It has been puzzling to see many prominent economists decry the Trump administration's tariffs as welfare-reducing protectionism while approving of the Biden administration's even more drastic steps to reshore, friend-shore, and decouple from China.
In a March 2018 Chicago Booth poll of economists, 100% of respondents opposed new US tariffs; but then a largely overlapping set of respondents were sceptical of global supply chains when asked in January 2022. Only two respondents (with me being one of them) disagreed that a reliance on foreign inputs had made US industries vulnerable to disruptions.
One exception to this broader pattern is Dani Rodrik, who argued in a recent commentary that the ramifications of geopolitics are much more severe than renewed protectionism. He makes an important point; still, one must remember that protectionism was a major catalyst for today's escalating geopolitical tensions.
The Trump tariffs both reversed a long-term trend towards trade liberalisation and imposed real costs on the US economy by raising prices for US consumers and for US firms that use imported intermediate inputs from China. But Mr Trump's policies had little impact on global trade overall. While trade between the United States and China declined, as expected, many other countries' exports increased. Trade flows were reallocated, not reduced.
But the belief in the benefits of international trade took a hit as more people came to regard it as a zero-sum game. The Trump administration pushed the narrative that many of America's economic problems were due to trade with China. Inequality in the US had risen sharply, and younger generations were not doing as well as their parents. Chinese children did seem to be doing better than their parents. Surely, there had to be a connection between the two. If China was doing so well, America must be falling behind.
Initially, many criticised this narrative as populist pandering. But it gained traction, and when Covid-19 struck, arguments in favour of protectionism and against China went mainstream. Suddenly, everyone agreed the pandemic-related supply-chain problems were a result of international trade. Never mind that many of the bottlenecks originated domestically and had nothing to do with global supply chains or that, despite Covid-19 being the biggest global shock since World War II, the world economy proved quite resilient.
The narrative was shifting towards blaming international trade, and particularly trade with China, for every problem in the modern economy.
Then came Russia's full-scale invasion of Ukraine. Though the aggressor was Russia, it was now all too easy to imagine what would happen if China invaded Taiwan. Concerns about geopolitical risks and national security came to the fore, lending momentum to calls not for just protectionism but for a broader economic decoupling from China.
Again, it is easy to blame the Russian invasion for ushering in a new cold war. But would we be where we are without the resurgent protectionism and calls for supply-chain resilience in recent years? By undermining the belief in international cooperation and pushing the narrative of trade as a zero-sum game, those policies and strategic objectives created some of the preconditions for today's economic warfare.
Whereas trade was presented as a zero-sum game in 2015-16, when Mr Trump was elected, now national welfare is being framed in these terms. The issue is no longer just about tariffs and trade. Those are relevant only to the extent that they can be used to stop China from developing its technological capabilities. The primary concerns now are "de-risking" and national security rather than America's desire to maintain economic dominance.
But consider de-risking. Is it really about China? Global production of the most advanced semiconductors is concentrated within a single Taiwanese company (TSMC), which certainly does imply a high risk of disruption should the company suffer some shock. But such a shock need not come from a Chinese invasion; it could also take the form of a health crisis, a natural disaster, or even personnel issues. The root problem is not China but high market concentration. The same kind of risk would still be salient if the company was based in the US.
Drawing on work by economic historians, there are eerie parallels between the period leading up to World War II and recent developments in US trade and foreign policy. Protectionism is a problem, not just because of its impact on trade but also because of its impact on international relations and geopolitics. ©2023 Project Syndicate
Pinelopi Koujianou Goldberg, a former World Bank Group chief economist and editor-in-chief of the 'American Economic Review', is Professor of Economics at Yale University.