Whether Trump's Tariffs Will Aid or Harm the US Is Far From Clear

Indiscriminate tariffs that don't fit into a larger strategy can hurt the barrier-erecting country more than its trade partners

- DANI RODRIK

The world economy awaits with dread the arrival of Donald Trump's trade tariffs. Trump clearly loves import duties and has promised to raise them for goods from China, Europe, Mexico and even Canada. How much havoc this will wreak depends not just on the tariffs' scope and magnitude, but also on the purpose to which they are put.

Economists dislike tariffs for a variety of reasons. Like all barriers to market exchanges, they create inefficiency: they prevent you from selling me something I value more than you do, leaving both of us worse off in principle. Economic theory does recognize that this inefficiency can be offset by gains elsewhere. For example, tariffs can do some good in the presence of infant industries, knowledge spillovers, monopoly power, or national-security concerns.

Even then, economists will argue, tariffs are a blunt instrument. After all, an import tariff is a specific combination of two different policies: a tax on consumption of the imported good and a production subsidy for its domestic supply, at equal rates. Any economic or non-economic objective can be met more effectively by deploying these policies separately and at customized rates, targeting them at desired outcomes more directly. To economists, tariffs are a pistol aimed at one's own foot.

Trump's view could not be more different. In his imagination, tariffs are like a Swiss Army knife, a tool that can simultaneously fix America's trade deficit, enhance its competitiveness, foster domestic investment and innovation, shore up the middle class and create jobs at home.