For years, tariffs were a nearly forgotten economic tool, widely considered bad policy by both sides of an entrenched free-trade consensus. Things have changed. Donald Trump argues that tariffs can do everything from pay for child care to eliminate the national deficit. The Biden Administration has used them to backstop environmental policy and as a geopolitical tool. We at Democracy weren’t sure what to think, so we invited three astute commentators to discuss the pros and cons. Elizabeth Pancotti and Todd N. Tucker of Roosevelt Forward argue for tariffs’ effectiveness as part of a balanced industrial policy capable of creating high-quality domestic jobs and national resilience. Matthew Yglesias of the Slow Boring newsletter and elsewhere considers their benefits fewer and their harms greater than advertised. We leave it to you to judge who’s right.

Tariffs: An Indispensable Market-Shaping Tool

Elizabeth Pancotti & Todd N. Tucker

The Biden Administration sent shockwaves around the world this spring when it announced a doubling, tripling, and even quadrupling of tariffs on a range of Chinese-made products, including solar cells, semiconductors, steel, and electric vehicles. The number that attracted the most attention was the 100 percent tariff on electric vehicles, which will effectively block Chinese imports from entering the U.S. market. The Biden White House justified these measures—technically an extension and adjustment of a $200 billion package of tariffs first imposed in 2018 by the Trump Administration over unfair Chinese trading practices—as necessary to protect the hundreds of billions of dollars it is investing in strategic sectors through the Inflation Reduction Act, the CHIPS and Science Act, and other industrial policy measures.

Biden’s seeming adoption of the trade agenda of Donald Trump, who famously called himself “Tariff Man,” provoked strong responses. Vox’s Dylan Matthews claimed that the Administration has “proven shockingly willing to sabotage its own climate policy if it gets to stick it to the Chinese in the process,” and asked, “Why isn’t the Biden administration salivating at the thought of BYD electric cars flooding the market?” (BYD is one of China’s leading automakers, and Tesla’s chief competitor for the title of top global EV producer.) Climate journalist Kate Aronoff agreed, accusing the United States of hypocrisy for criticizing China’s EV subsidies when America had subsidized fossil fuel production for decades. The Washington Post’s Catherine Rampell noted that the move appeared inconsistent with Biden’s own criticism of Trump’s tariffs during the 2020 election, and also with his more recent critiques of Trump’s call for a universal baseline tariff of 10 percent on all imports. (This has apparently metastasized into the idea of funding the entire government through tariffs—an unworkable and unserious proposal that would massively benefit the wealthiest Americans, even more than Trump’s 2017 tax cuts.)

A common denominator in many of these critiques is the claim that the economics of tariffs are so self-evidently terrible that the hikes must be entirely politically motivated—geared at winning swing-state steelworkers and autoworkers. After all, then-candidate Trump amassed support by railing against NAFTA, which helped lead him to victories in Ohio, Wisconsin, and Pennsylvania. One of the most sympathetic treatments of Biden’s moves came from Heatmap’s Robinson Meyer, who nonetheless characterized the tariffs as good politics—though more about salubrious long-term climate coalition-building than of the narrowly electoral kind.

It’s worth asking, then: Is there ever a policy rationale for tariffs?

The Economics of Tariffs

States’ regulation of foreign trade dates back to antiquity, and is a key attribute of sovereignty. Tariffs, also known as customs duties, typically take the form of a tax on each unit (or a percent of the monetary value) of a good being imported into a given jurisdiction. For countries in their developmental phases, tariffs are a convenient way of funding government functions that is easier to administer than income or wealth taxation; for all countries, they offer a mechanism for promoting targeted domestic production.

In Econ 101, tariffs are a serious faux pas. From an assumed baseline of perfectly competitive markets, ones with full employment and where prices are determined by the forces of global supply and demand, they indeed would seem to have little to recommend them. They raise domestic prices by the amount of the tariff, meaning domestic consumers will face higher prices (and thus consume less stuff) and industries that use the tariffed product will face higher input costs (and thus produce less than they otherwise would). Domestic producers of the protected good can afford to produce more than they did before, but only because of the higher prices they can charge their customers. The government gets some additional customs revenue, but this too is a bill footed by domestic consumers. All of it increases inefficiency in the economic system. And that’s before you even get to the effects that go beyond simple supply-demand charts, such as increases in exchange rates and foreign retaliation that might lead to trade wars or actual wars.

