President Trump's economic choices over the last two years have been terrible. When he wasn't busy shoveling vast piles of cash into the suppurating maw of the top 1 percent, he busied himself starting a flailing trade war with China and Europe.
However, there have been some accidental side benefits. The tax cuts provided a bit of badly needed fiscal stimulus that jolted the economy half-awake (despite being otherwise monstrous policy). And, as an Economic Policy Institute report details, his tariffs on aluminum have restored some employment and production in that sector. Whereas nearly the entire American aluminum industry had vanished between 2010 and 2017, after tariffs went up in March of this year, production is up 67 percent, three smelters have been reopened, and one has been expanded, resulting in 1,000 new jobs and $100 million in new investment.
Now, that is pretty small beer in such a huge economy. But it's an important lesson — not that tariffs are always and everywhere good, but contrary to decades of conventional wisdom, that they can be an important tool for managing trade and the economy.
After the turn to neoliberalism in the 1970s, most elites viewed tariffs as a sort of horrifying desecration of the Almighty Market. Barriers to trade of any kind, neoliberals argued, were pitiful anachronisms that should be removed across the world sight unseen. (As Thomas Friedman once said, "I wrote a column supporting the CAFTA, the Caribbean Free Trade initiative. I didn't even know what was in it. I just knew two words: 'free trade.'") With a "level playing field," self-regulating markets could work their magic, and allow nations to seek the competitive advantage their individual circumstances dictated. Thus all nations could become rich.
And sure, some tariffs have been pretty lousy or misguided. For instance, the Smoot-Hawley tariffs of 1930 at a minimum utterly failed to cure the Great Depression — and quite possibly enabled a protectionist race to the bottom that ultimately worsened the situation.
But as the world has relearned after 2008, unrestrained free trade can have gargantuan downsides as well. Unrestrained movement of goods and capital can actually be a recipe for world-shattering economic catastrophe. Just as in the gold standard days, free trade (especially of capital) under a fiat currency regime can fuel devastating financial crises just as it did in the 1920s.
Unrestrained free trade is hardly an unmitigated good. Virtually all major countries that became rich after the U.K. blazed the initial trail of industrialization did so behind tariff barriers, America very much included. Many that could not, due to imperialism, like India and China in the 18th and 19th centuries, ended up economically ruined and set back hundreds of years. Of course, it would also be wrong to set up huge tariff walls to deliberately impoverish East Asia on behalf of industries that don't even employ that many people anymore. What the world and America need is a global trade regime that allows poorer nations to get started on the development ladder, but without creating (politically disastrous) severe trade imbalances, or requiring the United States to run a gigantic trade deficit until the end of time so nations can settle their international accounts.
A world trade system like Bretton Woods (but better) would be best — but tariffs can absolutely be part of such an effort in the mean time. Trump's tariffs show they do pretty much exactly what they say on the tin: change the price structure to make domestic production more feasible. Again, one must be careful with such an effort, lest it spark reprisals that harm export industries more than they help domestic ones. But the trade deficit with China in 2017 was $375.2 billion — meaning it has much more to lose than the U.S. in an all-out trade war.
It's long since time China (and Germany, for that matter) rebalanced its economy to be less export dependent. That should be the foundation of a diplomatic effort — not a Trump-style unilateral fiasco — to create a new balanced trade regime that would benefit all parties. As John Maynard Keynes suggested, a trade system favoring neither surpluses nor deficits is a much more sensible way to structure the global economy.
The neoliberal bias that still saturates much business and economics reporting assumes that markets and prices are delicate flowers that will wither and die at the first touch of regulation or fiddling. In reality, markets are just one type of government policy. States cannot avoid regulating the economy, they only have the choice of how to do it. It's possible to make bad choices, of course. But quite often direct planning and price regulation are the way to go.