1/11
If you want to understand the effects of trade intervention, its ok to ask economic historians, but never ask economists. That's because their answer will almost certainly reflect little more than their ideological position.
If you want to understand the effects of trade intervention, its ok to ask economic historians, but never ask economists. That's because their answer will almost certainly reflect little more than their ideological position.
https://twitter.com/JustinWolfers/status/1862136111239422259
2/11
Depending on their ideology, they will either only explain how trade intervention affects consumers (it lowers the consumption share of GDP) or how it affects producers (it raises the production share of GDP). They will never explain that it matters to both.
Depending on their ideology, they will either only explain how trade intervention affects consumers (it lowers the consumption share of GDP) or how it affects producers (it raises the production share of GDP). They will never explain that it matters to both.
3/11
In this interview, for example, the interviewees only discuss the short-term impact of tariffs on prices, as if this were the only possible effect tariffs could have on the economy. From there, they make the rather glib claim that tariffs will make Americans worse off.
In this interview, for example, the interviewees only discuss the short-term impact of tariffs on prices, as if this were the only possible effect tariffs could have on the economy. From there, they make the rather glib claim that tariffs will make Americans worse off.
4/11
That's not true, as even a minimal knowledge of the history of tariffs would show. It was direct and indirect tariffs that in 10 years transformed China's EV production from being well behind that of the US and the EU to becoming the largest and most efficient in the world.
That's not true, as even a minimal knowledge of the history of tariffs would show. It was direct and indirect tariffs that in 10 years transformed China's EV production from being well behind that of the US and the EU to becoming the largest and most efficient in the world.
5/11
What the interviewees don't seem to understand is that tariffs "work" by shifting income from consumers to producers. This matters because total US consumption depends not on consumer prices but mainly on production. The more Americans produce, the more they consume.
What the interviewees don't seem to understand is that tariffs "work" by shifting income from consumers to producers. This matters because total US consumption depends not on consumer prices but mainly on production. The more Americans produce, the more they consume.
6/11
The proper way to understand tariffs, in other words, is to recognize that while they shift the balance from consumption to production, the goal is to increase both by increasing production more quickly than consumption.
The proper way to understand tariffs, in other words, is to recognize that while they shift the balance from consumption to production, the goal is to increase both by increasing production more quickly than consumption.
7/11
Tariff policy is "successful" if it causes a rise in domestic production that, in turn, drags up consumption with it -- i.e. if it causes Americans to consume more by producing more. The difference between the two, by the way, is likely to show up as a reduction in debt.
Tariff policy is "successful" if it causes a rise in domestic production that, in turn, drags up consumption with it -- i.e. if it causes Americans to consume more by producing more. The difference between the two, by the way, is likely to show up as a reduction in debt.
8/11
Tariff policy is a "failure" if it fails to cause a rise in production, in which case tariffs shift the balance from consumption to production mainly by causing consumption to fall. It is in that case that consumers are worse off.
Tariff policy is a "failure" if it fails to cause a rise in production, in which case tariffs shift the balance from consumption to production mainly by causing consumption to fall. It is in that case that consumers are worse off.
9/11
Tariffs may not be an especially efficient way for industrial policy to force this rebalancing from consumption to production, but it has a long history of doing so, and it is either very ignorant or very dishonest of economists not to recognize the ways in which they work.
Tariffs may not be an especially efficient way for industrial policy to force this rebalancing from consumption to production, but it has a long history of doing so, and it is either very ignorant or very dishonest of economists not to recognize the ways in which they work.
10/11
That means that economists can oppose specific forms of tariff, but mainly on the grounds that they will not cause a rise in US production. To oppose all tariffs on principle shows just how ideologically hysterical the discussion of trade is among mainstream economists.
That means that economists can oppose specific forms of tariff, but mainly on the grounds that they will not cause a rise in US production. To oppose all tariffs on principle shows just how ideologically hysterical the discussion of trade is among mainstream economists.
11/11
That is probably why trade has become the most important economic issue about which neither the Republicans nor the Democrats (nor, it seems, many policymakers in the EU) pay much attention to mainstream economists.
That is probably why trade has become the most important economic issue about which neither the Republicans nor the Democrats (nor, it seems, many policymakers in the EU) pay much attention to mainstream economists.
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