Bigly Huge Tariffs: A Discussion with Former Fed Vice-Chairman Alan Blinder

Less than a month ago, President Trump declared tariffs on steel and aluminum imports, particularly targeting China. The proposed 25% steel tariff, along with a 10% tariff on aluminum, made ripples in the economy: a large number of stocks were sold, warnings were made by nations that could possibly be affected, and whispers of a trade war amplified. Trump’s tariffs seek two deliverables. For one, they support his campaign promise to bring back jobs to a large number of industrial, blue-collar Midwesterns in the manufacturing industry. Second, they aspire to undermine China, which Trump has, throughout his campaign and presidency, presented as a threat to the American economy.

In the midst of this announcement, critics have appeared, commenting on the unintentional, harmful consequences of the tariffs. Alan Blinder, an economics professor at Princeton University and former vice-chairman of the Federal Reserve, wrote an op-ed for the Wall Street Journal making vocal his concerns of a trade war while noting the greater damage that these tariffs will have on American consumers. His article received plenty of criticism from WSJ commenters, especially with regards to the economics-focused base of his arguments. General standpoints among these commenters included a notion to reclaim economic growth from a global opponent.

Last week, I spoke with Blinder in person to better understand his arguments and their backing. In response to his claim that the tariffs would incur more injury than good to industrial workers, Blinder referenced America’s growing service economy. In such a situation, America should be less focused on industrial manufacturing and more on providing products and services to consumers. Even with tariffs on foreign imports, America’s manufacturing sector is diminishing. What, then, happens to workers if manufacturing should fade away in developed economies? The US economy centers increasingly greatly on technology, and as such, the government should allocate resources for these structurally unemployed workers to gain skills and transfer into this growing market. Workers would not necessarily be losing their jobs; they are simply adopting new ones. We have seen revolutions like these in the past; the Industrial Revolution is one example and even had its own fair share of opponents to new developments (for example, Luddites who had also lost their jobs due to technology). As much as we can and will be frustrated about the reduction of certain industries, we should embrace the jobs that arise from the opening of a novel sector.

While these tariffs cater to the industrial workforce, they also establish a strong statement of American protectionism and opposition towards Chinese trade tactics. Indeed, Blinder agrees that the largest problem facing trade between the US and China is intellectual property theft. The solution, however, does not necessarily require tariffs as the Chinese economy, as large as it already is, will be unlikely to suffer any significant impact. Rather, Blinder elaborates on the Trans-Pacific Partnership (TPP), which he briefly mentions at the end of his piece. The TPP contained substantial laws overseeing copyright and intellectual property and excluded China, but a year ago, the US withdrew from this partnership. Granted, the TPP’s restrictions were criticized for inhibiting the innovation of the tech sector and expanding the discretion of large multinational corporations. Nonetheless, it remains evident that, in order to combat the issue of intellectual property theft, America needs a collaborative effort, in partnership with other nations.

More than ever, in the twenty-first century, countries are required to collaborate through interdependent trade, and especially with service economies, like America’s own, it is essential to engage in free trade. The reality of the situation is that free trade is complicated by nations who attempt to undermine the system, and passivity is incurred when we refuse to acknowledge and stand up to these nations. Nevertheless, retaliating with a hardline stance as a singular nation often proves to be more destructive to the domestic economy than the targeted nation’s economy. How will Trump’s tariffs fare in the long term? That’s a question left unknown. So far, on the global scale, they’ve served a fair warning to China’s behavior and represented measures to be taken seriously in protecting our ideas and innovations, though underlying this ferocity is an uneasy sentiment of lost dominance. More than anything, their effects will have Americans questioning what does, and should, lie next for the nation’s global hegemony.