The Pettis Paradigm and the Second China Shock

China’s leaders know this very well, of course, which is why they are unleashing a massive and unprecedented amount of industrial policy spending — in the form of cheap bank loans, tax credits, and direct subsidies — to raise production in militarily useful manufacturing industries like autos, batteries, electronics, chemicals, ships, aircraft, dro

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In the case of Smoot-Hawley, it was clearly the second. At the time those tariffs were enacted, the United States suffered from too much saving and too little consumption. It is why the country exported so much to the rest of the world, like China does today. What Americans needed then (as Eccles understood) was to boost the share of production dis

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These tariffs would still come with domestic risks. But for economists to suggest that the effect of tariffs in 1930 must be the same as today only shows how muddled most economists are about trade. The real lesson of Smoot-Hawley is not that the United States cannot benefit from tariffs, but rather that persistent surplus economies should not impl

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