Dr Tarifflove
- Karl Johansson
- 7 apr.
- 4 min läsning
Or how I learned to stop worrying and love liberation day.
I see the vision behind Liberation Day. I feel a bit lonely in the European media landscape because I seem to be the only one. Perhaps I am uninformed or too eager to see a pattern in the Trumpian madness, but I genuinely do see the vision, and genuinely do agree with some of Trump’s framing of the issue. America has lost much of its manufacturing industry, and white-collar work can get a bit abstract. Replacing gig work and fast casual restaurant work with sweat of your brow industrial work is probably a good thing in terms of raising the standard of living for the American working class. And imposing tariffs while also pursuing expansionist fiscal policy, trying to keep interests low by putting pressure on the central bank, and cutting red tape make sense. I’m not crazy. There is a strategic and somewhat cohesive plan here.
The problem, as it so often is, is a man called Donald J. Trump. He has not communicated what he is trying to do clearly enough for most people to see that there is a plan here. I also wonder to what extent people like JD Vance and Oren Cass are the ones to have actually come up with the plan around the bare scaffolding that is Trump’s thinking. As I’ve said on the blog plenty of times, Trump is a big picture guy and broadly uninterested in the kind of micro and industry specific attention which was crucial to the east Asian export-led growth model Trump seems to want to emulate. The problem is not the ideas, but rather the execution.
Blanket tariffs will change trade flows, but without the details-oriented vision to focus on key strategic industries there is a risk that a manufacturing renaissance fails to materialise. Still, forecasting second and third order effects in reactive systems is notoriously difficult. The current mood of doom and gloom in the media could be wrong, and it is important to recognise that while free trade is optimal according to economic theory in aggregate there are both countries, regions, and classes which suffer or benefit disproportionally from global trade regimes. I am quite hopeful that breaking the taboo on using tariffs as part of the economic policy toolkit. For example, putting tariffs on hydrocarbons could help speed up the shift away from fossil fuels.
I also think the new world of tariffs and non-tariff trade barriers likely to arise unless Trump reverses his new trade policy is very positive for the European Union. The benefits from intra-union free trade were tempered by the fact that trade barriers were relatively low across most of the developed world. Now that is no longer the case, and thus the economic benefits to being a part of the EU are greater. Outside the union being a small and highly specialised country, like say Taiwan, becomes far more difficult if global tariffs are high, but inside the union nothing has changed.
Would the world be a more prosperous place if tariffs remained low? Undoubtedly yes. But as mentioned some states, places, and people will benefit from the new regime. The key to becoming one of those is to serenely accept the world as it is instead of clinging stubbornly to how you wish it should be. The first step to adapting and becoming a winner is to concede that free trade in its 1990’s unipolar moment form is dead and buried. Most countries in most periods of history since the industrial revolution have had significant tariffs so we should look to how they managed instead of trying to swim against the stream.
I believe that tariffs will be far worse for developing countries than for developed countries as the comparative advantage of cheap labour becomes blunted in the face of 10-50% tariffs. A country like Sweden should focus on industry for which it has direct access to natural resources, and make sure to refine natural resources domestically. It should also impose stricter taxes on highly specialised white-collar service companies to encourage the market to reallocate those valuable workers to more productive uses. It should start discriminating in domestic procurement of products for use in government to favour domestic producers. And it should encourage domestic production of simple and basic semi-conductors.
If Donald Trump was as smart as he thinks he is, he would have laid the groundwork for his tariffs by starting the process to reform the American economy to suit a post-free trade world before introducing the tariffs. The fact that he hasn’t gives the rest of us a better chance to be the first to optimise for the new world order. Trump has a vision and a strategy for his tariffs, now the rest of us have to develop one too.
If you liked this post you can read a previous post about NATO here or the rest of my writings here. It'd mean a lot to me if you recommended the blog to a friend or coworker. Come back next Monday for a new post!
I've always been interested in politics, economics, and the interplay between. The blog is a place for me to explore different ideas and concepts relating to economics or politics, be that national or international. The goal for the blog is to make you think; to provide new perspectives.
Written by Karl Johansson
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