The only problem: Actual, existing markets look little like their introductory textbook counterparts. Relax full employment, perfect competition, or other assumptions, and there can be an affirmative case for tariffs. In Econ 201, we discover that there are winners and losers from moves toward freer trade, which in the U.S. context roughly corresponds to capital and labor, respectively. We may learn that foreign governments subsidize their producers through cash payments, lax labor and environmental regulation, or other means, allowing them to export to other countries below the true cost of production. In other instances, industries may be characterized by economies of scale, meaning that they become more efficient the larger they are, which can give those industries (and the countries that develop them first) the power to shape markets in their own interest. The flip side of this is known as the “infant industry” argument: Domestic firms may require tariff protection in order to achieve sufficient size to be internationally competitive. Intervention in trade flows helped fuel the most successful economic development experiences in history, from England overtaking the Low Countries’ woolen manufacturers in the fifteenth century to Japan and Korea’s catch-up in auto manufacturing and steel production in the twentieth.

Moreover, markets will not adequately take into account national security concerns, such as what would happen to the rest of the economy if all of a sudden a country didn’t have access to some vital product like energy. Resilience might trump efficiency concerns in those instances. When producers have outsized market power or governments are sufficiently motivated to shield their consumers and producers from trade war impacts, even the seemingly straightforward question of who pays the costs of tariffs (consumers, producers, or importers; domestic or foreign) can get muddled. Managing all of these market imperfections is what a lot of the U.S. government’s trade apparatus is designed to do.

As it happens, all of these wrinkles on the standard Econ 101 story describe 2024 dynamics pretty well. China has made extensive use of subsidies over decades. In 2019, China’s industrial policy spending amounted to $407 billion—six times what the United States expects to spend on energy tax credits (which comprise nearly all of the government’s industrial policy investments) this year. China has pumped $47 billion into its domestic chips industry over the past decade, and recently announced an additional $47 billion. A requirement of these subsidies is that beneficiaries must transfer IP to China, forcing firms to register a certain number of patents in the country. Further, though China’s Big Fund, its state-owned semiconductor investment vehicle, originally set out to establish manufacturing capacity that could meet 70 percent—later revised to 80 percent—of domestic semiconductor demand, the latest round of incentives explicitly incentivizes export promotion.

In the EV market, China has provided massive subsidies since 2009. Financial support and tax breaks to the tune of nearly $230 billion have propelled the industry over the past 15 years, but market power has been an even greater buoyant force. China dominates the mining and processing of critical minerals, which it then uses to produce 66 percent of the world’s battery cells. According to the International Energy Agency, China reigns supreme in almost “every stage of the EV battery supply chain.” This outsized control of critical clean energy supply chains gives China immense power over industry dynamics, such as supply and pricing. Further, China’s labor and environmental regulations—or lack thereof—significantly drive down the cost of production. After all, forced labor is cheaper than union workers who earn livable wages in battery plants in Michigan and aluminum smelters in New York.

In a long-delayed reaction, the United States and Europe have woken up to this fact, and they are now incentivizing domestic production, including that of foreign-owned firms operating at home. This turn to clean energy industrial policy is thus motivated in equal parts by helping firms absorb the “green premium” (the costs of moving from fossil fuel to green production methods) and the “China price” (the mix of economic and non-economic factors that give China its distinctive advantages). This mix of subsidies, tariffs, and other supports will help ensure that U.S. and European industrial production has a future in a world of very imperfect markets.

