Tariffs are a very American temptation that has always ended badly. At least, when they are applied massively. As the Financial TimesIn 1828, the so-called abomination tariffs, designed to protect Northern manufacturing, nearly led to the secession of South Carolina. In the 1930s, tariffs imposed by an American administration that clearly didn't need them to protect competitive businesses—like those of today—worsened the Great Depression.
President Trump's insane tariffs, both those announced last week around the world and those imposed these days against China, are the stuff of an economic illiterate. They hurt the nation they seek to protect, which is affected directly and, indirectly, also in the rest of the world. As the former US Treasury Secretary has said, Trump's tariff policy "is the worst self-inflicted wound I've ever seen an administration impose on a well-functioning economy." And the tariffs are also the stuff of a ruthless politician, as they hit the poorest nations the hardest, which are those with the largest trade deficits with the US.
Imposing tariffs on imports has a series of negative effects that, moreover, are beyond the control of governments, even (as has been the case) if they are lifted shortly afterward. First, they trigger inflation. How is it possible that large supermarket chains, to give an example of companies affected by tariffs, don't cry foul? Some may do so, but they have little interest in saying so. And others, the most powerful, may think this could be a golden opportunity to gain market share. Those that can close large purchases from large Chinese distributors will be able to gain advantages over smaller companies. The big fish will be able to eat the smaller ones. But, in the long run, everyone will suffer, because American consumers will be unable to cope with the price increases.
Second, tariffs disrupt production chains. The vast majority of industrial products, especially the most technologically advanced ones, have components from several countries, some of which will have to be replaced. But which ones? If tariffs change every week, the optimal country to import a component changes every week.
Ultimately, tariffs trigger retaliation in the affected countries, even though they are not considered sensible policy instruments in the 21st century. As Nobel Prize-winning economist Paul Krugman, one of the leading experts on international trade, says, Americans cannot expect that if they touch the pride of other countries, they will not react angrily.
This is what's happening with China. The Asian giant has not only responded, but is signaling that it won't let up. The world's two biggest economic players are spiraling unstoppably into the abyss.
