President Trump’s new favorite word is “tariffs.” Like a kid with a new shiny toy, he seems fascinated and has declared that “tariff” is “the most beautiful word in the dictionary.”

As is often the case, Trump’s loose use of language complicates understanding. But there seems to be several things at work in his fascination with tariffs and promise to impose massive taxes on virtually all U.S. imports, about $4 trillion a year.

Trump's fixation on tariffs appears motivated in large part by the U.S. trade deficit — that is, the fact that we buy more from our international partners than we sell to them. There are multiple reasons for this, and trade deficits reflect U.S. consumers enjoying the benefits of foreign goods.

Obviously, a completely balanced trade with every nation is impossible, and the comparative advantage that drives international trade is a boon to all trading nations, making all of us wealthier. But when foreign government policies promote the trade deficit, it is unfair to American workers and a cause for serious concern.

Increasingly, Trump is fixated on other nations’ value-added taxes as the real source of the deficits (although he sometimes simply mislabels them as tariffs). And foreign value-added taxes do pose a serious economic challenge for American companies.

Value-added taxes are common around the world; they are a type of consumption tax, similar to a sales tax. The difference is that they are collected at every level of production, not just final sale.

For example, a company making bikes might buy $50 of metal and parts and sell the bike to a wholesaler for $100. Having added $50 in value, a 10 percent value-added tax would charge $5. When the wholesaler sells to a retailer for $150, the wholesaler also pays $5. When the retailer sells to a consumer for $300, having added $150 in value, the tax is........

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