Finally, the most compelling argument for tariffs may be one of fiduciary responsibility. The Biden Administration has made the decision to meet its climate commitments through industrial policy spending, not carbon taxes or regulatory fiat. Reasonable people can disagree on this approach, but it had a political coalition behind it that other strategies lacked, a higher likelihood of surviving Supreme Court review, and a plausible case for bringing climate-skeptical Republicans on board for its job and economic development merits. Having taken that fork in the road, why spend trillions of dollars of public money on domestic industry only to see that spending’s benefits wiped out by subsidized imports? One can only imagine the political blowback from a double whammy of wasted revenue and devastated industry. Seen in that light, tariffs are a relatively cheap form of industrial policy insurance.

Is a New Vision Possible?

Despite the many theoretical and practical justifications for tariffs, they are a deeply unloved part of the industrial policy toolkit. Four reforms might make them more palatable.

First, the U.S. trade enforcement apparatus—the independent, semi-judicial system that allows companies and workers (or their unions) to apply for tariffs (called anti-dumping or countervailing duties) to relieve the pain of unfairly priced imports—is not proactive enough. Petitions are typically only granted when companies and/or workers have already been materially injured by trade. Instead of scaling support for firms when they have a chance of competing on global markets, it’s often a form of burial insurance—and a costly and legally intensive one at that. Worthy bipartisan efforts by Ohio Senators Sherrod Brown and Rob Portman have addressed the lowest-hanging fruit, and trade enforcement agencies have long been authorized to self-initiate cases. But further reforms are needed, both to the law and its administration, to improve enforcement effectiveness.

Second, support currently comes without a plan to rein in corporate profiteering. Any company receiving protection should not be able to engage in stock buybacks, but instead should invest every available dollar in competing and innovating. In fact, there are lessons to be learned here from China: Its State Owned Enterprise Reform Action Plan has induced corporate governance reforms, such as meaningful and measurable carbon emission reduction targets and anti-poverty actions as part of managerial performance systems. The Department of Commerce’s restrictions on CHIPS funding—for instance, barring recipients from using public funds for stock buybacks or expanding their manufacturing capacities in China for ten years—are a good start, but significantly more guardrails are needed.

Third, we need a form of “positive discrimination” in favor of clean goods made with high-road labor practices. The core of the twentieth-century trading system is premised on the idea that discrimination is wrong. In the twenty-first century, trade policy—from data collection to customs enforcement—needs to enable governments to prefer certain trade flows over others. The United States should use its purse strings to expand and diversify supply chains through a race to the top that promotes sustainable production, rather than a cost-primacy race to the bottom. A good example of this is the U.S.-Australia Climate, Critical Minerals, and Clean Energy Transformation Compact, which will combat China’s global market domination in clean energy supply chains. Broader efforts to “friendshore” in the Indo-Pacific region and Latin America (while boosting labor and climate protections) are needed to combat China’s unfair dominance.

Finally, as trade and the rest of economic policy continues to move away from the neoliberal ideology that characterized the past 50 years, the proponents of this move need to be clear on what they are trying to achieve. This does not necessarily mean artificially precise cost-benefit analysis or an insistence that each policy only address one goal at a time. The United States would have never had its most impressive development spurts with those strictures in place. Nonetheless, our trading partners and the public deserve to know the terms of the bargains we are driving toward. If union density improves and domestic auto company market share remains constant for the next five years, could the EV tariffs be removed? If trading partners agree not to challenge each other’s environmental policies at the World Trade Organization, will the United States remove blocks on judges there? Or is the demand more systemic, like a WTO 2.0 for the clean energy transition? Even President Nixon, who imposed an across-the-board tariff akin to what Trump is now proposing, had an ask: Other advanced countries needed to revalue their currencies. When they did so, the tariffs were removed. We have not seen the Trump campaign point to any comparable stipulations, meaning their broad-based tariff strategy could raise prices in uncompetitive and perfectly competitive industries alike. Being clear on targets is good for democratic accountability and a less muddled discourse.

