President Donald Trump needs to stop "blaming a free market and capitalism" for the U.S. trade imbalances with China and other nations, said Paul, a former 12-term GOP congressman from Texas and three-time presidential candidate.
"If we can't compete then we have to say, 'Why can't we compete?'" he said.
But trying to fix decades of "mismanaged" trade with tariffs is the wrong approach, Paul argued on "Squawk on the Street."
"A tariff can't fix this. A tariff is a tax and the tax is on the people who live in the country who raises it," he said. "People that might be enjoying $25 tennis shoes will have to pay $100. That doesn't help anybody."
Earlier Monday, White House economic advisor Larry Kudlow told CNBC the tariffs announced by Trump last week are just a proposal. Kudlow, formerly a CNBC senior contributor and ex-Wall Street economist, said he hopes it brings China to the negotiating table to reconcile "decades of misdeeds" on trade.