The best books on Tariffs

Before we get to the books, can you explain what tariffs are, why Donald Trump has imposed them, and why most economists seem to think that they’re a bad idea?

Tariffs are, very simply put, a form of taxation on bringing foreign-made goods into a country. They are charged at the borders on the entity that has contractual custody of a product. A shipment will arrive from overseas. As part of that shipment, the custodian will fill out an import declaration, indicating what’s in the shipment, classified against the way that governments assign codes to different kinds of products. Say we’ve got 500 TVs. They’ll be under a particular code, and we can see that for this code, the government charges, say, a 10% tariff. We know the value of the TVs at the time they cross the border, and 10% of that is however many $1,000s and that is what you have to pay to the government.

Like any other tax, tariffs do a couple of things at the same time. They raise money for the Treasury, which is historically what they were used for. But they also encourage and discourage certain forms of behaviour. They discourage importing goods because they make them less cost competitive against domestic production, and they encourage the production of that good domestically because domestic producers will have a price advantage over foreign products.

Donald Trump has described tariffs as tools to achieve four objectives. Firstly, he sees them as a way to raise money so that he can cut other taxes or spend that money on things he likes. So, he sees them as a revenue-raising tool. Second, he sees them as a tool to encourage factories to move back into the United States by giving them a cost advantage over foreign production.

Third, he sees the ability to raise tariffs as something he can use as a bargaining chip, whether that be around economic policy, trade policy, social policy, or anything else. He can work a trade, and it’s very attractive in that regard, because it’s effectively a currency he can create. He can, with the stroke of a pen, raise tariffs, and then with the stroke of a pen take them away.

Finally, from a national security perspective, I think it’s fair to say that he and a lot of the US establishment see an epochal conflict with China looming for the rest of the century. Trump believes that tariffs can be a tool both to slow down Chinese growth and decrease the dependency of the United States on Chinese supply chains, reducing the ability of China to threaten the US or control the US’s policymaking by virtue of so many things the US needs being made in China. That’s where he is coming from.

I think on a personal level, he is also very attracted to the powers that he has been granted by a series of acts under the US system that mean that he can do lots of things with tariffs, through the power of the executive, without needing to pass fresh legislation in Congress, having to deal with the legislature and filibusters and all this kind of thing. He can just do it. And a combination of US acts, most notably the International Economic Emergency Powers Act, give him a lot of authority to do that in ways that he doesn’t necessarily have in other aspects of policymaking.

To your last question, why are economists pretty sceptical about tariffs? There are a bunch of reasons. It depends to some extent where economists sit on the ideological spectrum. Libertarians would say all taxation is bad. To take a more moderate position, the biggest thing that economists will say about import taxes is that they tend to be very regressive. A person at the lower end of the socioeconomic spectrum probably buys roughly as many T-shirts as a person who’s quite wealthy, but they’re more likely to rely on the cheapest, best value good on the market that they can afford, and that’s often an import. So there’s a sense that tariffs will tend to hit the poorest in society harder than the richest, which, generally, is the opposite of what you want in trying to create an equitable system.

They would also say that it’s incredibly difficult to design tariffs that don’t end up penalizing your productivity and efficiency. Most modern factories rely on at least some components, sub-components, or machinery from overseas. And, unless you are incredibly nuanced and incredibly targeted in how you design your tariff policy, as soon as you become at all sweeping, what you find is that foreign cars are now more expensive with tariffs imposed, which gives domestic car producers an advantage, but car parts are now more expensive, and so are car machining tools, and so are ball bearings and all sorts of other stuff. So often, counterintuitively, even though it feels like what you’re doing should be an absolute bonanza for domestic producers, it actually ends up making them less competitive.

Lastly, tariffs create poor incentives, especially in economies where there are just a couple of major players in a given industry. If you know your factory is not as efficient as it could be, and foreign producers would outproduce you because they have higher quality, better value goods, or they’re able to make them much cheaper, you could invest hundreds and hundreds of millions on process improvement, research and development, product improvement, or you could spend a fraction of that on an effective lobbying campaign and just get the government to raise tariffs again and again and again every time foreign producers become competitive. So it creates pretty perverse incentives to focus corporate money on lobbying governments for ever more subsidies and protection versus becoming more efficient and competitive.

Let’s move on to the books. First up is Six Faces of Globalization: Who Wins, Who Loses, and Why it Matters, by Anthea Roberts and Nicolas Lamp. Why have you chosen this one?

My approach, in general, to choosing books for this list was not so much to focus on the technical minutiae of tariffs. The average person does not need to know the intricacies of customs valuation in order to understand the broader debate that’s going on here and how tariffs are used as a policy tool.

