Tariffs have historically been an crucial tool of industrial policy. They were used in the last century by east Asian nations to promote infant industries,and are being used today by the EU to help spur the energy transition. But do Donald Trump’s threats to impose a 25% across-the-board tariff on imports from Canada and mexico,or his actual 10% tax rise on all imports from China,have any kind of thought-out policy rationale behind them? and should othre countries respond in kind?
To find out,the FT’s European economics commentator Martin Sandbu speaks to Dani Rodrik,professor of international political economy at Harvard. Rodrik is one of the world’s most acclaimed experts on industrial policy, and someone Martin first got to know as a PhD student in the 1990s.
Martin Sandbu writes a regular column for the Financial Times. you can find it here.
Presented by Martin Sandbu. Produced by Laurence Knight and Edith Rousselot. Manuela Saragosa is the executive producer. Audio mix and original music by Breen Turner. The FT’s head of audio is Cheryl Brumley.
Tariffs and Industrial Policy: A Conversation with Dani Rodrik
Martin Sandbu: Tariffs have historically been a crucial tool of industrial policy.They were used in the last century by East Asian nations to promote infant industries, and are being used today by the EU to help spur the energy transition. But what about Donald trump’s threats to impose a 25% across-the-board tariff on imports from Canada and Mexico, or his actual 10% tax rise on all imports from China? Does he have any kind of thought-out policy rationale behind them, and should other countries respond in kind?
To find out, the FT’s European economics commentator Martin Sandbu speaks to Dani Rodrik, professor of international political economy at Harvard. Rodrik is one of the world’s most acclaimed experts on industrial policy and someone Martin first got to know as a PhD student in the 1990s.
Martin Sandbu: Dani, thank you for joining us today. Could you start by giving us a brief overview of how tariffs have historically been used as a tool for industrial policy?
Dani Rodrik: Certainly, Martin. Tariffs have been a well-established tool in the industrial policy arsenal for centuries. Governments have used them to protect and nurture emerging domestic industries, especially in their early stages, when they are vulnerable to foreign competition. This strategy was employed quite effectively by countries like Japan and South Korea in the mid-20th century to build their manufacturing sectors.
Martin Sandbu: And what about the current context? The EU is using tariffs to promote its energy transition, whereas Trump’s tariffs on China and the potential ones on Canada and Mexico seem different. How might we differentiate these uses?
Dani Rodrik: The use of tariffs by the EU can be seen as more targeted and strategic. They are imposed to achieve specific policy goals,like fostering renewable energy technologies and restricting imports that may unduly harm the surroundings. On the other hand, Trump’s tariffs appear more ad-hoc and are ofen driven by broader geopolitical or economic tensions rather than a clear industrial policy strategy. His tariffs on China and potential ones on canada and Mexico seem more like attempts to exert economic pressure rather than systematic policy.
Martin Sandbu: Should other countries respond to these tariffs by imposing their own? What are the implications of a broader tariff war?
Dani Rodrik: Responding to tariffs with more tariffs is a slippery slope. It can escalate into a full-blown trade war, which hurts everyone involved. Rather than mirror Trump’stariff policies, other countries might be better served by more actively engaging in multilateral forums to challenge and find option solutions. Tariff wars are self-defeating and could severely dent global economic growth and stability.
Martin Sandbu: what kind of long-term impact do you foresee for these tariffs, especially with the changing dynamics in global trade?
Dani Rodrik: In the long term, broad and across-the-board tariffs like those imposed by Trump risk damaging the multilateral trading system further and reinforcing a more fragmented and protectionist global trading environment. Countries need to focus on mutually beneficial trade agreements and continued dialog to maintain a rules-based trading system.
Martin Sandbu writes a regular column for the Financial Times.
Presented by Martin sandbu. Produced by Laurence Knight and Edith Rousselot.Manuela Saragosa is the executive producer. Audio mix and original music by Breen Turner. The FT’s head of audio is Cheryl Brumley.
