"There is a fourth, more realistic conception of tariffs that has been effective in some key instances. Advocates of this perspective view tariffs as a shield behind which other, mainly domestic policies can work more effectively. Traditionally, trade laws have allowed countries to use tariffs to protect vulnerable sectors or regions under specific conditions, effectively supplementing domestic social policy.

An even more significant example is infant-industry protection, which has worked best when it exists alongside other instruments to incentivize domestic firms to innovate and upgrade. Some notable cases include the late-nineteenth-century United States, post-1960s South Korea and Taiwan, and post-1990s China. In each of these cases, industrial policies went far beyond trade protection, and it is unlikely that tariff barriers on their own would have produced the gains each of these economies experienced.

Similarly, green policies often require some trade barriers to make them economically and politically viable, as in the case of the European Union’s carbon tariffs and the local-content requirements of the US Inflation Reduction Act. In all these cases, tariffs play a supporting role for other policies that serve a broader purpose, and can be a small price to pay for the larger benefit.

Unfortunately, Trump has not offered a domestic agenda of renewal and economic reconstruction in any of these areas, and his tariffs will likely stand – and fail – on their own."

https://www.project-syndicate.org/commentary/trump-has-wrong-concept-of-tariffs-by-dani-rodrik-2025-01

#USA #Trump #Protectionism #TradeWars #Tariffs #PoliticalEconomy

"In 2023, the International Monetary Fund (IMF) sum­marised a number of studies that estimated the costs of geoeco­nomic fragmentation (GEF). These ranged from 0.9 per cent of global GDP under mild assumptions to as high as 8.5 per cent of global GDP under severe assumptions. There are no exact estimates to be had. These estimates should be contrasted with its biannual global economic forecast, the World Economic Outlook (WEO). The latest edition, of October 2024, penned global growth in 2025 at 3.2 per cent, unchanged from the 2024 estimate and a sliver less than the 3.3 per cent estimate in 2023. With latest economic data from the UK showing no growth and Germany faring equally badly, it is not surprising that global economic output has stagnated. Even if one were to filter out cyclical factors behind such fluctuations in output, the geoeconomic factors loom large in this story. In Britain’s case, growth has nosedived ever since Brexit and Germany’s economic travails are largely due to exorbitant costs of en­ergy. The later phase of Germany’s Wirtschaftswunder was as much about sound economic management as it was about cheap energy, most of it from Russia. Once those taps shut, the German economy caught a chill.

Among the bright spots in this bleak scenario are China and India with estimated growth rates of 4.5 per cent and 6.5 per cent respectively in 2025. There are other economies with faster growth but they do not matter for global output as their share of output in the world economy is very small."

https://openthemagazine.com/cover-stories/a-fragmenting-world/

#Globalization #Protectionism #TradeWars #PoliticalEconomy #GeoEconomicFragmentation

SPOT ON!!! You really to have to understand political economy, monetary economics, and economic history to tackle the current historical macro-scenario -

👉 "The next question is whether the protectionist policies espoused by Mr. Trump can save the people who are asking for his help. Unfortunately, the trade wars of the 1930s suggest the answer is probably “No.”

In the 1930s, the global economy was thrown into turmoil by the sharp increases in US import duties implemented in 1930 under the Smoot-Hawley Tariff Act and the retaliatory tariffs by other nations that followed. The value of global trade plunged 66% from the peak, and economies around the world suffered heavily.

The resulting economic turmoil eventually led to World War II. The US, which got through the greatest tragedy in human history by mobilizing its military capabilities, decided the world must never repeat this mistake. To that end, it introduced the system of free trade symbolized by the 1947 GATT (General Agreement on Tariffs and Trade).

This US-led free trade system produced unprecedented prosperity for humanity, but cracks began to appear when the nature of the currency market changed after the developed nations began liberalizing capital flows in 1980.

Today, just as in the 1930s, free trade is facing a potential crisis in the form of a sharp increase in US tariffs. If the authorities seriously wish to avoid this outcome, I think the nations of the world must come together and carry out an exchange rate adjustment similar to the Plaza Accord." 👈

https://www.ineteconomics.org/perspectives/blog/trump-tariffs-and-exchange-rates-the-message-of-elections-in-the-us-and-japan

#USA #Trump #Protectionism #FreeTrade #USTariffs #TradeWar #PoliticalEconomy #MonetaryPolicy #EconomicHistory
https://www.ineteconomics.org/perspectives/blog/trump-tariffs-and-exchange-rates-the-message-of-elections-in-the-us-and-japan