The lie at the heart of Trump’s entire economic agenda

With his tax agenda finally passed, President Donald Trump has turned back to his true passion: making America poorer and more geopolitically isolated for no good reason.

Last week, he threatened 25 of America’s trading partners with punishing tariffs, unless they present him with an agreeable trade deal by August 1. These represent a modified version of the levies that Trump unveiled back in April and then delayed shortly after.

He separately imposed levies on various other foreign goods, including fresh Mexican tomatoes, which went into effect this week. America’s average tariff rate now sits at 20.6 percent, its highest level since 1910.

All these taxes on foreign imports are already pushing up costs for US consumers: The prices of home furnishings jumped 1 percent in June, while those of appliances rose 1.9 percent, far outpacing the costs of goods unimpacted by Trump’s tariffs. Meanwhile, core US allies have begun contemplating the formation of an adversarial economic bloc.

Trump ostensibly believes that his tariffs’ benefits will outweigh these harms. But this conviction rests less on reasoned thought than whimsical intuition.

Indeed, rebutting Trump’s theory of trade can feel a bit like refuting a child’s supposition that the moon is made of cheese. It isn’t hard to find reasons for doubting that the night sky is lit by a ball of mozzarella. But there are so many problems with that notion — astronomical, agricultural, and otherwise — that it’s difficult to know where to begin.

Trump’s trade agenda is similarly premised on a vast array of misunderstandings.

For one, Trump contends that anytime the United States runs a trade deficit with another country, our nation becomes poorer. In his mind, if we buy more stuff from Cambodia than it purchases from us, then we’ve lost money on that relationship, which means that we’ve been ripped off. But this is silly. Money is desirable because it can be exchanged for goods and services. Refusing to ever trade dollars for groceries might leave you with a higher bank balance. But doing so would not render you more prosperous in any meaningful sense: Few would rather subsist on backyard produce and roadkill than run a “trade deficit” with Costco. Mutually beneficial transactions exist.

Further, the president’s trade strategy reflects confusion about the needs of US goods producers. Trump’s policies are officially meant to boost American manufacturing. Yet he is imposing enormous tariffs on the industrial inputs — such as copper and steel — required by US producers of appliances, electronics, cars, and other valuable goods.

But Trump’s tariffs also rest on a somewhat more novel myth — one that simultaneously undergirds his immigration and fiscal agendas.

Let’s say that Trump was correct about almost everything: All of America’s trade partners have been conspiring to steal our jobs, and his tariffs will swiftly bring back copper mining, sneaker production, and the manufacturing of myriad other goods.

Even then, his policy would still be at odds with a fundamental reality: America does not have a large pool of idle workers eager to take jobs in new mineral mines or textile factories.

America’s unemployment rate sits at just over 4 percent, near historic lows. And the percentage of prime-age Americans in the labor force is 83.5 percent, just off all-time highs.

Therefore, if Trump’s exorbitant tariffs force us to supply a much larger share of our own copper, sneakers, steel, aluminum, and lumber, then we would need to produce less of something else: Since we don’t have a large pool of extra labor, existing US firms would have to forfeit workers to these new enterprises.

This would generate shortages and inflation, at least in the near term. To take just one example, the more American workers needed to sate our economy’s demand for minerals, the fewer available to meet its need for childcare, pushing the price of such care upward.

The White House is conscious of this labor shortage problem, perhaps because it also bedevils its case for mass deportation: If you exile undocumented farmworkers en masse, their replacements need to come from somewhere.

Administration officials have offered a variety of (ludicrous) explanations for why America can dispense with the labor of foreigners and immigrants. Treasury Secretary Scott Bessent has suggested that our nation can staff its new factories with laid-off federal bureaucrats. It seems unlikely, however, that many former NASA scientists or ex-IRS agents will enter America’s hypothetical, future textile mills. It is also hard to conceive how this would be an economically sound use of their respective skills.

Bessent has also suggested that America won’t need to redeploy that many workers to manufacturing and mining, as automation and artificial intelligence will enable us to dramatically increase labor productivity. This answer is more coherent. But you can’t yet produce robotized copper mines or steel mills by snapping one’s fingers. And in any case, Trump himself does not actually seem to support accelerating automation. To the contrary, he backed US dockworkers’ fight against further roboticization of America’s ports.

But the administration has another answer to its agenda’s labor challenges: We can simply throw low-income people off their health insurance. Conveniently, Republicans have already done precisely that by appending work requirements to Medicaid.

Agriculture Secretary Brooke Rollins floated this vision for labor force expansion last Tuesday. “There will be no amnesty. The mass deportations continue, but in a strategic way,” Rollins told reporters in Washington, DC, saying that the nation would move to “100 percent American participation, which, again, with 34 million people, able-bodied adults on Medicaid, we should be able to do that fairly quickly.”

The idea here is that tens of millions of Americans have been choosing not to work, since the government was giving them subsidized health insurance with no strings attached. After all, if you can get free blood tests once a year, what incentive do you have to hold a job?

As compelling as this argument might be in theory, it doesn’t hold up in practice. According to an analysis from the Kaiser Family Foundation, only about 2 million prime-age, “able-bodied” Medicaid beneficiaries were jobless due to “retirement, inability to find work, or other reason” in 2024. Another 3.1 million were unemployed due to caregiving responsibilities.

It’s not clear whether conservatives think that all these caregivers should be working (often, the right suggests that mothers of young children should be staying home). But even if we posit that every parent on Medicaid belongs in the workforce, then that still brings the total number of jobless, nondisabled Medicaid recipients to just 5.1 million.

Furthermore, it is not actually true that taking health insurance away from persistently jobless Medicaid beneficiaries causes them to join the workforce. As the Congressional Budget Office (CBO) reported in 2023, state-level Medicaid work requirements have failed to increase employment or hours worked among enrollees.

Finally, even if imposing work requirements on Medicaid improbably forced 5.1 million Americans into the job market, there is no evidence that a substantial share of those people would be willing and able to work in agriculture, mining, or manufacturing. For one thing, these people don’t necessarily live near major US farms or promising sites for future factories and mines. For another, they don’t necessarily possess the requisite skills or physical aptitudes required for strenuous, manual labor.

The notion that there are tens of millions of American workers ready to take the place of foreign workers or fill newly created manufacturing jobs, as soon as Uncle Sam kicks them out of their welfare hammocks, is fantastical. Yet this fiction serves to rationalize the administration’s trade, immigration, and fiscal agendas simultaneously. So we’re probably going to keep hearing about it.

Trump may not share his administration’s cynicism on this point. It’s not clear that he even recognizes that his autarkic fantasies pose labor force challenges. What seems certain, though, is that he has not subjected his intuitions about trade to critical scrutiny. And he is not interested in doing so. As a result, the US government is deliberately driving up America’s consumer prices and fraying its geopolitical alliances, for the sake of utter nonsense. It would probably be less destructive — and only a bit more embarrassing — if the president believed that the Earth is orbited by a slice of provolone.