In George Bernard Shaw’s words, if all the economists were laid end to end, they’d never reach a conclusion.
Scour the pool of practitioners of the dismal science, and you will find supporters and detractors for almost every economic theory, from free markets to socialism.
The one exception, however, is protectionism. Whether from the left or the right, economists agree that there are no winners from a trade war, and that tariffs succeed only in making everyone poorer.
This is a lesson in theory that America is currently finding out in practice. After Donald Trump executed his threat to double US tariffs on $200bn of Chinese goods, Beijing retaliated yesterday, announcing that it would impose its own new tariffs and raise taxes by 25 per cent on American products.
US markets plummeted instantly, with the Dow Jones dropping 1.8 per cent, and Europe’s markets have also fallen.
Trump, who has self-defined on Twitter as “Tariff Man”, seems to believe that even if this response hurts US exporters, America will still “win”, as its trade deficit with China means that Beijing has more to lose.
But even if this were true, it overlooks the impact on US consumers. The effects of the tariffs can already be seen in hikes in consumer prices since the trade war began. This impact is felt by US businesses which use Chinese materials or component parts. They therefore hurt the very manufacturers that they are ostensibly meant to save.
This is not a contentious or partisan view. While Trump has claimed that the tariffs will be “paid for mostly by China… not by us”, his own economic adviser conceded that this is not the case. Brought onto Fox News to defend his boss, Larry Kudlow was forced to admit that “both sides will pay”.
These four words summarise the sheer economic illiteracy of tariffs, which compel governments to tax their own citizens in a war that they can never win, and whose collateral damage risks wiping billions off the global economy.
One of Trump’s former economic advisers was reportedly so concerned at the President’s nonsensical trade policy that he stole papers off his desk to prevent him from signing them.
Given that the IMF has warned that this trade war could cost 0.5 per cent of world GDP, it is a shame that no one tried this tactic with Trump’s tariff increase last week.