Trump’s favorite word in the dictionary is “tariff”. In his view, it just needs a little public relations (PR) help. I don’t know about that. Personally, I’m not a fan of tariffs. Over the long-run, history has shown they do more harm to the economy vs help. Better PR won’t change that. However, in the very near-term (24-36 months) – they can be seen to add jobs and create benefits for the protected industry(s). From that lens, people are mistaken to believe they’re working (as that’s what’s visible). But what about the unseen? To help explain, I’ll draw on the timeless work of Adam Smith. The protectionist policies of today are not only reminiscent of those in the seventeenth and eighteenth centuries — but are arguably worse in their complexity and scale.
Tariffs: More than Just Trade Imbalances
Since Trump’s election win – it’s clear he’s willing to use access to (lucrative) U.S. markets as leverage to achieve broader objectives. And major trading partners are taking notice. For e.g., the ECB’s Chief – Christine Lagarde – has suggested European countries should look at how to avoid (new) tariffs by buying more US made goods. And South Korea is looking at buying more US based LNG. What’s clear is any potential tariffs are becoming an integral part of a larger strategy to reorient global trade relations around issues such as greater security, immigration and health priorities. That is, they’re not exclusively aimed at reducing economic imbalances.
For a full list of posts from 2017…