Unleash Prosperity Hotline #1240

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Unleash Prosperity Hotline
Issue #1240
04/09/2025
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1) Sorry – Tariffs Rarely Reduce Trade Deficits

We think the trade deficit is a useless statistic, but many of the advocates for higher tariffs think it matters a lot.

That's why tariff fans should pay attention to the conclusion of a new and exhaustive study by the Peterson Institute. The study examined the relationship between trade balances and average tariff rates for 137 countries across 20 years, 2000-22.

The analysis concludes:

"A 1 percentage point increase in the average tariff is associated with a 0.45 percent of GDP decline in the trade balance. In other words, tariffs are associated with increasing trade deficits."

The results were statistically significant.

The study explains that when a nation raises its tariffs, it tends to reduce its exports - so the trade deficit remains high. So Trump's tariffs may get better trade deals, but they aren't likely to make our trade "deficit" any better.

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2) House and Senate Tax Plan State of Play

Speaking of taxes, how about conservatives start cutting them?

The Senate budget that passed this past weekend is very strong on taxes, including the "current policy" baseline to sidestep flawed JTC/CBO scoring and make the 2017 tax cuts permanent.

President Trump's message to House conservatives who feel betrayed on spending is clear:

Budget hawks should realize that given the massive stock selloff, the odds of a recession have greatly increased. Among other things, that would drill a much deeper hole in the budget and worsened the deficit.

That should translate into urgency to get the tax bill passed right away to offset any negative effects of tariffs.

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3) Remember the Tax Pledge

Rumors are circulating that Republicans are thinking of raising income tax rates. We’ve pointed out this would be a Bush-like political and economic catastrophe. We will NOT support any bill that raises tax rates.

This would also be a betrayal to the voters.

Most current Republican House and Senate members campaigned on the famous pledge Ronald Reagan asked Grover Norquist to organize back in 1986, but some of them may need to be reminded of the exact promise they made to voters:

The modern Republican brand is largely built on this no tax promise: whatever other stupid, destructive things they might do, Republicans will not/must not raise tax rates ever. If they do, the Pearly Gates will be forever shut on them.

One guy who gets this point is House majority leader Steve Scalise, who put out this emphatic “hell no” on tax rate hikes. Some others in key committees have been conspicuously silent.

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4) Big Win for Trump: UK Retreats on Censorship of American Tech Companies

Here's an unexpected Trump victory: the UK is shelving its proposed ban on "harmful" online speech, out of fear that it could derail negotiations with Trump to get his 10% tariff lifted.

Prime Minister Keir Starmer has shelved plans for an Online Safety act, that would force tech companies to take down what it considered "legal but harmful" content on social media or face large fines.

Starmer reportedly feared that pushing for such a new law would derail trade talks with Donald Trump, who has correctly called the proposal "anti-free speech." Opposition leaders, such as Conservative Party leader Kemi Badenoch has called the proposed law "legislating for hurt feelings."

Bravo to Elon Musk and Vice President JD Vance who helped showcase the dangers of the Online Safety Act, by pointing out that Britain was already sending police officers to the doorstep of newspaper columnists and bloggers to cite them for vague violations of speech codes.

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5) Made In America

Some of your HOTLINE editors know Peter Navarro from way back in his days as an anti-growth California Democrat, so we enjoyed this exchange with Elon Musk:

Here’s a helpful visual reminder as to where Tesla’s are made, compared to all the other cars sold in America:

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6) Elon Derangement Syndrome

Speaking of Elon:

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