Tariffs are integral to Trump's vision for US economy

Trump may temper his approach from time to time, but to think that he will change his basic philosophy is delusional, asserts T T Ram Mohan.

US President Donald Trump's tariff policy caused stock markets to tumble and sent shock waves through the world's political capitals. Commentators warned of stagflation in the US and a collapse of global economic growth.

Trump has since announced a 90-day pause on reciprocal tariffs on all countries except China, which faces a tariff of 125 per cent...The relief over the pause on reciprocal tariffs is understandable. But there's no getting away from the fact that the baseline tariff of 10 per cent is way above America's earlier average tariff rate of 2.8 per cent.

The period ahead promises an answer to a most fascinating question.

In matters of economic policy, what matters more -- the instinct of the charismatic politician or the theories of academics? Will Trump prevail in his attempt to restore manufacturing to the US and reduce America's chronic trade deficits? Or will he leave behind a legacy of economic ruin? In addressing these questions, it's useful to examine some of the propositions one hears in public discourse.

Economists Arthur Laffer and Stephen Moore, who have been advisors to Trump during his two presidential bids, have together authored a book, The Trump Economic Miracle and the Plan to Unleash Prosperity Again (2024). They write, "Trump is not the person the media has so unfairly portrayed. He is certainly not the villain, conniving and intellectually shallow man that his adversaries have portrayed him as since the day he first announced he was running for president back in 2015." In another place, they remark, "Trump has what we call 'Street Smart Economics... Trump's tariffs go against the principle of free trade that has ushered in growth and prosperity, especially in the post-World War II (WWII) world. Trump believes that free trade is something of a myth -- and many economists would agree.

The great economic powers of the 19th century, including the US and Britain, achieved growth, not through free trade, but behind protectionist walls. They pushed the idea of free trade when they needed to access the markets of other nations...China remains a leading exponent of industrial policy even today. Free trade is not fair trade, as Trump is fond of saying.

.If the version of free trade we have had in the past decades has brought prosperity to America, why disrupt it? Numbers such as the gross domestic product (GDP) growth rate or increase in per capita income can be deceptive. They don't capture the fact that the benefits of so-called free trade are unevenly distributed. That is certainly true of the US.

When Trump stepped down in 2020, median real family income was up by 6.8 per cent. Economists ascribe the increase to Trump's notable initiatives such as tariffs on Chinese imports, the renegotiation of Nafta, and the tax cuts of 2017.Together, Lighthizer says, Trump's initiatives caused thousands of manufacturing jobs to return in his first term. That is the source of Trump's appeal to the American middle class, and it explains his electoral triumphs in 2016 and 2024... The tariffs announced by Trump are a negotiating tactic and will be rolled back once America's partners enter into negotiations. Trump has indicated that he is open to negotiating reciprocal tariffs with America's trade partners. The 90-day pause is intended for that purpose. However, the baseline tariff of 10 per cent is a different matter altogether... Trump views tariffs as a means of raising revenues with which he can reduce taxes at home...In sum, tariffs are integral to Trump's vision for the US economy. Trump may temper his approach from time to time in response to convulsions in the financial markets.