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When Donald Trump imposed sweeping tariffs during his first term as US president, it sparked a trade war with China. As the Trump administration ratchets up its threat to tax imports from its allies and economic rivals alike, the world is bracing for another wave of costly economic disruption.
This protectionist shift is all the more remarkable given how the US championed trade liberalisation for decades.
So what does it actually take for a country to use protectionism to grow its economy? Some developing countries have successfully used tariffs to do so, while others have struggled. In this episode of The Conversation Weekly podcast, we talk to Jostein Hauge, a development economist at the University of Cambridge, about who wins and who loses from tariffs and protectionism.
The main argument against taxing imports through tariffs is that the higher costs of imported goods will be passed onto consumers. The main argument in favour is that tariffs can help to protect a country’s domestic economy, explains Hauge:
By using tariffs, you can, if they are used effectively, and if they’re successful, help domestic firms become better at producing what they’re producing and eventually become competitive in the world economy. Sometimes that’s successful, other times that’s not successful. It can also be an effective way of raising taxes, especially for countries that don’t have a lot of tax revenue, especially developing countries.
A number of developing countries successfully used tariffs and other forms of protectionism to grow their economies in the 1950s and 1960s, as Hauge explains:
South Korea gradually went from being a low-income, low-tech economy towards becoming extremely important players in global industries like electronics, automotive and steel.
The US has also used tariffs throughout its history, with varying degrees of success. It was the most protectionist country in the world in the 1800s, using tariffs to grow its economy. But the Smoot-Hawley Act in 1930, which introduced a range of taxes on imports to the US, actually contributed to worsening the Great Depression.
From the 1970s, however, the US aggressively pushed for trade liberalisation and backed the creation of the World Trade Organization in the 1990s. That’s why Hauge says the current return to US protectionism, which began during the first Trump administration and continued under Biden, “reeks of hypocrisy”.
When rich countries were ahead in the 1970s, 1980s and 1990s, it made sense for them to preach the virtues of free trade to the rest of the world. That is also why we’re seeing this protectionist turn right now, especially in the United States, but also to some degree in Europe, because now certain countries are starting to become competitive once again. In particular, China is now challenging the economic power of the United States, especially within a lot of manufactured goods, so the United States is now turning away from this doctrine of free trade, saying actually protectionism is useful.
Listen to the conversation with Jostein Hauge on The Conversation Weekly podcast, which also includes an introduction from Tracy Walsh, economy and business editor at The Conversation US.
This episode of The Conversation Weekly was written and produced by Mend Mariwany with assistance from Katie Flood and Gemma Ware, Sound design was by Michelle Macklem, and theme music by Neeta Sarl.
Clips in this episode from CNN, Bloomberg Television, BBC News, CBS News and NBC News.
Listen to The Conversation Weekly via any of the apps listed above, download it directly via our RSS feed or find out how else to listen here.
Jostein Hauge does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
