade assumes a world of honest players, but that world does not exist. Tariffs are not shackles but a shield—a necessary defence against a world that does not play by the free-market rules you espouse.

You decry tariffs as distortions of the market, yet the global economy is already distorted—not by our actions but by those of our rivals. China subsidises its industries, manipulates its currency and dumps goods below cost, hollowing out American manufacturing. Other nations erect barriers while we preach openness, leaving our workers and communities to bear the cost. 'Liberation Day' is correctly named: it marks our freedom from this one-sided game, restoring fairness and strength to a nation too long exploited by naive faith in unfettered trade.

Mises, you claim prices should guide us, yet foreign mercantilism rigs those prices against us. Hayek, you warn of centralised power, but what of the power wielded by Beijing’s planners or Europe’s bureaucrats, who thrive while we cling to your spontaneous order? Hazlitt, you speak of unseen losses, but I see them plainly: shuttered factories, lost jobs and rusting towns—casualties of your dogma that cheap imports enrich us all by freeing up spending elsewhere. The seen benefits of tariffs—revived steel mills, growing factories—are not illusions but lifelines to millions.

Let’s talk numbers, not theories. Since Trump’s tariffs began in 2018, US manufacturing added jobs—over 400,000 by 2020, before the pandemic hit. Steel and aluminium tariffs brought production back home. Yes, consumers pay more for some goods, but the cost is dwarfed by the gain: a stronger industrial base, less dependence on hostile powers, and a workforce with dignity restored. Retaliation, you say? China’s exports to us dwarf ours to them—our leverage is real, and they’ve blinked before.

You call tariffs coercion, but I call them negotiation. Reciprocal tariffs, as Trump proposes, force others to the table. When we match their rates—or threaten to—they lower barriers, as Mexico and Canada did. This isn’t a slippery slope to serfdom; it’s a pragmatic push for mutual openness. And if they don’t budge, we still win—our industries grow, our security strengthens. Your alternative invites predation, not prosperity.

Economics isn’t a parlour game of logic; it’s a tool for national survival. You ignore the strategic imperative: a country that can’t make its own steel or chips isn’t free—it’s vulnerable. “Liberation Day” isn’t about isolating America but about reclaiming our ability to stand tall in a tough world. Your market utopia might work in a textbook, but here, in 2025, we face real threats—long supply chains, geopolitical rivals and a middle class desperate for hope. Tariffs aren’t the problem; they’re the solution.

I urge President Trump to stay the course. Double down on tariffs where they work—targeting cheaters, especially like China—and use them to pry open markets elsewhere. The American people do not need lectures on liberty; they need jobs, security, and a future. Your principles are noble, but they are out of touch. Liberation is not free trade at all costs—it is the power to chart our own destiny.

Yours sincerely,

Robert E Lighthizer

Conclusion

Trump’s tariff shock, even if temporarily applied to force renegotiation of trade by bending the knees of the rest of the world, will have unintended consequences, none of them good. You cannot surrogate the multitudinous mechanics of trade at individual level with centralised command not without causing great harm to general economic prosperity. The shock does not reflect US strength but rather signals weakness and, if mishandled, will accelerate the timeline to the relative decline of the Colossus.

Until next time,
Eddie Hobbs