NPR | Tariffs: What are they good for?

Tariffs and Trade 2

• What are tariffs, according to economists?
  A) Subsidies paid to domestic firms
  B) Taxes on exports
  C) Import taxes paid mostly by foreign producers
  D) Import taxes paid mostly by consumers
  

D

Why do most economists traditionally oppose tariffs?
A) They reduce government revenue
B) They violate international law
C) They raise prices and reduce competition
D) They prevent specialization

C

Which economic theory is most associated with the argument for free trade?
A) Keynesian multiplier
B) Comparative advantage
C) Monetary neutrality
D) Infant industry theory

B

What is the central claim of the theory of comparative advantage?
A) Countries should produce everything domestically
B) Rich countries benefit more from trade than poor ones
C) Countries should specialize and trade to become richer overall
D) Trade eliminates inequality

C

Who is Ha-Joon Chang?
A) A Trump administration trade official
B) A WTO arbitrator
C) An economist who has argued for protectionism for decades
D) A critic of infant industry theory

C

What is the “infant industry” argument for tariffs?
A) Tariffs permanently protect inefficient firms
B) Young industries should be protected temporarily until competitive
C) Tariffs prevent foreign monopolies
D) Tariffs reduce consumer prices

B

Which company is Chang’s canonical example of successful infant industry protection?
A) Samsung
B) Toyota
C) Hyundai
D) Ford

C

How did South Korea initially protect Hyundai?
A) Currency manipulation
B) Export subsidies
C) Total ban on foreign car imports
D) Voluntary export restraints

C

What condition is crucial for infant industry protection to succeed?
A) Permanent tariffs
B) High consumer prices
C) Correct industry selection and eventual removal of protection
D) Foreign retaliation

C

Which American historical figure originated the infant industry argument?
A) Abraham Lincoln
B) Alexander Hamilton
C) Thomas Jefferson
D) Henry Clay

B

Beyond infant industries, when do economists often accept tariffs as justified?
A) During recessions
B) For national security
C) To raise consumer prices
D) To eliminate trade deficits entirely

B

What is the “China shock”?
A) China’s currency devaluation
B) China’s trade war retaliation
C) Economic disruption following China’s WTO entry
D) Chinese industrial subsidies

C

What was a major consequence of the China shock in the U.S.?
A) Immediate job replacement
B) Rising wages
C) Localized economic depressions
D) Lower inequality

C

According to Trump-world economists, what is the core problem with free trade?
A) It violates WTO principles
B) It increases government spending
C) It trades manufacturing jobs for cheap goods
D) It discourages innovation

C

What trade-off does the Trump administration appear willing to accept?
A) Lower exports for higher imports
B) Higher prices for domestic manufacturing jobs
C) Less revenue for more consumption
D) Reduced leverage for cooperation

B

What is one argument Judy Shelton makes in favor of tariffs?
A) They always reduce prices
B) They eliminate inflation
C) They redirect spending toward domestic production
D) They replace income taxes

C

If consumers continue buying imports despite tariffs, what benefit remains?
A) Job growth
B) Export growth
C) Tariff revenue
D) Lower deficits

C

What was the outcome of washing machine tariffs in Trump’s first term?
A) No job creation
B) Massive export growth
C) 1,800 jobs created at high cost per job
D) Lower appliance prices

C

What cost did washing machine tariffs impose per job created?
A) $80,000
B) $250,000
C) $800,000+
D) $1 million

C

How does Trump sometimes use tariffs beyond economic purposes?
A) As WTO compliance tools
B) As monetary policy
C) As geopolitical leverage
D) As industrial planning

C

1. What are tariffs, and why do economists dislike them?
   

1. Tariffs are taxes on imported goods, paid mostly by consumers. Economists generally oppose them because they raise prices, reduce competition, and slow economic growth. Free trade is preferred because it increases efficiency through specialization and comparative advantage.

1. What is comparative advantage?
   

1. It is the theory that countries become richer overall by specializing in what they do best and trading with others, even if one country is more productive in every area.

Who is Ha-Joon Chang and what is his core argument?

