What are tariffs good for?For years, mainstream economists have basically said: tariffs are not good. They are an import tax paid by consumers, they've said, and they discourage free trade, and we want more! Because free trade has broadly led to more global economic growth.But global trade hasn't been all positive for Americans, and in the worldview of President Trump's administration, tariffs can be used to right some of those wrongs. And the U.S. has economic leverage. So if the U.S. wants to level the playing field, it should use that leverage, and use tariffs to accomplish its policy goals.Today on the show: the case for tariffs. We talk to a lonely economist who's been sounding the alarm for years that more and free-er trade isn't always better. And we speak to economists in President Trump's orbit who make the case for how tariffs can be a potent economic and political tool.This episode was produced by Willa Rubin and edited by Meg Cramer. It was fact-checked by Sarah McClure and engineered by James Willetts. Alex Goldmark is our executive producer. Find more Planet Money: Facebook / Instagram / TikTok / Our weekly Newsletter.Listen free at these links: Apple Podcasts, Spotify, the NPR app or anywhere you get podcasts.Help support Planet Money and hear our bonus episodes by subscribing to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney.Music: Universal Music Production: "Funky Reverie" and "With It;" Audio Network: "Slush Puppy Soul."Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy
Chapter 1: What is the significance of April 2nd in US tariff policy?
Today is a big day. For weeks, we have been hearing about April 2nd. The Trump administration had promised that today would be the day that they put new tariffs on goods coming in from, I don't know, maybe every country in the world.
This is one of the most important days, in my opinion, in American history. It's our declaration of economic independence.
The looming tariffs had sent chills down the spines of many economists around the world.
Because tariffs, they're an old economic tool that many economists have disliked for a very long time. They're basically an import tax paid mostly by consumers.
And for centuries, they've been used to make a country's population buy its own stuff instead of another country's stuff.
But economists generally prefer more and freer trade because it means more competition, lower prices, economic growth. A bedrock theory in economics is the theory of comparative advantage, that basically countries can specialize in different things, and through trade, we can all, in the aggregate, get richer.
But surely, tariffs have been useful ever, or they wouldn't exist, right? Right? Hello and welcome to Planet Money. I'm Mary Childs.
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Chapter 2: Why do some economists support tariffs despite widespread opposition?
And I'm Greg Rosovsky. Today on the show, the case for tariffs. What can they be good for?
We talk to an economist who has been making the lonely argument for protectionism for the past 30 years.
And we hear how tariffs fit into President Trump's economic worldview from two economists in the orbit of the Trump administration.
So tariffs, we have long heard from economists about how and why they are bad. Today, we investigate what they can actually do, what they can be good for.
And yeah, economists have always acknowledged that free trade has trade-offs, that, you know, there will be losers in the face of foreign competition. But for a long time, the dominant voices in the profession made the case that those trade-offs were really worth it. Top lawmakers in both parties in the U.S. really bought into this idea that, you know, free trade would be great for America.
And they really pushed it for the rest of the world.
And through the decades of that argument, there's been an economist who argued that the dominant voices in economics were wrong. That free trade actually sometimes held countries back and protectionism could help make them richer.
Hi, I'm Hajun Chang. I'm professor of economics at the University of London.
Ha-Joon Chang wrote a book called Kicking Away the Ladder in 2002 about how rich countries used protectionist policies like tariffs back when they were developing and then told everyone else they couldn't do that. They had to do free trade.
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Chapter 3: How did Hyundai use tariffs to become a global car manufacturer?
My favorite example is Hyundai, the automobile company.
When Ha-Joon was a little kid growing up in South Korea, Hyundai was not yet an automobile company.
Hyundai originally was a construction company, but sometime in the late 60s, this company decided that they want to build an automobile manufacturing business.
So first, Hyundai had to figure out how to make a car. Hadjoun says it started by placing an order with Ford for something called a knockdown kit, which is just a big wooden box full of all the parts you could ever need to build one car. The box arrives, you open it up, and it's just full of car parts, large and small. A door, a bolt, two headlights.
They assembled two. Around 3,000 of those cars in the late 60s. And then in the mid-70s, South Korean government said, we are going to cancel the license for automobile manufacturers unless they come up with their own design.
Yeah, the government was like, actually, we want our car industry to be real companies, global players. Assembling a Ford car is not our end goal here. Can you level up a little bit?
So Hyundai had to come out with their own design. In 1976, it made the Hyundai Pony. It was the first Korean passenger car. They made around 10,000 of them in a year.