Meeting the Climate Challenge

Biden’s embrace of trade as a tool of domestic and foreign economic policy dates back to his 2020 campaign, when a senior aide remarked: “He’s not gonna go in in 2021 and start talking about reentering or about entering new trade deals before he has done the work at home to make the investments in American job creation, American competitiveness, and American communities.” The President’s commitment to this approach has good precedent. Indeed, the Administration has embodied the spirit of FDR’s 1933 inaugural address, in which he said: “Our international trade relations, though vastly important, are in point of time and necessity secondary to the establishment of a sound national economy. I favor as a practical policy the putting of first things first. I shall spare no effort to restore world trade by international economic readjustment, but the emergency at home cannot wait on that accomplishment.”

The emergency this time is different. Rather than a years-long depression, the country is trying to restructure its energy system to fight the climate crisis, and in the process, confront decades of offshoring that created significant risks to national security and resiliency. We must recognize that the United States is not trying to reduce emissions in the abstract of the economic classroom, but in a particular national—and global—economic and political setting. Making climate policy democratically viable is key to the existence of climate policy at all.

Yes, Tariffs Have Tradeoffs

Matthew Yglesias

It’s perhaps best to start by saying that I agree with one of the major conclusions of Elizabeth Pancotti and Todd Tucker: The Biden Administration’s moves to impose tariffs on Chinese cars, EV batteries, and other elements of the electric car supply chain are defensible in part because the world is more complicated than the most simplistic Econ 101 models.

But it’s worth being clearer than they and many other tariff enthusiasts are about why the Econ 101 take does not apply. If you took me 10 or 15 years back in time, I would have said that cooperation with China was an important goal for the United States to pursue, not least because it is hard to effectively address climate change without an atmosphere of global cooperation. Today, unfortunately, the hopes for that kind of cooperative relationship look quite a bit dimmer. China has backtracked on its promises to the people of Taiwan, brutalized its Uyghur minority, moved to make its domestic political arrangements more authoritarian, ruthlessly censored the Internet, and used the lure of access to its market to attempt to export its own regressive speech norms. This is all very bad, and it calls for exactly what we have seen since the final few years of Barack Obama’s Administration—a more skeptical approach to the U.S.-China relationship, including more attention to the strategic aspects of trade policy.

Where Pancotti and Tucker and many other tariff enthusiasts strike me as confused is that this is not a question of rethinking the economics of trade, but simply of changing our geopolitical calculus regarding the non-economic aspects of the question.

Ronald Reagan and Margaret Thatcher, after all, did not support unrestricted free trade with the Soviet Union. This was not because they were skeptics of “neoliberalism”; it was because they were Cold War hawks, who thought export controls and maintaining friend-shored supply chains were important as a national security matter. By the same token, proponents of economic sanctions on Cuba and Iran aren’t saying David Ricardo was wrong about comparative advantage. They are saying that deliberately inflicting harm on the Cuban and Iranian economies is a good idea, even though it also imposes some costs on the United States. Whether you agree with that is a matter, fundamentally, of foreign policy judgment, not of economics.

Alternatively, you might look at the Cuba/Iran issue through the lens of domestic politics.

In his second term, Obama took political risks to try to open up relations with those two countries. This was a calculated risk that might have paid off. But because Donald Trump won in 2016, Obama’s diplomacy ended up having little substantive upside. Perhaps it would have been wiser to be more politically cautious and focus more on helping Hillary Clinton win the election. Or perhaps not. These are difficult questions, and the answers won’t be found in an introduction to an economics textbook. But that’s not because the basic economic argument for free trade is wrong. It’s because there is more to life than economics.

By the same token, standard economic analysis would tell you that maintaining aircraft carriers and ballistic missile submarines is a very costly undertaking that makes America poorer. Does that mean it’s a bad idea? Not at all. Most of us think a strong Navy and a strong nuclear deterrent are important for Americans’ safety, so we carry the burden in the name of national security. There’s a perfectly sound argument that maintaining the viability of American automobile manufacturing and rebuilding American semiconductor manufacturing are sufficiently important, as a matter of national security, that they are worth paying some economic cost for. The United States is, after all, a rich country, and we do lots of things—give Social Security benefits to the elderly, preserve the pristine beauty of natural parks—that carry an economic cost. Staving off PRC global hegemony is worth doing.

