At World War II’s end, the USA initiated policies to rehabilitate the devastated economies of Europe and Japan by reducing or eliminating tariffs on imports from those countries.

Over the ensuing 80 years, the economies of those countries rehabilitated themselves. During that same period, those countries also instituted policies to discourage exports from the USA.

Consequently today, the US faces trade barriers when we export, but allows almost unfettered access to the US consumer via imports. Taken together, these policies create an annual trade deficit in excess of $1.2 trillion.

In 2005, Warren Buffett created an allegory to represent the situation faced by the USA.

Think of the USA as a very large, productive farm with its population living and working on it and deriving its income and wealth from it.

The annual trade deficit of $1.2 trillion necessitates the annual sale of a small piece of the family farm. These sales make the family farm smaller and less capable of supporting us. This is not sustainable.

Further, manufacturing jobs were exported and related USA factories permanently closed — injuring the middle class. We are not as self-sufficient as we were at World War II’s end.

With China’s emergence as an adversary in political and military terms, the USA must break its dependency on China. It is a national security issue.

The USA did the right thing after World War II. US trade policy encouraged foreign imports to us and discouraged our exports to them in order to facilitate the rebuilding of Japan, Germany, and our Allies.

That job was successfully completed decades ago! It is entirely reasonable for the USA to reset the terms of trade to a fairer basis.

It is also understandable that each foreign country is resisting and objecting to this resetting of our terms of trade because it’s not easy for them to see this charitable gravy train end.

The USA has a problem. Its post WWII generosity in trade accomplished a noble goal. However, that generosity now requires that we sell about $1.2 trillion of our family farm every year. We simply cannot afford to do that anymore.

The administration’s trade initiative forces foreign countries to reduce their tariffs on our exports to them and eliminates quotas and artificial trade barriers on our products. Both of these actions will level the playing field.

Further, the administration proposes a 10% tariff on all imports to the U.S. As the USA is the largest market in the world, think of this tariff as a cost of accessing the U.S. consumer.

Also, to restore manufacturing jobs in the U.S., the administration will provide tariff exemptions and income tax breaks to foreign companies who build new factories in the U.S..

In summary, the trade deficit could decline substantially, tariffs could generate significant revenue to reduce our budget deficit, and new plants will jumpstart a manufacturing renaissance in the U.S.

This strategy represents the most thoughtful and innovative use of tariff and tax policy in my lifetime.