Tariffs, Trade Wars, and Policy Shifts under Trump: A Tutorial on the Global Economy and Trade

Just weeks before he was elected president of the United States, during a conversation at the Economic Club of Chicago, Donald Trump declared, “The most beautiful word in the dictionary is ‘tariff.’ And it’s my favorite word.” As the president-elect takes to the bully pulpit, leaders of nations threatened with new tariffs are calling Trump or even flying down to Mar-a-Lago, as Canadian President Trudeau did recently, to argue their case.  Stanford Law Professor Alan O. Sykes joins Pam and Rich for this episode to help make sense of the fascinating world of trade, tariffs, and the global economy. Al is a leading expert on the application of economics to legal problems whose most recent scholarship is focused on international economic relations. His writing and teaching have encompassed international trade, torts, contracts, insurance, antitrust, international investment law and economic analysis of law. He is the author most recently of the book The Law and Economics of International Trade Agreements.

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(00:00:00) Chapter 1: Introduction and Explanation of Tariffs 
Rich Ford and Pam Karlan introduce Professor Alan Sykes, a leading expert in international trade law, to explore the basics of tariffs. They discuss what tariffs are, how they function like a tax on imports, and who ultimately bears the cost. Sykes explains the economic complexities, such as elasticity of demand and supply, and highlights how tariffs impact U.S. consumers and foreign producers.

They discuss how tariffs often fail to significantly increase manufacturing jobs and the potential downsides of retaliation and supply chain disruptions.

(00:08:36) Chapter 2: Policy Implications and Optimal Tariff Strategies 
Alan Sykes unpacks the policy decisions behind tariffs, such as balancing national security concerns and economic efficiency. Sykes explains the concept of "optimal tariffs" and critiques proposals like 100% tariffs, arguing for targeted approaches such as subsidies for sensitive industries. The hosts highlight the distinction between product-specific measures and country-focused tariffs in maintaining supply chain resilience.

(00:12:28) Chapter 3: The Evolution of U.S. Free Trade Policy 

The group explores the post-World War II consensus around free trade and how it has shifted in recent years. Alan Sykes outlines bipartisan changes to U.S. trade policy, the impact of the "China shock," and the shift towards an "America First" approach under both Trump and Biden administrations.

(00:16:43) Chapter 4: Tariffs, Trade Wars, and Public Misunderstandings 

The discussion delves into the politics of tariffs and their economic implications. Alan Sykes explains why tariffs remain politically popular despite their economic inefficiency, the mechanics of trade wars, and the historical example of the Smoot-Hawley Tariff. They also discuss how tariffs and retaliation, such as restrictions on rare earth elements, could affect U.S. industries.

(00:23:26) Chapter 5: Multilateral Trade Agreements and National Security 

Alan Sykes traces the history of multilateral trade institutions, focusing on the GATT, WTO, and USMCA. Sykes explains the U.S.’s recent retreat from WTO commitments, the renegotiation of NAFTA, and the controversial use of national security clauses to justify tariffs and sanctions. The conversation closes with insights on the implications of these shifts for allies and adversaries alike.