Liberation Day Should Focus on Genuine Economic Liberation
Economic liberation comes from less government, not more
Today is the day the President has labeled “Liberation Day,” which will be marked by the President imposing another round of sweeping tariffs on imports into the United States. The specific countries and goods affected will be announced today, but the measures are likely to include a 25% rate on motor vehicles and vehicle parts, along with taxes on agricultural products and reciprocal tariffs on other goods.
This is on top of tariffs imposed on $430 billion of goods from China in February, up to $489 billion on goods from Mexico and Canada in March, and the 25% tariff rate on steel and aluminum imports.
It is very difficult to see how raising taxes on American businesses and consumers is going to “liberate” anyone. We know from an abundance of economic literature that American firms and consumers ultimately bear the cost of taxes on imports. American businesses directly pay import taxes to the US government, while consumers end up paying higher prices for goods as firms raise prices to cover the additional cost.
It is also difficult to see how the trade war has liberated American consumers so far. Retirement accounts, pensions, and personal savings have taken a direct hit as confidence has evaporated in the face of declining economic fundamentals. The S&P 500 has lost over $4 trillion in market value.
Hopes for economic abundance and a thriving economy have dimmed as real GDP is forecast to come in at almost negative 4% for Q1—a contraction that signals serious economic distress. Meanwhile, consumer sentiment about the economic future has dropped off a cliff as consumers expect worsening business conditions and higher risks of unemployment and inflation.
Notably, the last quarter of economic growth for 2024 was recently revised up. This reflects the boost in the economic outlook that occurred as the new administration was set to unleash economic abundance. This economic abundance agenda should be the focus of policymakers, not pointless trade wars.
To truly liberate the U.S. economy, policymakers should refocus their attention on genuine economic liberation. Liberating American taxpayers from a complex, convoluted, and overly burdensome tax code would be a great place to start. Taxpayers collectively spend some 8 billion hours a year complying with tax requirements, with total compliance costs of almost $600 billion.
The United States is at a comparative disadvantage when it comes to tax complexity—our tax code is 4 times longer than those of our Canadian neighbors, and 20 times longer than some European nations. Lawmakers engaged in renewing the expiring provisions under the Tax Cuts and Jobs Act should use this opportunity to simplify our tax code, lower rates, and broaden bases. Pro-growth tax reform would offer a much-needed boost to our economy.
Another way that this administration can engage in genuine economic liberation would be to unleash the private sector from the burdens of regulatory accumulation. By issuing Executive Order (EO) 14219, the President has already made a great start in rolling back regulatory excesses. While helpful, EOs alone won’t be enough to achieve a major rollback in the long run—that requires congressional codification to prevent future administrations from repealing these efforts.
A third but by no means final option for economic liberation would involve the pursuit of energy abundance. The President championed the “Drill baby drill” rallying cry during this election campaign. The administration could deliver on the promise to “unleash American energy” by tackling the regulatory and permitting regime that punishes builders, as well as the monopoly protections at the state level that prevent entrepreneurs from offering new solutions.
However, the opportunity for energy abundance is already facing serious challenges, which brings us back to the ongoing trade war. Last week the Federal Reserve Bank of Dallas surveyed the energy sector. A representative of a Texas-based oil and gas firm noted the following:
“The administration’s chaos is a disaster for the commodity markets. . . Tariff policy is impossible for us to predict and doesn’t have a clear goal. We want more stability.”
A genuine “Liberation Day” would mark a break from the current economic self-sabotage, not an embrace of it. Economic liberation does not come from yet more government intervention in markets but from reducing the barriers that hold back economic dynamism and abundance.