When it comes to tariffs, most of us probably think of dry economic terms or history lessons about the 1930s. But here’s the twist: what if tariffs, in today’s economy, could actually help boost jobs, wages, and living standards? That’s the argument made by finance expert Michael Pettis, and it’s worth taking a closer look.
A Tale of Two Economies
Back in the 1930s, the U.S. economy faced low consumption and excess savings—a far cry from where we are now. At that time, the infamous Smoot-Hawley Tariff Act slapped hefty taxes on imports, leading to disaster. It came during the Great Depression, with demand plummeting and other countries fighting back with their own trade barriers.
Fast forward to today, and it’s a whole new ballgame. According to Pettis, a professor at Peking University and senior fellow at the Carnegie Endowment for International Peace, the modern U.S. economy has the opposite problem: high consumption and low savings. This difference changes how tariffs could work.
How Tariffs Might Work Now
Think of tariffs as a double-edged sword. On one hand, they act like a tax on consumers, making imported goods more expensive. But on the flip side, they essentially boost domestic producers by giving them a leg up in the market.
Here’s what Pettis argues: under the right circumstances, tariffs could help U.S. producers create more jobs, increase wages, and even reduce debt. It’s not a magic fix, but it’s also not the economic poison many assume.
Trump’s Pro-Tariff Agenda
Former President Donald Trump is all in on tariffs. He’s talked about duties of 10-20% across the board, with even steeper rates for China. On social media, he’s claimed tariffs are the key to making America wealthy again, even suggesting they could pay off national debt.
But most economists remain skeptical. Tariffs are often seen as inflationary and a drag on growth. For instance, the Congressional Budget Office predicts Trump’s proposed tariffs could reduce the U.S. GDP by 0.6% by 2034. So, who’s right? The answer isn’t black and white—it depends on the context.
The Case for a New Tariff Strategy
Pettis makes a compelling case that today’s tariffs would play out differently than in the past. Why? Because the U.S. no longer overproduces compared to what it consumes. Tariffs could shift the balance by encouraging domestic production, which could ultimately boost GDP and improve living standards.
However, it’s not a one-size-fits-all solution. If domestic demand were weak or the global market couldn’t handle more U.S. exports, tariffs could backfire. But in today’s high-consumption economy, tariffs might redirect some of that spending toward homegrown goods, helping manufacturers thrive and creating more opportunities for workers.
Tariffs: A Tool, Not a Cure-All
Pettis reminds us that tariffs aren’t inherently good or bad—they’re a tool. The key is using them in the right way for the right situation. In an economy grappling with excessive consumption, low savings, and declining manufacturing, tariffs might just be part of the solution.
So, while the word “tariff” might sound dry or dated, the conversation around it is anything but. Whether you’re a fan or a skeptic, it’s a debate worth paying attention to. After all, it’s not just about numbers—it’s about jobs, wages, and the everyday lives of Americans.