Weekly Blog - 15 February 2025 - Tariffs
Tariffs are back in the headlines in a big way, with the new US administration threatening and using them widely. This week we ask what are tariffs and where have they been helpful or unhelpful in helping nations develop and reduce poverty?
Tariffs
Tariffs are the charges that nations put on goods coming into their country. Putting high tariffs on incoming goods makes the goods produced by domestic firms in the same sector cheaper by comparison and thus drives ordinary people to buy more home-grown products and less imports, thus strengthening the national economy. However, in the short-term at least, it also drives up the cost to ordinary people of buying those goods. And it also almost always results in reciprocal tariffs from the exporting nations, making it harder to export into those countries too. So are tariffs good or bad?
President Trump certainly seems to think they are good, and has described them as ‘the most beautiful word in the dictionary’. Since coming to power he has raised tariffs on all goods coming from China to 10% and bought in a 25% import tax on all steel and aluminium coming into the US. He has also threatened Mexico and Canada with 25% tariffs. In his latest move he has threatened to use tariffs against any country which is using trade policies such as subsidies, tariffs and exchange rate manipulation in ways which are seen to negatively impact US exports. He has especially talked about the EU in this regard. Such moves are also expected to impact Asian middle-income countries like India, Vietnam and Thailand. Partly this is a negotiating tactic, but partly it is very genuine.
What does the Bible say?
As Christians, what might our reaction be to such moves? Our first instinct must always be to turn to the Bible for guidance. Understandably, the Bible does not discuss modern tariff regimes. However, it does have a lot to say about the economy, poverty and caring for creation. The Bible is incredibly clear that God loves all who live in poverty, has a special concern for them and wants to see all lifted out of extreme poverty. As God told his people when they entered the Holy Land, “If any of your fellow Israelites become poor and are unable to support themselves among you, help them as you would a foreigner and stranger, so they can continue to live among you” (Lev 25: 35). We also know that God loves and deeply cares for the other parts of his creation too, and that we too should care for creation, as Jesus says “Consider the ravens: They do not sow or reap, they have no storeroom or barn, yet God feeds them … Consider how the wild flowers grow. They do not labour or spin. Yet I tell you, not even Solomon in all his splendour was dressed like one of these”, for even though it is temporary, “that is how God clothes the grass of the field” (Luke 12: 24 – 28). So as we consider the use of tariffs we should be judging them as good or bad to the extent that they help to lift nations and families out of poverty, and protect God’s creation. A major piece of research from Arise, the Arise Manifesto, looks in detail at how tariffs have been used successfully or otherwise to achieve these ends.
The use of tariffs in development
It finds that there is in fact no easy answer as to whether tariffs are always good or always bad for the economy, for tackling poverty and for caring for creation. It depends when and how they are used. Countries around the word have long made use of tariffs in the early stages of their national economic development as they were getting a healthy thriving domestic economy and domestic industries up and running. In these early stages the use of tariffs and some export and import bans can be essential. As the development economists, Ha-Joon Chang and Ilene Grabel put it in their study Reclaiming Development, “Extensive infant industry protections were central to economic development in Britain in the eighteenth century and the USA in the nineteenth and early twentieth centuries. Nearly all other industrialized countries also used tariffs, export subsidies and other measures of trade protection during the most important moments in their economic development (though not to as great an extent as in Britain or the USA.) During their development, the governments of today’s industrialized countries used different combinations of the following policy tools: tariff levies; tariff rebates on imported inputs used in the production of exports; export subsidies; restrictions on the export of raw materials used by key industries; government regulation of the quality of goods produced for export; and government provision of information on export markets and marketing assistance. Many other countries later used these same policies successfully (e.g. Brazil, India and the East Asian newly industrializing countries)”.[1] (Arise Manifesto, pg 182)
However, as the national economy develops, standards of living are raised and nations move from low to medium to high-income status, other policies become more important. Some of the policies which were effective in kick starting and building up domestic industries and sectors in the early stages, such as tariffs; import and export bans; subsidies; undervalued currencies; local content requirements for Transnational Corporations (TNCs); preventing TNCs operating where they might undermine significant domestic industries etc. may well need to be scaled back and phased out once an advanced economy has been established and domestic industries are ready to compete fairly on a global level. Such policies are appropriate to protect infant domestic industries and economies as they grow, rather than forcing them to immediately compete with massive multinationals which have had much longer to develop (and in almost every case enjoyed significant protection from their own governments when they were doing so). However, in the long-term, to be sustainable, businesses need to be able to survive and thrive without permanent support from governments, and economies need to gradually open up and be able to engage and compete openly in the global market on equal terms. As the Oxfam development expert, Duncan Green, noted when reviewing the history of nations that had achieved successful economic development in his book From Poverty to Power, “As economies developed and became more complex, and industries achieved industrial competitiveness, the costs and benefits of state intervention in both agriculture and industry shifted, and governments started to reduce their role and to open up the economy – exactly the sequence that rich countries pursued at an earlier stage of their development. Deregulation and liberalisation are thus better seen as the outcomes of successful development, rather than as initial conditions.” [2] (Arise Manifesto, pg 187 – 188)
The need for global deals
And yet, the US is not a low-income country. It is the richest country in the world. Why does it now feel the need to impose tariffs to protect its economy? It is primarily being driven by a very real sense of being left behind and ignored that is widely felt by many blue-collar working American families across the country. This was the overwhelming driving force behind Donald Trump’s recent electoral success. But why do these communities feel like this? Partly it is a feeling that has been whipped up and exacerbated by those on the extreme right of politics using misinformation and narratives that point the finger of blame at other groups – migrants, foreign nations like China, a disinterested federal government etc., in order to further their own political ends. However, the decline and the economic challenge is not all imaginary. For many millions it is indeed very real and serious and should not simply be dismissed and ignored.