Chang is an economist who has argued for protectionism for over 30 years. He claims that free trade can hold developing countries back and that rich countries historically used tariffs to grow before promoting free trade globally.

What is “Kicking Away the Ladder”?

Chang’s 2002 book arguing that developed countries used protectionist policies while developing, then discouraged poorer countries from doing the same.

Why did Chang feel isolated early in his career?

Because most economists strongly favored free trade, making pro-tariff arguments deeply unpopular.

What is infant industry protection?

The idea that governments should temporarily protect young domestic industries from foreign competition until they become competitive.

How did Hyundai begin?

Hyundai started as a construction company. In the late 1960s, it assembled cars using Ford knockdown kits.

6. What role did the South Korean government play?

• Forced firms to design their own cars

• Subsidized Hyundai heavily

• Banned foreign car imports entirely

Why was protection necessary for Hyundai?

Because consumers would otherwise buy better or cheaper foreign cars, making it impossible for Hyundai to survive early losses.

What was the cost to consumers?

Higher prices, fewer choices, and tax money used to subsidize Hyundai.

Why did the strategy succeed?

Hyundai eventually became globally competitive, and protections were removed once the industry matured.

Why must infant industry protection be temporary?

Permanent protection wastes resources and props up inefficient firms.

Who originally proposed this idea?

Alexander Hamilton, the first U.S. Treasury Secretary.

Why does infant industry protection often fail?

Governments may choose the wrong industry or mismanage protection.

14. Examples of failure?
    

14. Malaysia’s car industry and Brazil’s computer industry wasted resources and failed to become competitive.

14. Examples of failure?
    

14. Malaysia’s car industry and Brazil’s computer industry wasted resources and failed to become competitive.

17. When are tariffs used to “level the playing field”?
    

17. When trading partners manipulate currency, steal intellectual property, or exploit labor to gain unfair advantages.

What is the “China shock”?

The economic disruption following China’s entry into the WTO in 2001, which added roughly a billion workers to the global labor force.

What were its effects in the U.S.?

Manufacturing job losses concentrated in specific towns, creating long-term economic depressions with little recovery.

How does Trump-world interpret trade deficits?

As evidence of bad deals where the U.S. loses jobs while gaining cheap, disposable goods.

18. Why are manufacturing jobs emphasized?
    

18. They historically provided pathways to the middle class for workers without college degrees.

What trade-off does the administration accept?

Higher consumer prices in exchange for rebuilding domestic manufacturing.

• How are tariffs supposed to stimulate domestic production?

• By making imports more expensive, incentivizing Americans to produce domestically.

What role does tariff revenue play?

It provides government revenue if consumers continue buying imports.

22. Why doesn’t tariff revenue necessarily fix budget deficits?
    

22. Because revenue is often offset by bailout costs, such as compensating farmers harmed by retaliation.

What did Trump announce regarding cars?

A 25% tariff on imported cars and certain parts; no tariff on U.S.-made cars.

Why is this controversial?

The auto industry is not an infant industry and relies heavily on foreign parts.

Expected effects?

Higher prices for all cars, reduced competition, fewer cars sold, and higher costs even for U.S. automakers.

26. Market reaction?
    

26. Stock prices of U.S. automakers fell, signaling expected costs.

What happened after washing machine tariffs?

1,800 U.S. jobs were created.

At what cost?

Over $800,000 per job, even after accounting for tariff revenue.

How did Trump use tariffs against Colombia?

Threatened 25%–50% tariffs to force acceptance of deportation flights.

Outcome? (Columbia Trump tariffs)

Colombia complied within hours; tariffs were not imposed but held “in reserve.”

Why can the U.S. use tariffs this way?

Because it is wealthy, consumes heavily, and relies less on trade than its partners.

How does this differ from past U.S. trade philosophy?

Previously, free trade was used to encourage liberalization and democracy. Now, trade threats are used as leverage.

What is the episode’s core conclusion?

Tariffs can work in limited, specific contexts—infant industries, national security, unfair trade—but broad, chaotic use imposes high costs, creates uncertainty, and weaponizes trade as power rather than cooperation.