Trump Puts Optimum Tariff Theory into Practice and Proves the Economists Wrong
President Trump’s newly announced trade agreements with Japan, the Philippines, and Indonesia are more than a string of diplomatic victories. They are the most direct real-world application to date of a once-theoretical idea in economics— optimum tariff theory —and they expose just how mistaken the academic consensus has been for decades.
For years, economists have taught that while a large country might, in theory, benefit from imposing tariffs, in practice such a move would inevitably backfire. According to the textbook view, the threat of retaliation made any…
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