We are moving into a protectionist world, led by the US, as in the early 1930s. Donald Trump is of course, a committed protectionist — a true successor of Senator Smoot and Representative Hawley, who instigated the infamous Smoot-Hawley tariff in 1930. But, except by Trump’s standards, Joe Biden is also no slouch when it comes to protection, most recently with his tariffs on $18bn of Chinese exports. The US tariff on electric vehicles, in particular, is to be quadrupled to 100 per cent. “Where have you been for three-and-a-half years? They should have done it a long time ago,” responded Trump. He proposes tariffs of 10 per cent on all imports, apart from those from China, on which he hopes to impose tariffs of 60 per cent. These new tariffs, he hopes, would also partially offset the lost revenue from extending his highly expensive 2017 Tax Cuts and Jobs Act.
These policies are politically appealing. The impact of tariffs on those who are harmed is relatively invisible; the victims are usually powerless; and — hallelujah! — tariffs can be justified as a way to right wrongs done by nasty foreigners. Yet they are still bad policies.
To understand this one needs to make a distinction introduced into economics in the early 1960s and justified empirically in some classic analyses of the role of trade policies in the huge success of the export-oriented development of Taiwan, South Korea and, later, China.