Do tariffs have any good side?
#334
Photog: Good Morning, Economist.
Economist: Good Morning, Photographer.
Photog: I want to talk to you about tariffs.
Econ: You must be watching the news.
Photog: From time to time. So, Trump has raised tariffs and promised a golden age for the US. Will it come?
Econ: Not as long as Trump is in power.
Photog: I know you don't like Trump. But can't tariffs have some good things to offer?
Econ: They "offer" rising prices and less to buy with the same income. I don't know many people who like that.
Photog: But isn't it a charming source of revenue for the state? They take the money from foreign producers.
Econ: The government may be taking the money from foreign producers, but ultimately, it's from domestic consumers.
Photog: Why?
Econ: Tariffs are taxes on certain products. If these taxes increase, the prices of those products rise. In the end, US citizens will pay for Trump's tariff policy.
Photog: And what if Trump cuts taxes elsewhere?
Econ: If.
Photog: Imagine.
Econ: Then, de facto, tax payments as a whole would not increase. The tax system would then be changed in a revenue-neutral way.
Photog: See. Would it be a better tax system?
Econ: It would presumably be a worse one.
Photog: Why?
Econ: Because it attacks the foundation on which our prosperity is based.
Photog: You are a man of big words today.
Econ: It has become so natural to us that we no longer notice what progress, and thus our prosperity, is based on.
Photog: What is prosperity based on?
Econ: On the division of labour.
Photog: Aha.
Econ: Imagine if we all lived in autonomous societies of maybe 10,000 people. No contact with other groups. Each would be on its own. Would we have glass? Electricity? Sewage treatment plants? We'd have none of that. Not even pencils. Everything is far too complicated. Too complicated to invent. Too complicated to manufacture. To complicated for 10,000 people to know and make everything by themselves. It is specialization in science and production that has made today's prosperity possible. And this specialization could only take place because millions and millions of people participate in it.
Photog: Participate in globalization.
Econ: Exactly.
Photog: With all its drawbacks.
Econ: And all its advantages. Tariffs, in any case, are the thorn in the wheels of globalization. They make what is a significant part of globalization—cross-border trade—more difficult, and in extreme cases, bring trade to a standstill.
Photog: The capitalist Trump as the destroyer of globalization.
Econ: Trump is, above all, a populist and an extremist. These people regularly emphasize two things: their own nation and their enemy images. We against the others, with the others as evil. Trump justifies his tariff policy precisely on this basis. The world has robbed the USA. That's over now, he says. Now, the USA is striking back. Initially, only with tariffs.
Photog: You fear worse?
Econ: The problem is: What if Trump’s tariff policy has exactly the effect economists expect? If prices rise, innovations decline, and prosperity shrinks?
Photog: Then?
Econ: Then Trump will bring out even bigger guns. He will construct reasons why things didn't turn out the way he promised. He won't look for these reasons in himself. Of course not. It will be the others who are to blame. And he will say that, therefore, we must now take even tougher action against these enemies. This will be stage two in the development of authoritarian systems.
Photog: And what if people see through the game? What if the majority of people conclude that populist policies sounded good but were actually bad? What if they realize they've been duped?
Econ: When will there hopefully be a change of power, hopefully without bloodshed.
Photog: How will things turn out in the USA?
Econ: I'm an economist, not a prophet.
Photog: I forgot. And I forgot that economists are known to make the worst forecasts.
Econ: I'll predict a lovely weekend for you.
Photog: Don't scare me, Economist! See you in Democracy!
Econ: See you in Democracy, Photographer!
Related: How Tariffs Work (New York Times)