The difference between these departures from Econ 101 and the tariff enthusiasts’ flights of fancy, however, is that sensible people acknowledge and consider the presence of tradeoffs. Just because the right number of aircraft carriers is not zero doesn’t mean we should build 300 of them. The cost would be ruinous.

One tell here is the emphasis they put on creating “high road” jobs and attaching strings to the various subsidies and protections they favor. Just as is the case with shipbuilding, there is a tradeoff—in this case, between trying to accomplish the goal of the policy (build a ship or a semiconductor factory or an EV battery) and trying to use the policy to generate high-paid make-work jobs. A successful defense procurement policy needs to build equipment cost-effectively, so that we can deter—and if necessary, fight—wars at an acceptable price. A successful industrial policy needs to create industries capable of succeeding not just in a tariff-protected home market, but ultimately in export markets around the world. That means complementing tariffs and subsidies with favorable regulatory treatment, not larding them up with new requirements to meet other social goals.

The other issue is the attitude toward tariffs on countries that are not China.

Viewed straightforwardly, an effort to reduce American dependence on strategic goods from China should imply decisively moving toward lower barriers to trade with Europe, Latin America, India, Japan, Korea, and beyond. Obama tried to move in this direction in his second term, pursuing a Trans-Pacific Partnership with America’s Asian allies, and a Trans-Atlantic Trade and Investment Partnership with our friends in Europe. These initiatives were quashed by a left-right alliance that’s been largely in the driver’s seat ever since, with both Trump and Biden raising taxes on China and non-China trading partners alike. Both constituent elements of this alliance enjoy invoking the specter of China to explain the departure from the prior free-trade consensus, but they do not in practice prioritize strategic competition with China.

A more typical dynamic is that the Biden Administration has invoked national security concerns in bad faith to potentially block a Japanese company from buying U.S. Steel, in an effort to coerce the purchasing company into making a more generous labor agreement with workers. It is, on the one hand, nice to have a President in office who prioritizes the working person over tax cuts for the rich. But as a redistributive policy, this is extremely clumsy, inefficient, and poorly targeted compared to incremental expansion of the welfare state. As national security policy, it’s completely counterproductive. And as a political logic, going in for the idea that trade barriers generate economic prosperity ultimately leads not to a workers’ paradise but to the Trumpian vision of replacing all income taxes with tariff revenue. This is an awful idea, hideously regressive in its distributional implications and massively disruptive to world peace and global commerce. But to have an honest debate about why it’s bad requires progressives to acknowledge tradeoffs and economic reality as well.

On a more agreeable note, Pancotti and Tucker observe that the standard case for free trade relies on a background assumption of full employment that has often been lacking in practice. This is insightful and correct, and it helps explain why the long, grinding labor market slump that followed from the 2008 financial crisis did so much to discredit the previous free-trade consensus. But thinking this through, the problem with the earlier cohort of policymakers is that they were too timid about maintaining full employment. One of—arguably the—signature economic policy achievement of recent times has been reversing that error. Between the CARES Act, the American Rescue Plan, and the Federal Reserve’s adoption of the Flexible Average Inflation Targeting framework, we achieved an unprecedented rapid labor market recovery from the shock of the COVID-19 pandemic, and the United States has recently enjoyed the strongest real economic growth in the world. But having won the war for full employment, the country needs to live within the world of tradeoffs it creates.

Under full employment, every job created in one sector through protection, subsidy, or any other means is simply displaced from another sector rather than from the ranks of unemployment. That doesn’t mean we need to embrace laissez-faire, but it does call for selective interventions in the economy to promote specific strategic goals.

Elizabeth Pancotti & Todd N. Tucker Respond:

We will take a cue from Matt Yglesias and start off with a point of agreement: Trade policy, like other economic policy areas, is not dictated by economics alone, but also by politics, values, and security concerns. We especially agree that lots of things we do in the United States are worth paying some economic cost for, be it domestic manufacturing capacity, Social Security benefits, or the wonderful trails at Shenandoah National Park (which we both spent many a COVID-era Saturday morning hiking).

