As the saying goes, “History does not repeat itself, but it rhymes.”
A Quick Review of 250 Years of Economic Theory About Tariffs
As the saying goes, “History does not repeat itself, but it rhymes.” After a long exile, tariffs are back. But the greatest economists in history would be wary of imposing taxes to address a trade imbalance. Adam Smith, the father of economics, railed against their distorting effect on trade, which he saw as essential for national prosperity. David Ricardo developed the theory of comparative advantage, which shows that nations should specialize and then trade, which would lead to even greater prosperity. Paul Samuelson further enhanced our understanding of international trade by pointing out that there are those who benefit more, and others who benefit less, when a nation specializes, even if the economy gains overall. In sum, selling more, rather than importing less, is one of the lessons to draw from history’s greatest economists.