What I do think it’s important for people to grasp is this much broader meta-narrative. We have transformed our economies to work in certain ways, the most commonly known of which is through globalization, where things are made all over the world in collaborative value chains. I think it’s very important to understand that discussion and where that’s coming from. And what I think Nicholas and Andrea do fantastically is provide, in a neutral way, the meta-narratives of looking at this issue.

Whether you are a free market libertarian or a protectionist, or if you’re someone who’s very focused on the environment, they look at the process from six different windows, and provide what I think is a really fair version of the critiques and defences of globalization.

Globalization is not some religion. You don’t have to believe in it through faith. But a lot of the critiques that are out there aren’t always super well informed or holistic. By the time you finish this book, you will be equipped with the best and most thoughtful arguments about globalization, so that you can make up your own mind about the general concept. I think understanding these arguments will help someone understand more when it comes up in policymaking. When someone suggests doing one thing and not the other, it will help you to understand how to conceptualize that.

And do they come up with particular areas where they think globalization should be modified or improved?

Absolutely.  Professor Lamp would be the first to say this is not necessarily his critique of globalization, or Anthea’s. What they do is corral the critiques of others. For example, there is the environmental critique of externalization—out of sight, out of mind—this idea that often when we pass environmental regulations, what we’re effectively saying is that you can’t produce these things in a dirty way domestically anymore. What that does is raise costs for producers. Almost always, the dirtiest way of doing things is, at least in the short term, the most cost-efficient. Being clean and being responsible is more expensive. But in a globalized economy where our regulations end at our borders, but supply chains don’t, there is a real critique to be made, asking whether, effectively, we are just incentivising foreign countries, especially developing countries, who desperately need the income and the capital, to keep their regulations low in order to attract the factories that we’re turning our nose up at. These factories overseas then sell the produce back to us. That’s an example of something that they pick up on, the sort of negative externalities of trade and globalization. But every perspective comes with its own critique, and I think that they’re quite salient.

Let’s move on to Clashing Over Commerce: A History of US Trade Policy. How far does this account go back and what important part of the story does it tell?

Doug Irwin is considered, among experts, pretty much the top trade historian living. He’s a tremendous authority on this. I included his book, even though it’s quite dense. This is not an airport page-turner. It’s a very serious work of economic history.

I think if you try to disentangle the Trump pitch, a lot of it is premised on the idea that he’s the first one to ever try this. He has this idea that the one time the US had tariffs, it was a glorious golden age and made everybody rich. Doug’s work certainly picks that apart, as well as this idea that all of the decisions made over the last 75-odd years in US trade policy involved the US being taken advantage of, that US leaders were suckers who got bamboozled by foreigners who took advantage of them.

Without getting into the politics of it, it can be really valuable to go back through that history, step by step, as Doug does, to look at the debates in their historical context. To look at why some of these decisions were made; to look at what the policymakers were hoping to achieve; and to look at what kind of pressures they were under, and appreciate that this stuff is hard. It has always been hard, but US policy looks the way it looks, not because no one has ever thought of protectionism before. Protectionism wasn’t invented in 2016 or 2024. It’s been with us for a while, and Doug does a fantastic job of contextualizing that.

There was the golden age around the 1890s when tariffs were high. But were there tariffs and debates around them right from the founding of the United States?

Absolutely. The pre-colonies initially funded themselves with tariffs on luxury goods because they lacked the state capacity to collect more complex forms of taxes. If you think about it, a sort of sales tax or an income tax requires a lot of information and manpower and administration to know what everybody in the country is earning so you can tax it, whereas setting up a customs bureau at six or seven ports on the coast is a significantly more achievable bureaucratic task for a newly independent set of colonies. But even that was hugely contentious at the time, and almost led to a rift, which is the sort of thing that Doug talks about.

Let’s move on to Between Market Economy and State Capitalism: China’s State-Owned Enterprises and the World Trading System by Henry Gao and Weihuan Zhou. Tell us about this one.

This book is very much in two parts. In the first part of the book, Professors Gao and Zhou give the most accessible and thorough account of the history of the Chinese regime’s economic and trade policy, their approach to investment, their approach to exporting, how their thinking has evolved. For a lot of us in the West, this is a complete black box. We can tell you what the state of polling is in a swing district in Ohio, but most people couldn’t name two members of President Xi’s inner circle. And so it is fascinating to read.

So much of the future is going to be shaped by the US and China. We have a million pages of ink written by Americans about America and by others about America, whereas genuinely insightful writing about the Chinese Communist Party, how it made decisions historically, how it created what’s called the economic miracle, is in short supply.

