The author is a contributor to FT, chief economist at the American Compass, and wrote Understanding American Newsletter
The latest U.S.-China Trade Zone is a notable feature of the Trump administration’s commitment to global tariffs of 10% as a permanent benchmark. The general objection to the president's ongoing tariffs is that they are self-deceiving their burden on so-called intermediate goods. Tariffs on steel and domestic steel manufacturers may benefit, but more manufacturers using steel will suffer. From a broader perspective, tariffs on inputs reduce the “competitiveness” of output in the global market. If necessary, please tariff your iPhone, but not your tariff, but not your tariff.
The mistakes contained in this criticism have been made by free traders for a generation: Imagine a global economic economist operating on the economist’s blackboard, competitors cut each other, and capital flows to the best use. Productivity is rising, prices are falling, and everyone is thriving.
By contrast, in the real world, the global market is dominated by government-built national champions. Capital flows to the largest subsidies and the most exploitable labor force. In any case, productivity has declined in the United States, where a typical factory requires more labor to produce the same output than a decade ago.
Free traders have nostalgia for the past, when developing countries could provide their labor at a discount, subsidize their producers, and sell the output of the result to wealthy customers elsewhere. This “export-led growth” model has produced huge booming growth, most importantly relying on cheap investment. These taxes are meaningless.
This export-led road is not open to the United States today. Tariff steel, don't tariff steel - In both cases, American automakers can successfully sell American-made cars in foreign markets. Tariff chips, no tariff chips - In both cases, US-made iPhones will not reach Chinese shelves.
Theoretically elegant “comparative advantage” model in which trading partners can benefit from relative productivity through each specialized situation, and once export-led fashion is stopped. The balance of U.S. trade in advanced technology products fell from a surplus of nearly $10 billion ($2025) at the end of the Cold War to a $30 billion deficit last year. Taiwan is not the world's leading chip manufacturer because its beaches are teemed with silicon.
Fortunately, the United States is not a small developing country. So far, its domestic consumer market is the largest in the world, with imports exceeding $1TN per year. With just gaining share in the U.S. market, U.S. manufacturers may grow for years, or even decades. There, tariffs do not reduce competitiveness.
Global tariffs reward U.S. manufacturers in the domestic market, in a degree that they generate at home. It can reward foreign producers, which is the extent to which they transfer production to the United States.
Consider the example of Taiwan Semiconductor Manufacturing Corporation (TSMC), which now has a leading chip factory in Arizona. Critics say 10% of global tariffs make these factories less competitive because some materials and equipment must be imported. TSMC must pay 10% more than Taiwan pays for Arizona.
so what? Arizona-made chips will not compete with Taiwan-made chips for the "global market". They will be absorbed by American demand. Thanks to global tariffs, the Arizona factory will begin looking for domestic investment.
A more effective problem is that the U.S. market that is insulated in this way will become hardened. Of course, ending the trillion-dollar trade deficit still means importing trillions of dollars each year - hardly self-sufficient. Moreover, when its market was smaller and its trade volume was small, most of the major innovations in the last century had produced reproduction. In the era of globalization, free trade destroys free markets and progress is much worse.
The bet on tariffs is that even in the case of more limited domestic scale, the free market can provide better results than the global market dominated by the national Soviet national champions. Perhaps the free trader bet on the latter and will abandon American-style capitalism altogether before allowing such words to "protect" to "protect" the lips. What they cannot have in the modern world, no matter how ideal it is, is free trade and a simultaneous free market.