We depart on three considerations. First, policies can have multiple goals. Second, there are non-zero-sum ways to make progress on more than just one goal, and (as a governing matter) the staid world of interagency consultation and regulatory review is where goals are prioritized and sequenced. Third, the cost of a policy is not merely what shows up on a Congressional Budget Office score or Treasury Department balance sheet, but also the financial and other burdens these policies impose on workers, families, and our planet. However, we ultimately arrive at the same conclusion as Yglesias: Trade-offs are everything.

It’s a trade-off if the largest peacetime industrial policy blitz in a century, with trillions of public and private dollars on the line, ends up producing really bad jobs and digging hollowed-out communities into an even deeper hole. It’s a trade-off if you rebuild the energy system and don’t rebuild unions, which offer a hedge against inequality and democratic erosion. It’s a trade-off if you prioritize getting the lowest possible price for goods over the national security implications of those goods’ supply chains.

While the trade-offs from more open trade (such as rising inequality) can in theory be largely dealt with through after-the-fact redistribution, in practice, as the economist Dani Rodrik has shown, this is administratively difficult and politically vexing. It may be doubly so when workers of color, women, and certain regions are disproportionately harmed by trade shocks. It seems to us that a country as wealthy as the United States should care about what it buys and what it stocks on the shelf (and how those choices ripple through society), not just the sticker price.

To that end, we’d reiterate our first essay’s conceit: Tariffs and trade policy are tools to shape markets. Markets are supply and demand, operating according to a set of rules. We merely believe that the federal government should play an active role in setting those rules. We set rules for domestic markets. Companies must pay their workers minimum wages, provide them with safe workplaces, and respect their right to collectively bargain. They must pay taxes on their profits, pay into the social safety net, and report their greenhouse gas emissions. We think these domestic laws should go further than they currently do, but we see no reason why we would further erode the basic standards we have just because products are produced in a different country, and especially not because they’re cheaper. We wouldn’t exempt General Mills from the Fair Labor Standards Act because it said it would lower the price of Lucky Charms. And, for better or worse, we just have fewer tools to shape activity outside of our borders than within, so, as often as not, tariffs it will be.

Aspirationally, it would be nice to have more open commerce with allies, as a tool to compete with China and for a myriad of other reasons. But it’s important to be aware of the obstacles.

In recent years, Europe and other trading partners have been slow to structure their own domestic markets in ways that sufficiently address international supply chain challenges like decarbonization, human rights abuses, and transshipment of goods. Even after entreaties from the incoming Biden Administration, Europe went ahead with a Chinese investment agreement in 2020, only backing off after Beijing sanctioned top EU officials for criticizing China’s human rights abuses against the Uyghurs. Last year, the European Union blew up negotiations around the Global Arrangement on Sustainable Steel and Aluminum even after the United States went to considerable lengths to meet the EU’s (frankly, quaint) demands for compatibility with the rules of the moribund World Trade Organization. In response, the Europeans demanded freer trade first, with progress on industrial decarbonization conditioned on U.S. adoption of the EU’s carbon pricing strategy, which would be dead on arrival in the Senate or the Supreme Court. This gap between the United States and Europe need not doom cooperation. But policymakers should be clear-eyed on the fact that shared experience of the “China shock” does not automatically produce shared China strategy.

And yet, there are promising areas of cooperation emerging in many of the regions Yglesias identifies as opportunities for expanding trade relations.

