Advocates of free trade should articulate an alternative to US tariffs

Mint

29-04-2025

In this era of protectionism, defending globalization can feel like a losing proposition. But rather than retreat from the debate, it is more urgent than ever to spell out the costs of a trade war, which threatens to accelerate the fragmentation of the global economy because it is really a war on trade itself. To challenge the logic behind the US administration's protectionist agenda effectively, we must first understand it in clear and concrete terms.
The US tariff regime stands on four arguments. The first is that tariffs will boost government revenue and help reduce the US budget deficit, which many economists see as unsustainable. The Congressional Budget Office expects the federal deficit, currently at 6.4% of GDP, to remain above 6% through 2035, notably higher than the 50-year average of 3.8%.
High deficits could limit the ability to sustain key entitlement programmes. To prevent that outcome, US Treasury Secretary Scott Bessent has vowed to reduce the fiscal deficit to 3% of GDP by 2028, using tariff revenues as a tool. Tariffs, the argument goes, will generate revenue from imports that are exempt from federal taxes. The US government also misses out on income and corporate tax revenue that would have been collected if the same goods and services were produced in the US. In theory,
tariffs
would offset these losses.
The second argument for tariffs focuses on reciprocity. Advocates contend that while
US exports
are often subject to high tariffs and taxes, imported goods face few, if any, barriers when entering the US. Thus, equivalent tariffs would level the playing field for American producers.
Third, supporters argue that tariffs will protect domestic industries and help restore America's manufacturing base, which has been hollowed out by trade arrangements that shifted production to low-cost countries like Mexico, India and China. By incentivizing local manufacturing, tariffs will fuel re-industrialization and job growth.
Tariffs are also often portrayed as a means of rebalancing the economy and redistributing the fruits of globalization, which have disproportionately benefited capital over labour. In this view, tariffs would help restore the living standards of American workers, who have endured decades of stagnant or declining real wages.
But the case for tariffs goes beyond economic rebalancing and job creation. The US, tariff advocates argue, has grown dependent on fragile and unreliable global supply chains. Relying on other countries, including geopolitical adversaries, for critical goods like semiconductors, food and pharmaceuticals poses a national-security risk. Tariffs, in their view, are not merely about competitiveness but also about resilience and sovereignty.
Of course, these arguments largely disregard David Ricardo's theory of comparative advantage, which holds that countries should produce the goods and services they are best equipped to produce. They also diverge from today's economic realities.
Consider, for example, the claim that tariffs would boost government revenue. While that may be true to some extent, tariffs also increase the cost of imported goods, placing a disproportionate burden on lower-income households. In effect, they will harm the working- and middle-class Americans they aim to protect. Moreover, the government may collect less revenue than expected if consumers avoid imports and shift to US-made goods. Notably, such an outcome would undercut the case for tariffs as a revenue source.
Then there's the issue of reciprocity. Trump's tariffs have already triggered tit-for-tat retaliation and escalation, most notably with China, which ran a trade surplus of nearly $300 billion with the US in 2024. Beyond driving up prices, these conflicts will likely limit Americans' access to foreign-made goods, reducing consumer choice. As Amazon CEO Andy Jassy recently noted, many vendors will simply pass the added costs on to US consumers.
Meanwhile, using tariffs to protect US manufacturing requires enormous government subsidies to rebuild and support uncompetitive domestic industries. The risk is that shielding American companies from global competition will undermine their incentive to innovate and evolve, ultimately weakening long-term US competitiveness. This approach also underestimates the disruptive impact of emerging technologies like AI, which are poised to reduce demand for human labour.
Economic history offers a cautionary tale. The 1930 Smoot-Hawley Tariff Act is widely believed to have worsened the Great Depression. By stifling trade and slowing economic growth, it significantly delayed America's recovery and contributed to the global instability that preceded World War II.
Amid the ongoing debate over the merits and drawbacks of tariffs, one thing is clear: A return to the global economic model of the past 50 years is neither economically viable nor politically realistic. While identifying and dismantling the claims made by tariff advocates is a useful step, supporters of global markets and free trade must go further and articulate a credible alternative to Trump's protectionist agenda.
©2025/Project Syndicate
The author is an international economist, and author of including 'Edge of Chaos: Why Democracy Is Failing to Deliver Economic Growth – and How to Fix It'