Some assert that the U.S. #economy gained little from the McKinley tariffs of the late 1890s, suggesting they may have impeded labor productivity in manufacturing. These critics argue that if the U.S. were to implement #tariffs or similar trade interventions today, the effects could likewise harm economic performance. However, as @michaelxpettis highlights, this perspective repeats the mistake of applying the same blanket interpretation to tariffs, much like historical debates over the Smoot-Hawley tariffs of 1930. This view treats tariffs in absolute terms—either invariably detrimental to the economy or inherently beneficial. Yet tariffs, in reality, are simply one of many industrial and trade tools that, akin to #currency devaluation, work by redistributing income from households (the net importers) to producers (the net exporters).

In economies with persistent trade surpluses—where national saving outpaces investment—trade surpluses function to address weak domestic demand. In these cases, policies that further depress domestic consumption and amplify saving are unlikely to be beneficial; in fact, such economies generally require policies that boost domestic demand. This is why many economists, for instance, recommend that #China pursue policies that increase the consumption share of #GDP, effectively reducing the savings share. In practice, this would mean reducing tariffs and strengthening the renminbi. In the other hand, in economies with trade deficits, the impact of tariffs could be markedly different. By pushing up the national savings rate, these economies might channel savings into greater investment and growth or achieve the same growth trajectory with a reduced dependency on debt.

During 1900 and 1930, the U.S. had run significant trade surpluses for decades, so it is unsurprising that increasing tariffs in those contexts offered limited economic benefit. Countries with surpluses typically require opposite measures. Today, however, the U.S. has been running considerable deficits for roughly 50 years, so it stands to reason that policies which prove effective under one set of economic conditions may not be suitable under opposite circumstances.
#economy #tariffs