The Indo-Pacific Economic Framework for Prosperity—a 14-country trade cooperation pact that includes Japan, India, and other important economies—is proving to be a useful platform for private investors to coordinate regional climate investments. The United States-Mexico-Canada Agreement’s Rapid Response Mechanism has improved labor rights for an estimated 30,000 manufacturing workers in Mexico by making it easier to block imports of products from facilities that abuse workers. Mexico and the United States are also cooperating on promoting supply chain integrity in metals markets. The U.S. Trade Representative and Central American trade agencies are collaborating to improve labor and environmental standards and improve resiliency in textile and apparel supply chains. The United States-Caribbean Partnership to Address the Climate Crisis 2030 is expanding development financing and leveraging trade programs and agreements throughout the Caribbean. The Minerals Security Partnership—a collaborative effort between 14 countries, including the United States, and the EU—will improve competition and resiliency in critical mineral supply chains, challenging China’s dominance and improving sustainability and labor practices in the industry. This includes exempting many critical mineral imports from tariffs! These approaches both expand trade relations and improve production practices.

Now on to a few more surgical points. First, reasonable people can disagree about the merits of Biden’s decision to side with the United Steelworkers in their opposition to Nippon Steel Corporation’s acquisition of U.S. Steel, but it’s actually the perfect illustration of Yglesias’s separate point that we should consider the trade-offs when deciding whether to have zero aircraft carriers or hundreds. If the United States had hundreds of integrated steel plants, it would probably not make sense to spend much political capital blocking foreign acquisition of any one of them. Unfortunately, the actual total is eight, and U.S. Steel owns three of those. If there’s even a chance that a purchaser might idle one, it would raise immediate national security concerns. We need not look very far to find an example of mergers and offshoring devastating an industry important for national security: There are just four operating aluminum smelters in the United States, down from around 30 in the 1980s. And that’s to say nothing of Nippon itself. The very least a responsible policymaker should do is thoroughly kick the tires on a deal with a company with a record of problematic business and contract dealings.

Second, as one of us emphasized in response to a recent piece from Yglesias in which he wrote that we don’t need more job creation in the United States, there are still millions of unemployed and underemployed workers even in what is on paper full employment. Third: Zooming out, trade policy is not sufficiently nimble to be of much value as a so-called “countercyclical” policy, with tariffs ratcheting up or down based on inflation, employment, or other real-time macroeconomic indicators, as Yglesias implicitly argues. Tariffs are the structural guardrails that trading partners must navigate to access the $3.8 trillion domestic import market irrespective of the business cycle. And finally, yes, we agree that industrial policy often means workers moving between sectors: That is precisely the point and a sign of its success. There are some industries we want to promote (offshore wind, nuclear power), and others we want to discourage (fossil fuels, cryptomining).

We think tariffs, and trade policy more broadly, should be selective interventions to help the new industrial strategy. Notably, this strategy is not about targeting every industry under the sun. We have yet to hear calls for a U.S. Coffee and Bananas Public Bank. Rather, it’s about promoting industries that make stuff used by the rest of the economy, an approach that economists have found to have the highest spillover benefits. This strategy, should our policymakers continue it in the years ahead, can lift the country’s—and the world’s—supply of workers, capital, and materials onto a new, higher-growth, lower-extraction equilibrium.

Matthew Yglesias Responds:

It’s perhaps the sign of a productive exchange that this one seems fated to end in a blaze of more-or-less boring technical details.

Pancotti and Tucker exhibit what strikes me as excessive pessimism about the prospects of pursuing egalitarian ends through the traditional means of redistributive taxation and a social safety net. It’s true that it is “administratively difficult and politically vexing” to hyper-literally offset the specific impacts of trade on any given area or class of people. But broadly speaking, the tax code has become more redistributive over the past 25 years as Republican Congresses tend to bundle tax cuts for the rich with tax cuts for the middle class and then Democrats counter with higher taxes on the rich. During this same period, SNAP has become more generous, Medicaid has expanded, and Medicare added prescription drug benefits. We should not be entirely sanguine about the prospects for redistribution: The long-term viability of the American social safety net is threatened by the mechanical impact of population aging on the big retirement programs. But the best cure for these demographic woes is robust economic growth. Given the risk that slow growth more than anything else threatens to wreck the math of our redistributive system, I would urge against being too eager to adopt inefficient policies in the name of economic equality.

Similarly, while high tariffs can of course be a boon to particular classes of workers, the premise that it’s a win for overall equality seems doubtful.

A tariff is, essentially, a form of consumption tax. It makes things more expensive to buy.

