The writer is an FT contributing editor, chief economist at American Compass and writes the Understanding America newsletter
A notable feature of the latest US-China trade détente is the Trump administration’s apparent commitment to the 10 per cent global tariff as a permanent baseline. The common but peculiar objection to the president’s ongoing tariffs is that the burdens they place on so-called intermediate goods are self-defeating. Put a tariff on steel and the domestic steelmaker might benefit, but the many more manufacturers that use steel will suffer. More broadly, tariffs on inputs reduce the “competitiveness” of outputs in the global marketplace. Tariff the iPhone, if you must, but not its chips and screws and screen.
The error contained in this critique is the same one that free-traders have been making for a generation: imagining a global economy that operates like the friendly free market on the economist’s blackboard in which competitors sharpen one another and capital flows to its best use. Productivity rises, prices fall, everyone flourishes.