The Pettis Paradigm and the Second China Shock

As Professor Michael Pettis of Peking University and the coauthor of Trade Wars Are Class Wars argues, countries should export in order to import and increase consumption and the standard of living for their people. This is how comparative advantage and the added economic value of trade is supposed to work.

My solution is that we should put in place tariffs on imports to offset what would be the overvaluation of our currency. These tariffs could come or go depending on the size of the deficit. They could also be flexibly applied to avoid unduly regressive effects on American consumers.

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

A military-industrial strategy for the U.S. and its allies to match China will need to involve three elements:

1. Tariffs and other trade barriers against China , in order to prevent sudden floods of Chinese exports from forcibly deindustrializing other countries.




2. Industrial policy , to maintain and extend manufacturing capacity in democratic nations.

What is the purpose of tariffs?

First, let’s talk about two different things you might want tariffs to accomplish.

One goal of tariffs is to reduce U.S. dependence on China — or on the outside world in general — in a specific set of critical industries . For example, if China makes all the batteries, they can just decide to cut you off whenever they