Why targeted tariffs are more effective than broad tariffs

First, he’s threatening broad tariffs on most or all Chinese goods, instead of tariffs targeted at specific, military useful goods. In a post two weeks ago, I explained why broad tariffs are of limited effectiveness:

Broad tariffs cause bigger exchange rate movements , which cancel out more of the effect of the tariffs. Putting tariffs on Chinese-ma

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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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Second, Trump is threatening to put tariffs on U.S. allies like Canada and Mexico. This will deprive American manufacturers of the cheap parts and components they need to build things cheaply, thus making them less competitive against their Chinese rivals. It will also provoke retaliation from allies, limiting the markets available to American manu

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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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A recent paper by two economists at the Federal Reserve found that Mr Trump’s targeted tariffs did not work as intended. Looking at manufacturing industries such as household appliances and car parts, they found a small jobs boost from the import protection conferred by tariffs. But this was more than offset by drags from both retaliatory tariffs a... See more