A Short-Term Plan Only
“Control what you can control” is a quote attributed to the famous stoic philosopher Epictetus. But it can also be applied to current US action on trade. President Donald Trump’s use of tariffs and other economic security tools is politically popular, as voters believe that these instruments protect their jobs and interests. They have been cited as the solution to a range of problems such as US manufacturing competitiveness, trade imbalances, low wages, and taxation. History shows that tariffs can indeed be useful in addressing short-term surges or disruptions in global trade. Their long-term use, however, does not contribute to competitiveness or prosperity.
The post-World War II international system, including the International Monetary Fund, the World Bank, and the World Trade Organization, was built on the notion that nations working together to lower barriers to trade and investment would create efficiencies and greater global benefits. This proved to be true. It was reflected in declining global poverty, growing wages, and increasing wealth.
While many prospered in this new economic era, however, some lost out as gains were unevenly shared. Inequality accelerated in the 1970s and the 2000s. Developing countries built export-driven, goods-based economies that provided more competitive labor rates and lower regulatory hurdles. Western countries redirected labor into higher-paying and less physically taxing work, such as services. But the transition for some individuals and communities was painful and incomplete, creating a gap among citizens based on education levels. Better domestic policies and resources, such as access to training and programs to support local and regional economic development, could have helped ensure that benefits were more fairly distributed but often proved politically difficult to achieve.
An easier tool to use is tariffs. The US Congress has delegated to the president its tariff authority, which he can now exclusively control and wield. Tariffs are most effective when used against the partners with which the United States trades the most, including countries that are allies or that hold trade agreements with the United States.
As April 2 approaches, and countries await the reciprocal and other tariffs that will be announced that day, these levies are serving as an important marketing tool for the president to show that he is fighting for Americans.
If deployed for short-term impact, tariffs can protect US companies, communities, and citizens from unfair actions or shifting global conditions. But for longer-term effect, other policies that require more collaboration and coordination will be needed. Pro-competitiveness regulatory measures and taxation are also critical to overcome a complex US tax system that offers incentives that do not always produce intended outcomes. All these actions are needed to prepare the American workforce for 21st-century manufacturing jobs and provide pathways to skills and training that generate a lifetime return on investment.
A Yiddish proverb states: "Surrounding yourself with smaller people does not make you a giant." The upcoming US tariff actions can provide the country with a short-term competitiveness boost. But longer-term success requires greater domestic investment and a robust international agenda that includes building up partners so that all can be giants.