This is really valuable, so that you at least have some insight into how they got to where they are, as a kind of complement to Doug’s book. The second half of the book is more of a trade law section, which talks about the extent to which the Chinese government uses what’s called “state capitalism”; the way that it uses a blend of private and public industry. It looks at the extent to which the rules of international trade, the World Trade Organization and other treaties are equipped to deal with that and where and when it begins to harm other nations.

You’ll find that fascinating if you’re from a law background or interested in law, but for me, what stood out and what I thought made this book really valuable to have on this list was this sort of insight into China, Chinese economic history and Chinese trade history.

Does the increasing relative size of China in the global system mean that there has to be, or there is likely to be, a change in how the whole system operates? That seems to be something that Trump is talking about, that somehow China doesn’t play by the rules, or the rules have ceased working because China is so big, and given the way that it operates, the system is not working. Is there merit in that argument? And does the book address that?

It does a good job of unpacking the critiques of a specific part of the Chinese model, which is the state-owned enterprises and state champions model. Capitalist theory says that it’s a really bad idea to have the government picking corporate winners and losers, that in the long run, that kind of thing creates the wrong incentives. It doesn’t reward the right kind of innovation, and so on. If you spin history out for 5,000 years, eventually a system based on state patronage and bureaucratically selected winners is going to lose out to a more competitive market where the government doesn’t play that role.

But, given that China is operating at such scale, there is a sense that even if you accept that argument without reservation, other governments can’t wait that long if a flood of Chinese government patronage is helping China monopolise a market entirely in a way that is crushing competition abroad. Governments have to deal with that in the here and now, and they have to make really hard choices effectively between the interests of consumers and perhaps some long-term considerations about their dependency on Chinese supply chains, the importance of having certain forms of domestic industry and so on.

This is really, really complicated. And one of the reasons I think it’s important to understand the history is to understand just how complicated this stuff is.

Let’s move on to International Trade Law: A Casebook for a System in Crisis, which is an eBook. Tell us why you chose it and what the ‘system in crisis’ is.

This is a free online trade law textbook written by four of the top trade lawyers. Well, four incredibly well-recognized trade lawyers who all teach trade law. Two of them were already the authors of a textbook, but had grown frustrated with how slowly they could update it, and you know how difficult it is to address mistakes in a printed work, not to mention the price of trade law textbooks.

So they spent the better part of a year and a half writing this book from scratch. It is an incredibly accessible, comprehensive guide to how trade looks at everything, from early chapters on the history of trade and the great debates in trade. Also, if you are looking to find out more about rules of origin, the WTO technical barriers to trade, there is a bit you can click on that will explain it to you. And if you still don’t get it, you can leave a comment under it, and one of the professors may turn up and explain it to you.

I think there are well over 30, possibly 40 universities worldwide that now use it.

And then lastly, The Great Convergence: Information Technology and the New Globalization by Richard Baldwin. Tell us about this and what the new globalization is.

Richard Baldwin’s specialty is in seeing over the horizon. The book he wrote directly before this one was called Globotics, looking at the idea that a combination of automation and globalization would significantly upend the economics and politics of global commerce.

And we’re seeing that right now. The Great Convergence traces phases of globalization. It is useful in understanding globalization, but it is especially interesting because of the way it looks at how communication technology is going to replace transport costs as the determinant of where work is done. One of the most interesting things he focuses on is this idea that ICT technology, and all sorts of technologies of the future, are going to expose white collar workers, who managed mostly to dodge the disruption of the previous eras, to ever greater competition.

The Industrial Revolution hit artisans and craftsmen. Automation and globalization have been hitting factory workers and perhaps farmers. But if accountancy becomes something that can be traded across borders, as it increasingly is, if elements of legal services can be traded across borders, if art and marketing become tradable across borders as they increasingly are, we are going to have a huge segment of society in most Western countries, probably the dominant segment of society in terms of cultural and economic power, suddenly finding themselves on the front line in a way that they haven’t been before. And that is going to have political ramifications. People are not going to simply take a cheapening of their labour and increased competition from abroad lying down. They will look to use the levers of government in order to protect their prosperity. So what could well shape a lot of the trade politics, perhaps not of this decade, but of the next decade, is questions of whether, say, a processing centre in India does the payroll for my company overnight, the government should intervene to protect the jobs of accountants domestically.

Richard is a fantastically accessible writer and the book is very readable.

And this could go for medical services as well, for instance, diagnosis and all sorts of professional jobs, right?

Let me give you a really interesting example that’s practical now. Let’s say you have a hospital where, for the sake of efficiency, you’ve got doctors who are taking notes freehand, so either with a pen or with a stylus onto a tablet. The most cost-efficient thing is that overnight or between shifts, all of those handwritten notes travel to a country with significantly lower costs of labour, but where English is a first language, or at least a very common language—India, the Philippines—where they are transcribed and linked to patient files in time for the next shift or the next rotation.

