MW Globalization isn't over - but now it's going to make Americans poorer

By Peter Morici

Trump's tariffs can be effective only if other nations don't retaliate. That isn't happening.

President Donald Trump's tariffs and protectionism are hardly new.

For example, Presidents Ronald Reagan and Bill Clinton restricted Japanese car imports, which motivated Toyota Motor Corp. (JP:7203) $(TM)$, Honda Motor Co. Ltd. (JP:7267) and Nissan Motor Co. Ltd. (JP:7201 )to establish production in the U.S. President Joe Biden continued most of the tariffs that Trump imposed in his first administration and added other restrictions on electric vehicles and strategic products from China.

Those are just part of a growing arsenal of economic statecraft, going back to the late 18th century when a newly formed United States imposed tariffs to foster its domestic industries and finance the federal government.

Economic statecraft - a government's incentives and deterrents that shape its foreign policy - can have merit. For instance, damaging Russia's economy by limiting its oil exports is less dangerous than military intervention. Forcing China to develop indigenous semiconductor capabilities diverts resources that could be used for its naval buildup.

But nowadays in Washington, D.C., allegiance to globalization is seen as naïve. Proponents of open international markets for goods and investment to boost national economies have been marginalized. The free-trade candle is kept burning largely by mainstream economists and foreign-policy specialists at universities and policy-minded think tanks.

Multilateral and regional free trade agreements for the U.S. had the virtue of providing a yardstick to measure all domestic and foreign economic policies. Do they encourage trade and investment premised on comparative advantages and promote economic efficiency?

Now, multifaceted objectives such as quality jobs, environmental sustainability, equity and inclusion and domestic resilience are the prisms. Those may permit more desired outcomes by balancing competing social objectives but are prone to abuse and harmful outcomes.

But globalization isn't over. China is aggressively investing in mineral resources in Africa, ports in South America, EV- and battery factories in Europe and infrastructure, electronics and other manufacturing in the ASEAN region.

Meanwhile, U.S. multinationals still have about $7 trillion in foreign direct investment, and the economic output of their affiliates equals that of Brazil or Spain.

But the imperative to diversify supply chains as a result of national rivalries requires U.S. multinationals to devote substantial resources to monitoring, lobbying and compliance. These challenges raise costs and prices, which are passed on to consumers.

Trump's reciprocal tariffs, whether they stick or are just a lever to win concessions, are dangerous.

Trump's reciprocal tariffs, whether they stick or are just a lever to win concessions, are dangerous. Perhaps Trump will bully Denmark to obtain better access to Greenland's minerals and establish a U.S. military-strategic presence that blocks China from a foothold in the Arctic. But America's larger trading partners can retaliate against tariffs more easily.

U.S. Treasury Secretary Scott Bessent has argued that tariffs won't necessarily cause inflation. If the U.S. taxes imports, households will reduce purchases of other products, and presumably that will drive down prices. How will taxing food - as Trump's tariffs do - lower the price of housing?

Read: Treasury chief Bessent knows this one thing about markets that Trump is missing

Perhaps Bessent got that reasoning from Stephen Miran, chairman of the Council of Economic Advisers, who contends that the U.S. is large enough to influence import prices by how much it purchases, and can make itself better off by applying what's called an "optimal tariff."

But this works only if other nations don't retaliate. If they do, all participants become worse off than before.

The fact is, other governments will retaliate. So not only is Trump's tariff strategy naïve, it makes us poorer.

The first Trump administration argued that tax cuts would pay for themselves. Perhaps then they can explain why between 2016 and 2019 the federal budget deficit jumped to 4.6% of GDP from 3.1%.

The White House these days is full of dangerous thinking.

Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.

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-Peter Morici

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April 22, 2025 06:38 ET (10:38 GMT)

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