Consumption taxes, famously, are regressive. They have a flat rate structure and the wealthy have higher savings rates, so any given consumption tax is going to take a larger bite out of the incomes of the poor than of the rich. But compared to a European-style Value Added Tax (VAT) that falls on all goods and services, a tariff falls exclusively on goods. As Katheryn Russ, Jason Furman, and Jay Shambaugh (the Biden Administration’s undersecretary of Treasury for international affairs) have shown, this makes tariffs unusually regressive because low-income families spend a larger share of their incomes on “tradable” goods than wealthy families do. When you buy groceries, you are paying for tradable commodities. When you buy a restaurant meal, you pay for tradable commodities (the food), but you are mostly paying for the real estate and the labor that goes into preparing your meal. Rich people do buy more expensive goods than people of more modest means. But the discretionary purchases of the affluent skew toward things like maids and nannies, vacations, college tuition, and other non-tariffed services.

But the tariff considered as a regressive tax is much worse than a VAT for more fundamental reasons too.

A VAT raises large amounts of revenue that can finance universal programs, creating a system that is strongly redistributive on net. A tariff does raise some revenue, but the point of a protective tariff is mostly not to collect taxes on foreign-made goods but to protect domestic producers. So the higher prices paid by waitresses, nurses, and teachers are largely captured by the people who own and work at domestic factories rather than by the public purse. Manufacturing workers earn wages that are about 10 percent higher than the economy-wide average for production and nonsupervisory workers (a category that encompasses about 80 percent of the workforce). So in the case of broad tariffs, we are raising costs for the majority of the public in order to redistribute to a minority of the population that is slightly more affluent than average.

These are all cliché points in the long-running argument over free trade versus protection. But that to me is the point. Both Joe Biden and (especially) Donald Trump have broken with the older free-trade consensus, in part by mobilizing specific national security considerations related to China and in part by making generalized arguments in favor of mercantilism or protection.

Reasonable people should be able to see these as distinct questions. The poor empirical track record of “engagement” with Beijing as a foreign policy position is good reason to revisit the prior consensus but does not constitute a good reason to reject the standard economic arguments in favor of openness to trade.

It is true that one policy tool may accomplish multiple goals, but it is not true that trade protection is a good means of achieving reasonable progressive goals outside of the national security context. For example, I take the point that even at “full employment” there are many able-bodied prime-age people—mostly men, disproportionately men of color—who are not employed and might benefit from employment. But I think this cuts in the other direction as a consideration. Introducing distortions like tariffs into the economy serves to make it harder for the Federal Reserve to keep interest rates low in the face of low unemployment, and therefore harder to expand labor-market opportunities to a larger swathe of the population. What’s needed to address this population are investments in active labor-market policy that would specifically connect disconnected workers to job opportunities. And that again brings us to the relevance of tradeoffs. It is never easy, in the real world of politics, to persuade Congress to invest in new and useful programs. But undertaking economically costly measures elsewhere makes this harder rather than easier.

Last but by no means least, progressives tempted by the siren song of mercantilism should consider how easy it is for reactionaries to co-opt this rhetoric. Speaking in Henderson, Nevada in late August, pseudo-populist GOP vice presidential candidate J.D. Vance proclaimed that “We believe that a million cheap, knockoff toasters aren’t worth the price of a single American manufacturing job.”

The math on its face is somewhat preposterous. If a million people each pay $5 extra in tariffs to save one factory job, that’s $5 million per job—a self-evidently absurd way to try to help people, no matter how deserving. Of course, Vance is being hyperbolic for political purposes. Just note that it genuinely does serve his political purposes—which is to say that it does not involve any meaningful sacrifices from the rich and powerful to ask them to pay slightly more for low-end consumer goods. It’s true, unfortunately, that this kind of rhetoric has been somewhat effective at bringing Midwestern voters into the GOP camp. But the solution to that problem is for progressives to stop validating the premise that this sort of strategy—rather than broad labor law reform or welfare state expansion—is a reasonable path to economic justice.