Ron Paul to Trump: Tariffs won't help US economy because they're really just hidden taxes on consumers

  • If threatened U.S. trade tariffs against China go into effect, they'll hurt working Americans, Ron Paul says.
  • Trump needs to stop "blaming a free market and capitalism" for trade imbalances, says Paul, the former congressman and presidential candidate.
  • Paul also warns of a looming debt crisis due to government overspending and easy Fed money.

If threatened U.S. trade tariffs against China go into effect, they'll hurt working Americans, Ron Paul told CNBC on Monday.

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.

Paul warns of debt crisis 

Paul blasted Washington for overspending and the Federal Reserve for artificially holding interest rates low through easy money policies.

The nation "spends way beyond its means" and it's been "facilitated by a central bank that prints the money," said Paul, a longtime deficit hawk and Fed critic.

Paul also blamed ballooning entitlement programs, such as Social Security and Medicare, for fueling what he believes will be an eventual debt crisis. "Unfortunately, from my experience in Washington, they will not deal with it. I think it will lead to a very, very destructive system."

However, in a Washington Post op-ed by five former leaders of the White House Council of Economic Advisers under Democratic presidents, argued that entitlement spending is not the real problem.

The authors of the commentary — including Janet Yellen, who led the CEA under President Bill Clinton and most recently served as Fed chair — wrote: "The deficit, of course, reflects the gap between spending and revenue. It is dishonest to single out entitlements for blame. The federal budget was in surplus from 1998 through 2001, but large tax cuts and unfunded wars have been huge contributors to our current deficit problem."

Sign Up for Our Newsletter Morning Squawk

CNBC's before the bell news roundup
Get this delivered to your inbox, and more info about about our products and services.
By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.