Economists uncover an unexpected explanation for backlash against Trump's plan
Editor's Note: The story was updated on Tuesday to include a reply from the White House.
President Donald Trump has a "wrongheaded mercantilist view of international trade,” a Johns Hopkins economist wrote for Fortune Magazine on Tuesday — and his upcoming State of the Union address will likely pander to those who share his mistaken belief that "the U.S. is victimized by foreigners, as reflected in the country’s negative external trade balance.”
“On Friday, he raged at the fresh news of his defeat by calling the high court’s justices ‘disloyal’ and immediately erected 10% tariffs on the world, revising those upward to 15% over the weekend, via social media,” Fortune’s Steve H. Hanke wrote regarding the political fallout from the Supreme Court’s 6-3 decision overturning Trump’s tariffs. “As this week has progressed, he has vowed ‘to do absolutely ‘terrible’ things to foreign countries.’”
Hanke pointed out that the 1974 Trade Act does not empower Trump to unilaterally levy tariffs, despite him falsely claiming that Section 122 grants him this authority. Setting aside the legal questions for a moment, though, Hanke also argued that it is absurd to claim America’s trade deficit is an economic problem for ordinary consumers.
“This wrongheaded mercantilist view of international trade and external accounts has its roots in how individual businesses operate,” Hanke said. “A healthy business generates positive free cash flows, with revenues that exceed outlays. If a business cannot generate positive free cash flows on a sustained basis and cannot take on more debt or issue more equity to finance itself, then it will be forced to declare bankruptcy.”
Even though a trade deficit occurs when Americans spend more than they produce, “as long as Americans can finance the deficit with ease, which has been the case since 1976, the deficits are a ‘good,’ not a ‘bad,’” Hanke explained. “This is why most economists, ever since Adam Smith’s Wealth of Nations was published in 1776, reject mercantilism and all the baggage that goes with it, including tariffs.”
The White House, in turn, disputes Hanke's bleak assessment.
“The U.S. Trade Representative comprehensively laid out in a 2025 report how America’s trading partners were systematically ripping off American workers, farmers, and industries with unfair trade barriers and tariffs," White House spokesman Kush Desai told AlterNet in a statement in response to the Fortune story. "President Trump’s trade rhetoric is backed up by a clear pattern of facts and data – and both the President and his trade team are hard at work to reverse America Last policies that have left our country behind.”
Hanke is not alone among experts in denouncing Trump’s pro-tariff policies. Last week the editors of the conservative publication National Review argued Trump’s boast “that the U.S. trade deficit had been reduced by 78 percent thanks to his comprehensive tariff regime” was undercut by the annual trade report produced by Trump’s own Census Bureau, which “reveals that the U.S. trade deficit declined by just 0.2 percent in 2025 — a far cry from Trump's figure — from $903.5 billion in 2024 to $901.5 billion last year."
Because Trump’s tariffs are hitting America’s farmers especially hard, agriculture industry advocates are likewise critical of them.
"We call on Congress to exercise its oversight role to ensure trade policy supports — not undermines — America’s family farmers and ranchers,” National Farmers Union president Rob Larew said in a statement. “Over the past year, tariffs have raised input costs, disrupted export markets and triggered retaliation against U.S. agricultural goods. In an already fragile farm economy, uncertainty has hit family operations hardest.”
The libertarian Cato Institute recently determined through a data analysis that all of tariffs enacted through Section 122 of the 1974 Trade Act, as Trump has done after the Supreme Court overturned much of his original tariff regimen, will expire after 150 days unless they are authorized by Congress. This, in theory, will put vulnerable congressional Republicans on the spot to vote for or against the president’s signature economic policy during the 2026 midterm election cycle. As this author wrote for the think tank the Progressive Policy Institute in March, historically Democrats tend to politically outperform Republicans when they focus on lowering tariffs as their own signature issue. Anti-Trump conservative commentator Charlie Sykes warned fellow commentator Matt Lewis earlier this week that this could put the Republican-controlled Congress in a serious bind.
Further compounding matters, Democrats are calling for Trump to issue tariff refunds in light of the Supreme Court overturning the taxes.
“Across the country, businesses paid billions in unlawful duties,” lawyer Neal Katyal, who successfully argued for repealing the tariffs to the Supreme Court, recently wrote. “At several points along the way, government lawyers assured judges that there would be no ‘harm’ in allowing tariff collection to continue during the appeal process because duties later invalidated could be refunded — with interest. Businesses would be made whole.”