That sort of thing is entirely possible right now. We have the technology right now. I think it is happening in certain places, but it raises huge questions, both in terms of labour disruption—is this costing the jobs of hospital administrators in wealthier countries?—but also in terms of privacy and patient data, because you are sending patient data into jurisdictions your government doesn’t control and in which it has no visibility. It’s a fascinating debate that’s already happening, and it’s only going to grow more and more heated.

Finally, tell us about your book, Dmitry, Why Politicians Lie About Trade, and What You Need to Know About It. What lies do politicians tell about trade?

Well, I don’t know if you’ve watched the news lately, but there have been a couple of examples you can pretty much just transcribe!

Let me start by saying the title is a little bit sensational. It makes the book sound like far more of a polemic than it really is.

I became a semi-public figure and commentator during the first Trump term, and especially during Brexit. Those were really the first times in a very long while where trade was consistently in the news, where trade would lead newspapers, and when trade would be one of the first couple of segments on the nightly news. And the debate was frankly appalling in terms of its quality. A lot of very confident people sold things that were complete fabrications and that, for a lot of us watching it, was not only annoying, as it always is when someone is wrong about your field, but actively dangerous. Some of the things, some of the proposals that were being floated around by very credentialed, well-placed people would have been disastrous.

For instance, if the UK had crashed out of the European Union with no deal and no transition period a month after the referendum, as some people were suggesting, it would not only have been disastrous for the UK economy at a level that is difficult to convey, but would almost certainly have had human casualties—farmer suicides and so on, as people just completely lost their livelihoods and supply chains were disrupted.

So looking at that, it was hard not to think how I could contribute to the public debate if trade was going to be increasingly a part of the public discourse; if it’s going to be more and more what people campaign on; if it’s going to be something that is debated on panel shows.

So, despite what the book is called, all it’s trying to do is to say that the reason politicians lie about trade is often so that they can present a choice as not being a choice. Any policy is a matter of the government choosing between competing interests and priorities. But trade, in some ways, is special, because if you are willing to be duplicitous or not tell the full story, you can pretend that all of the interests that you might harm are overseas.

And the reason politicians can get away with that is that trade is pretty counterintuitive. Most people don’t have a lot of sense of either how trade policy works, how the international agreements work, or even what it takes to move a box across a couple of national borders to get it into your hands. It’s this vague, nebulous thing that you can then project deception onto.

So, in the first part, I go through a brief history of trade policy. What are the decisions governments make about it? How does trading goods work? How does trade in services work? How do trade negotiations work? What is the World Trade Organization? I do that in as accessible way as I can. The tone I’ve tried to go for is one where you have made the horrible mistake of being seated next to me at a bar and asking me a question about trade, and now I have trapped you for the nine-and-a-half hour audiobook run time and I’m delivering the answers to you. It’s me trying to talk to you like you are an intelligent person who’s almost certainly passionate about things other than trade, but that trade impacts, and you just don’t happen to have a lot of experience with trade itself. In the second half, I try to explain a little bit about how trade impacts or interacts with the things people tend to care about, whether that’s national security, development, women’s economic empowerment, or the environment. What is the policy intersection there?

Finally, can I ask you to look into your crystal ball, rather than into history? Where do you see this tariff war that Trump started heading? Do you think it’s going to be persistent, or do you think it’ll be dismantled while Trump manages to leverage other interests that he’s keen to pursue? Where do you think the balance of probability lies, given the balance of competing interests globally?

If I had to guess, I would say that at least this initial iteration of the trade war will be dismantled. I believe that the US administration is increasingly looking for an off-ramp, they just haven’t found one that is face-saving enough, or one that they can convince the President to accept. All of the objectives that I spoke about at the start, when we discussed what Trump is aiming to achieve, are things you can make progress against with thoughtful trade policy, whether it’s raising revenue or creating some separation from Chinese supply chains, or addressing barriers abroad. You could use trade policy in a smart way. The US economy is a phenomenally powerful beast.

The problem is they’ve not been at all thoughtful in how they apply that power. They have simultaneously started a fight with everyone on Earth and, seemingly without any preparation whatsoever, they picked a fight with China, which has been preparing for exactly this kind of confrontation for more than a decade. I think that at least in the short term, they will look to bounce off this and regroup. What I don’t know is whether they will then re-gather to spend a little bit more time planning and thinking, get a few more ducks in a row, and come back into this arena, swinging again for all of those reasons we talked about at the start. But I think what they’re currently doing isn’t sustainable, and I think, increasingly, they know it.