Special: Can tariffs make you rich? with Ha-Joon Chang

Summary

In this insightful discussion, the speaker critiques Donald Trump's tariff plans, comparing them to historical examples of economic protectionism. While tariffs have been successfully used in the past by countries like Korea and the United States to foster industrial growth, the speaker argues that Trump's approach lacks strategic focus and is unlikely to improve living standards. Instead, it may lead to higher inflation and increased inequality, as the U.S. financial system drains resources from companies rather than encouraging investment. The speaker remains pessimistic about the success of Trump's tariffs, emphasizing the need for a more targeted and long-term strategy.

Takeaways

• 😀 Tariffs can be used for both good and bad purposes depending on how and why they are applied, with no universal outcome.
• 😀 The most successful use of tariffs involves protecting infant industries in economically backward nations, allowing them to develop and eventually compete with foreign firms.
• 😀 Protectionism through tariffs is compared to child-rearing: nurturing industries until they are strong enough to thrive independently.
• 😀 Historical examples, including Britain, the United States, and Germany, show that tariffs were used to foster industrial growth in the past.
• 😀 Trump's tariff plans are not aligned with the idea of protecting developing industries, as they are aimed at an already established economy, like a 45-year-old son who still needs protection.
• 😀 The goal of Trump's tariffs seems to be attracting foreign companies to build factories in the U.S., but this approach is unlikely to rebuild industries or raise productivity significantly.
• 😀 The concept of 'tariff jumping,' where foreign companies set up production locally to avoid high tariffs, has been successfully used in countries like Brazil in the past.
• 😀 High tariffs are not enough to create a competitive industrial base; a strong ecosystem of skilled workers, infrastructure, and research institutions is essential for high productivity.
• 😀 The current U.S. financial system might prevent the success of Trump's tariff plan because corporations would likely use any extra resources for stock buybacks, exacerbating income inequality.
• 😀 Raising tariffs without a clear, targeted plan for specific industries or the necessary infrastructure will lead to inflation, higher inequality, and long-term economic challenges.

Q & A

What is the main argument regarding Trump's tariff policies?

The main argument is that Trump's broad, non-targeted tariffs are unlikely to improve American industries. Instead of nurturing emerging sectors, they might worsen inequality and inflation without rebuilding a competitive industrial base.

How were tariffs historically used by successful countries?

Historically, countries like the U.S., U.K., and Korea used tariffs as a protective measure to develop their industries. This protection allowed their domestic industries to grow and become competitive before facing international competition.

What is the 'infant industry protection' concept mentioned in the transcript?

The 'infant industry protection' concept involves protecting and nurturing young industries through measures like tariffs and subsidies, allowing them to develop and eventually compete with superior foreign firms.

Why does the speaker compare tariffs to child-rearing?

The speaker compares tariffs to child-rearing because, like nurturing a child to grow and develop, tariffs protect an industry's early stages until it is capable of standing on its own and competing in the market.

What is the critique of Trump's approach to tariffs?

Trump's approach is critiqued for being nonsensical, as it attempts to protect industries that should already be competitive. The analogy to protecting a 45-year-old son who is not doing well illustrates the flawed logic of such policies.

How does the speaker view the U.S. financial system in relation to Trump's tariff plan?

The speaker argues that the U.S. financial system, which is heavily focused on shareholder profits, will drain the extra resources from protected companies instead of allowing them to reinvest in innovation, thus making the tariff plan ineffective.

What is meant by 'tariff jumping' in the context of foreign companies?

Tariff jumping refers to foreign companies setting up factories in a country with high tariffs, like what happened in Brazil in the 1960s and '70s with Fiat and Ford, to circumvent tariffs and meet domestic demand.

Why does the speaker believe tariffs alone won't improve U.S. industries?

The speaker believes that tariffs alone won't be enough to improve U.S. industries because a high level of industrial productivity requires not just protection, but also a supportive ecosystem, including skilled workers, infrastructure, and research facilities.

What are the potential consequences of broad tariffs, according to the speaker?

Broad tariffs could lead to increased inflation, worsened income inequality, and a failure to rebuild the industrial base, as the U.S. would need decades, not years, to recover from the erosion of its industries over the last 40 years.

What would be a more effective way to implement tariffs, based on the transcript?

A more effective approach would involve targeted tariffs, such as protecting specific industries like automobiles while ensuring the right workforce, infrastructure, and research are in place to support that sector's development.