In my latest column for AIER I examine the case for retaliatory tariffs and find it wanting. Two slices:
A familiar excuse for protective tariffs and other trade restrictions goes like this: It would be all well and good for our government to follow a policy of free trade if other governments did the same. But other governments don’t do the same. Other governments use tariffs and subsidies to give producers in their countries unfair advantages over producers in our country. Unless and until other governments embrace complete free trade, our government must “retaliate” with its own protective measures to counter the protective measures imposed by foreign governments.
Every competent undergraduate who has passed a well-taught course in Econ 101 can identify a significant problem that lurks in this excuse for protectionism — namely, protective tariffs and subsidies are a net cost to the people of any country whose government intervenes in these ways. Tariffs and subsidies distort the allocation of resources in ways that reduce the overall wealth of the nation, a fact that is true regardless of the trade policies of foreign governments. “Why,” this undergrad will ask rhetorically, “should we let our government inflict harm on us just because other governments inflict harm on their citizens?”
The undergrad is wise and right to ask this question. But immediately after asking it, this undergraduate will be corrected by a first-year economics graduate student strutting his advanced knowledge of the subject.
“Silly girl,” the grad student tells the undergrad, “you fail to see the real benefit of retaliatory tariffs and subsidies. It’s true that the bulk of the burdens created by tariffs and subsidies fall on the people of any country whose government intervenes in these ways. But it’s also true that those of us in the home country also suffer some harm from those same interventions done by foreign governments. After all, trade is mutually beneficial, and in 2025 most of us are all part of one global economy. And this economy is distorted by those foreign tariffs and subsidies. So our government, in its wisdom, can use its own tariffs and subsidies to retaliate against foreign governments to pressure them to end those harmful interventions. When these interventions end, global trade is made freer and resources are more efficiently allocated. While our government’s retaliatory tariffs and subsidies impose net costs on us in the short run, by eventually making global trade freer this retaliation works to our net benefit in the long run!”
The undergraduate knows enough to realize that she cannot disagree in principle. The graduate-student’s hypothetical description of the operation of retaliatory protectionism is logical. It is indeed possible that such retaliation will work as described in the real world and redound to the benefit of almost everyone abroad and at home.
But is the graduate student’s case for retaliatory protectionism practical? No.
…..
A second practical obstacle is that special-interest groups in the home country will cunningly take advantage of any inclination to use retaliatory measures, resulting in overuse and abuse of such measures.
