The US, so the argument goes, needs to start making things again, and demand fairer treatment from friends and foes alike. Now, both critics and supporters of tariffs are dusting off the work of Nobel prize-winning economist Paul Samuelson to justify opposing views.
This Wednesday, Donald Trump is expected to announce sweeping new tariffs on imported goods. For his supporters, it will mark what they are calling Liberation Day, the moment when the US finally turns its back on a global trading system that, in their view, hollowed out American industry and left too many workers behind.
The financial markets, predictably, are uneasy. The prospect of a new round of tariffs has triggered fears of slower growth, higher prices and trade retaliation. But behind the headlines lies a deeper question: can tariffs really fix what Trump believes decades of offshoring and unfettered globalisation have broken?
Different interpretations
Both sides of this debate are now citing the work of Paul Samuelson, one of the most influential economists of the last century. But they are drawing very different lessons.
“Protectionism may protect certain workers in the short term, but at the cost of economic efficiency and overall national income.”
Maurice Obstfeld, Peterson Institute
On one side is Maurice Obstfeld, former chief economist of the International Monetary Fund and now at the Peterson Institute for International Economics. Obstfeld invokes the Stolper-Samuelson theorem, co-authored by Samuelson in 1941.
The idea was straightforward: in a wealthy, capital-rich country like the US, free trade lifts returns for capital owners and skilled workers, while depressing wages for the less skilled. More trade with low-wage countries inevitably means more pressure on factory workers and less-educated employees at home. Ergo, trade makes the country richer overall, but not everybody will benefit.
For Obstfeld, this is simply how global trade works, and tariffs won’t protect the weak.
“Protectionism may protect certain workers in the short term, but at the cost of economic efficiency and overall national income,” he told Investment Officer.
‘Tariffs undermine economic efficiency’
Tariffs cannot raise worker incomes and business profits simultaneously, he argues.
“They undermine the US economy’s efficiency, imposing costs on consumers and producers alike. A more likely outcome is that both workers and business owners suffer.”
Trump’s first round of tariffs in 2018 and 2019 shaved an estimated 0.3 percent off US GDP, according to the Congressional Budget Office, without delivering meaningful job growth in manufacturing. Obstfeld’s conclusion is clear: trade barriers shrink the economic pie without solving the underlying problem.
“The question isn’t whether tariffs are good or bad, it’s whether they are used wisely.”
Lori Wallach, Rethink Trade
On the other side of the argument is Lori Wallach, director of the Rethink Trade programme at the American Economic Liberties Project. She leans on Samuelson’s later work, which acknowledged what many globalisation critics have long argued: that when low-wage countries adopt the technologies of richer nations, the traditional benefits of trade don’t just shrink, they can turn negative.
‘A disaster for workers’
In a 2004 paper, Samuelson warned that globalisation and offshoring could leave workers in advanced economies permanently worse off. For Wallach, that warning is no longer theoretical. It’s written in the data: since the 1990s, the US has lost more than 90,000 factories and five million manufacturing jobs. America’s trade deficit hit a record 918 billion dollar last year.
“This has been extremely profitable for the financialised parts of the US economy and wealthy investors, and a disaster for millions of workers,” she said.
Wallach believes that tariffs, alongside a robust industrial policy, are now essential to rebalance the economy. But she is sceptical that Trump’s plan will succeed.
Is Trump using tariffs wisely?
“To reap the benefits of trade, the US must cut its large, chronic trade deficit,” she said.
“Trump’s fixation on ‘reciprocal tariffs’ doesn’t suggest a strategic approach to achieving that. But Democrats would be wrong to dismiss tariffs entirely. They themselves used them under Biden. The question isn’t whether tariffs are good or bad, it’s whether they are used wisely.”
The American public, meanwhile, seems conflicted. Ahead of the last election, 56 percent supported raising tariffs, with backing among non-college-educated voters in Michigan, Wisconsin and Ohio at 58 percent. Today, that support has softened: 55 percent now believe Trump is too focused on tariffs, according to a CBS News poll.