While heightened geopolitical tensions obviously are not conducive to a well-functioning global economy, it is important to recall why tensions escalated in the first place. By undermining the belief in international cooperation and advancing the view that trade is a zero-sum game, protectionism helped create today’s tensions.
NEW HAVEN – It has been puzzling to see many prominent economists decry the Trump administration’s tariffs as welfare-reducing protectionism, while approving of the Biden administration’s even more drastic steps to reshore, friend-shore, and decouple from China. In a March 2018 Chicago Booth poll of economists, 100% of respondents opposed new US tariffs; but then a largely overlapping set of respondents were skeptical of global supply chains when asked in January 2022. Only two respondents (with me being one of them) disagreed that a reliance on foreign inputs had made US industries vulnerable to disruptions.
One exception to this broader pattern is Dani Rodrik, who argued in a recent commentary that the ramifications of geopolitics are much more severe than renewed protectionism. He makes an important point; still, one must remember that protectionism was a major catalyst for today’s escalating geopolitical tensions.
The Trump tariffs both reversed a long-term trend toward trade liberalization and imposed real costs on the US economy by raising prices for US consumers and for US firms that use imported intermediate inputs from China. But Trump’s policies had little impact on global trade overall. While trade between the United States and China declined, as expected, many other countries’ exports – both to the US and to the rest of the world – increased. Trade flows were reallocated, not reduced.
NEW HAVEN – It has been puzzling to see many prominent economists decry the Trump administration’s tariffs as welfare-reducing protectionism, while approving of the Biden administration’s even more drastic steps to reshore, friend-shore, and decouple from China. In a March 2018 Chicago Booth poll of economists, 100% of respondents opposed new US tariffs; but then a largely overlapping set of respondents were skeptical of global supply chains when asked in January 2022. Only two respondents (with me being one of them) disagreed that a reliance on foreign inputs had made US industries vulnerable to disruptions.
One exception to this broader pattern is Dani Rodrik, who argued in a recent commentary that the ramifications of geopolitics are much more severe than renewed protectionism. He makes an important point; still, one must remember that protectionism was a major catalyst for today’s escalating geopolitical tensions.
The Trump tariffs both reversed a long-term trend toward trade liberalization and imposed real costs on the US economy by raising prices for US consumers and for US firms that use imported intermediate inputs from China. But Trump’s policies had little impact on global trade overall. While trade between the United States and China declined, as expected, many other countries’ exports – both to the US and to the rest of the world – increased. Trade flows were reallocated, not reduced.