In the same year, Ford produced 1.9 million cars. General Motors produced 4.8 million cars.
So they had a ways to go, and they got a lot of help.
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Chapter 4: What is the infant industry argument for tariffs?
Hyundai is now one of the biggest car manufacturers on the planet.
And this is a canonical example of what's called infant industry protection.
So this is an idea that the government of a developing nation should protect and nurture the country's young industries until they grow up and can compete with more advanced industries from more advanced nations. In the same way that we protect and nurture children until they grow up and then can compete in the other labor market.
Right. Like a country uses tariffs to support a sweet little baby industry to protect it from the harsh world so it can safely grow bigger and stronger.
And then, as we do with children when they grow up, we remove that protection.
In the same way that you don't want to make your kid work when he's six years old, you don't want to subsidize your kid until he's 45. So at some point, you have to push the guy into the real world.
And that's what South Korea did. It eventually took off the tariffs and the import ban and the subsidies.
Right, the idea behind infant industry tariffs is they have to be temporary, or you're just propping up a company that's inefficient and can't be successful on its own. And along the way, wasting a lot of taxpayer money and societal resources that could be put to better use.
This idea was actually invented by an American, and not just any American. It was invented by Alexander Hamilton, the guy on the $10 bill, your first treasury secretary, yeah?
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Chapter 5: When are tariffs justified for national security?
Over the last 10 years, more economists have come around to Ha-Joon's way of seeing tariffs and protectionist policies.
Now things are, yeah, I wouldn't say it's going in the opposite direction, but more complicated.
So Ha-Joon Chang's lonely argument? It's less lonely. A lot of economists agree now. Infant industry, national security, sure, tariffs can maybe help. But the Trump administration has more ideas. We get into that after the break. OK, so tariffs could be useful for infant industry protection, for national security interests and to combat unfair trade practices.
President Trump is now imposing sweeping tariffs in all sorts of areas and on all sorts of countries. He does talk about things like national security and unfair trade practices, but his approach to tariffs feels like it's about something bigger than that. And it's all part of this particular worldview that seems to be shared within Trump world and also outside of it.
That the costs of free trade, they were too high. That free trade devastated communities around America.
And the economics world has really woken up to this over the last decade or so. There's this series of blockbuster studies on something known as the China shock. The shock happened when China joined the World Trade Organization in 2001.
There's been a distinct drift in the academic literature that every year new stuff comes out that the China shock was worse and worse than we thought.
That's Mark Summerlin. He's an economist, consultant, and longtime friend of Trump's treasury secretary.
We just basically added suddenly like a billion people to the global workforce. And it really gutted a lot of things. And we were too slow to realize it.
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Chapter 6: How have economists' views on tariffs changed over the last decade?
He says that China got a bunch of manufacturing jobs and the U.S. got cheaper imports, but the people who lost jobs in the United States didn't bounce back. They didn't get new jobs. The China shock created like these mini depressions in towns around the country.
Now we have massive trade deficits with China and other countries where we're importing way more than we export. Trump world sees this as a huge economic problem and tariffs as a solution, one that will help correct the trade imbalances and bring back manufacturing jobs.
The way that the Trump administration looks at it, especially with something like China, is no, it's a bad deal. And China gets jobs and we get like bad Chinese goods that last for a year and then we throw them out. And so you can see why people would say, you know, maybe we would prefer to have jobs and be building assets rather than getting all this excess consumption.
One of the big goals of free trade policies has been to lower prices, but the trade-off was a huge loss of manufacturing jobs. And manufacturing jobs maybe have something kind of magical about them. For example, a lot of economic research has shown that manufacturing jobs provided ladders to the middle class for people without a college education.
So the administration's idea seems to be to choose a different tradeoff, to accept higher prices with the hope of eventually bringing back some of those good jobs.
If Christmas decorations coming in from China suddenly cost 25% more, I feel that you're going to see people suddenly rev up and start producing them here.
Judy Shelton is an economist and senior fellow at the Independent Institute, a think tank.
Because we have Etsy. We have people can sign up for Amazon. I think Americans are quick to recognize an opportunity.
Judy has been making the case for correcting the U.S. trade imbalance for years. In his first term, Trump nominated her for the Federal Reserve Board of Governors. She did not get confirmed. A bunch of economists and Fed employees wrote letters saying her views were extreme and too partisan on monetary policy.
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