So why do these communities find themselves in this position? There are various reasons. One of these is that they are being failed by the very unequal distribution of wealth in the nation, leaving millions in poverty, despite the collective national wealth of the country (Arise Manifesto, pg 144 – 146, 161 – 174, 195 – 196). It is also true that as nations develop their economies move up the value chain from being primarily agricultural to manufacturing to services to the knowledge economy. As economies go through these transitions it is crucial for governments to ensure communities where jobs are primarily in industries that are declining are supported to retrain and find new jobs and opportunities in new industries that are opening up (Arise Manifesto, pg 186). Many communities have been let down by successive governments that have failed in this responsibility. Having said all of that, it is still true that one of the other reasons why many blue-collar working American families find themselves suffering is indeed as a result of industries declining because they cannot compete with other nations, often middle-income nations in Asia like China, that are able to produce and export the same goods much cheaper.
And why are those costs of production so much cheaper in those countries? Very often it is because they pay their workers a fraction of the cost of US workers, are able to employ those workers on terms and in conditions that would never be accepted in developed nations, and produce goods without the environmental or other protection standards that would be required in high-income nations. So does this force nations like the US into an impossible position of either A) accepting as inevitable the poverty and decline of blue-collar working communities, b) undermining their rights and protections in order to compete, or C) the path it is currently pursuing, the aggressive use of tariffs to protect domestic workers and create jobs? A path which from the world’s largest high-income economy carries a huge risk of negative impacts and greater poverty for all other countries around the world, and seriously gumming up, slowing down and damaging the whole global economy, ultimately making the US worse off too? No, there is another way. That is to work together with other nations internationally to pursue global deals and agreements that raise working standards, pay and conditions for all nations everywhere, making a level playing field for all.
in today’s increasingly globalised world, companies and investors have become internationalised and able to move assets between countries more easily. They have been able to play nations off against each other, so that nations with the lowest levels of tax, and often the weakest laws on social justice, development and the environment can attract the most investment. This risks creating a race to the bottom, where nations cannot institute the right laws even if they want to, for fear of losing companies critical to their economy. The international relations academic, Andrew Hurrell, is one of many experts who comment on this broad phenomenon in his book On Global Order, “Increased trade also places governments under pressure to adopt pro-market policies, avoiding policies which would imply the need to harm business by taxation, or to raise interest rates as a consequence of increased borrowing. They find themselves forced to cut back the role of the public sector in order to attract inward investment from increasingly footloose multinational companies quick to punish governments who stray from the path of economic righteousness by exercising their exit option.” [3]
During the twentieth and twenty-first centuries, there has been increasing awareness of this dynamic, as well as growing recognition of the need for the nations of the world to come together to tackle global problems that transcend national boundaries such as conflict, terrorism, climate change, financial crises or global pandemics. Thus, the institutions of global and regional governance have emerged: the United Nations, European Union (and other regional unions), World Trade Organization, G7, G20, OECD etc. For all their imperfections and flaws, such institutions are critical international coordination and stabilisation mechanisms, and states should engage constructively to support these important international institutions. As the former World Bank Chief Economist, Joseph Stiglitz says, “We cannot go back on globalization; it is here to stay. The issue is how can we make it work. And if it is to work, there have to be global public institutions to help set the rules … Globalization has meant that there is increasing recognition of arenas where impacts are global. It is in these arenas where global collective action is required – and systems of global governance are essential. The recognition of these areas has been paralleled by the creation of global institutions to address such concerns.” [4] States can work together internationally through these mechanisms in order to provide common laws, standards and level playing fields, stimulating peace, improving human rights and governance and driving international business in socially positive directions at the global scale (Arise Manifesto, pg 272 – 275).
And yet at the moment the US is pursuing precisely the opposite path. Rather than engaging internationally with the multilateral institutions like the UN, and using its enormous power to create global deals which improve worker rights, pay, standards and protections for everyone everywhere, including their own citizens, they are withdrawing from the world and retreating behind tariff barriers. The US has already withdrawn from international institutions and negotiations like the World Health Organisation and UN Framework Convention on Climate Change. It seems increasingly unenthusiastic about attending the G20, and perhaps soon might exit the World Bank, IMF, NATO and even the UN itself. Such moves risk dangerously undermining these international institutions which are crucial for maintaining international law and rights (Arise Manifesto, pg 125, 272 – 275).
Conclusion
Instead of pulling back behind tariff barriers and withdrawing from the global institutions, the US should consider leaning in and using its enormous power and leverage to secure global deals, that would not only improve the jobs, pay and conditions of its own workers but those of every other nation too. Given the US’s considerable power, real progress in these areas is entirely possible. This would be a huge benefit to the world. Let us pray and work for such a change of approach.
Find out more
Arise Manifesto – Find out more about tariffs and where they have been helpful or unhelpful in helping nations to develop and reduce poverty in the Arise Manifesto, Arise’s big picture, researched, Biblical, holistic and practical vision for a better world.
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[1] Chang, H-J. & Grabel, I., Reclaiming Development, (2014), p. 62
[2] Green, D., From Poverty to Power, (2012), p. 152
[3] Hurrell, A., On Global Order, (2009), pp. 198 – 199
[4] Stiglitz, J., Globalization and its Discontents, (2002), pp. 222 – 224