The Debate: Do Trump's tariffs mean the end of the post-war free trade world?

President Trump's recent tariffs are designed to protect American industries, generate revenue, and serve as a bargaining tool in international trade. He has already implemented tariffs on certain imports, announced plans for additional tariffs, and has threatened to impose more in the future. If these plans are fully realized, it could lead to the highest average tariffs seen since the 1940s, marking a significant shift in global trade dynamics. Since the conclusion of World War Two in 1945, tariffs have generally been associated with increased consumer prices, reduced choices, and potential backlash against the very industries they aim to protect. This raises the question: are we moving away from the era of free trade? To explore the implications of Trump's tariff policies, I hosted a debate featuring two economic experts in trade policy. Meredith Crowley, a Professor of Economics at the University of Cambridge, argues that tariffs could impose a heavier economic burden on low-income individuals. In contrast, Jeff Ferry, the Chief Economist Emeritus at the Coalition for A Prosperous America, believes that tariffs can stimulate growth and revitalize the US manufacturing sector. During the debate, I asked Jeff Ferry about Trump's fascination with tariffs, which he has described as 'the most beautiful word in the dictionary. ' Ferry explained that Trump views tariffs as a means to revive American manufacturing and address the significant trade deficit the US has been experiencing. In 2024, the US recorded a staggering goods trade deficit of $1. 2 trillion, indicating that other countries, particularly those with trade surpluses, are profiting from selling to the US market. This situation provides the US with a powerful negotiating tool, as evidenced by Trump's recent discussions with Canada and Mexico regarding drugs and immigration. Meredith Crowley added that Trump's concern likely stems from the decline of manufacturing jobs in the US over the past four decades. Many jobs have shifted to countries with lower wages, such as Mexico and China, and Trump hopes that imposing tariffs will encourage job creation in the US. However, the potential for retaliation from other countries looms large. I asked Jeff Ferry how these retaliatory measures might impact Trump's economic objectives. He asserted that a well-structured tariff policy, combined with investment and growth strategies, could lead to a more robust US economy and improved productivity compared to the past 25 years, which he described as disappointing by traditional standards. He emphasized that historical evidence suggests that the economics profession has often overlooked the long-term consequences of trade policies, negatively affecting not only American workers but also workers in other countries. Meredith Crowley pointed out that the post-war era saw a dismantling of trade barriers, with the prevailing belief that globalization was beneficial. However, she questioned whether we are now witnessing a backlash against this consensus. Jeff Ferry acknowledged that we are experiencing a significant shift away from the post-World War Two agreement, which was established when the US was a dominant global power and concerned about the Communist threat. He argued that the current economic landscape requires a new approach, as the US economy has struggled since the 1970s while China has emerged as a leading manufacturing powerhouse. Meredith Crowley offered a different perspective, noting that while protectionist measures have gained popularity, they often lead to higher prices for consumers. She cited the example of US restrictions on Japanese automobile imports between 1981 and 1994, which resulted in increased car prices for Americans but ultimately led to Japanese manufacturers investing in the US, creating a vibrant automobile industry. The uncertainty created by Trump's tariffs has raised concerns among Canadian manufacturers about their future access to the US market. Major corporations may reconsider their plans to expand operations in Canada or Mexico, leading to a slowdown in economic activity in those trading partners. As the debate continued, I asked Meredith Crowley about the potential short-term pain for Americans due to higher prices resulting from tariffs. She explained that a study on the initial round of Trump's tariffs on China in 2018 revealed that most of the cost increases were initially absorbed by importers and distributors, rather than being passed on to consumers. However, as the permanence of the tariffs became clear, manufacturers gradually raised their prices, impacting consumers over time. This is particularly concerning for lower-income individuals who tend to spend more on goods rather than services. When tariffs are imposed on essential items like children's shoes and clothing, it disproportionately affects those with lower incomes. Jeff Ferry expressed concern about the possibility of a global trade war that could undermine Trump's objectives. He argued that the trade war has been ongoing since 2001, when China joined the global trading community, and that the current actions taken by the US are necessary to stimulate domestic industry. He emphasized that while tariffs may lead to price increases, they also create opportunities for new investments in American businesses. The debate highlighted the complexities of trade policies and their potential impact on both the US economy and global trade relations.