Tariff chaos could halt 80 years of economic progress

International trade and exploration have captivated the human imagination for millennia. From Alexander the Great to Marco Polo, from the Silk Road to the East India Company, history is filled with examples of commerce redrawing the map of the known world. But for much of history, trade was shaped more by power than by fairness.

- Anne O Krueger

This began to change after Adam Smith and David Ricardo showed that tariffs are economically harmful: they raise costs for importers, divert production to higher-cost countries, discourage innovation, and foster monopolies and corruption. Gradually, Smith’s insights into the dangers of protectionism, the importance of predictable economic policy, and the rule of law prevailed.

The governance of international trade shifted dramatically after World War II, when the US emerged as a dominant economic and military power. Instead of seeking economic concessions from defeated countries, American leaders championed the creation of an open, rules-based trading system.

The multilateral trading system — institutionalised through the General Agreement on Tariffs and Trade and its successor, the World Trade Organization (WTO) — benefited the US and the rest of the world, ushering in eight decades of unprecedented economic growth. By the 1990s, even protectionist developing-country governments recognised free trade as an effective way to reduce poverty and raise living standards. Over the years, trade barriers were gradually lowered as the WTO promoted open global trade, resolved disputes, and facilitated negotiations for reciprocal tariff reductions and the elimination of other trade restrictions. Until about a decade ago, this system was widely regarded as a success.

But after Donald Trump won the 2016 US presidential election, he began to reverse that progress. During his first term, Mr Trump broke with decades of bipartisan support for free trade and launched a trade war with China. His successor, Joe Biden, was expected to restore traditional US trade policy. Instead, he retained many of the Trump-era tariffs and trade restrictions.