Understanding Economic Equilibrium

CHAPTER 16

The Stop Sign (or Toll Booth) at the Border: Trade and Tariffs

When the United States placed tariffs on everything Chinese from minerals to handbags, China responded with tariffs on 128 U.S. products, from vegetables to whiskey to liquefied natural gas, from fruits and nuts to pork and soybeans. The battle escalated. Tariffs were extended to more goods on both sides and increased in severity from 10 to 25 percent. The trade war had massive repercussions around the world given those nations’ status: China as the world’s largest exporter and the United States as the world’s largest importer—the two pillars of the global economy.

When Adam Smith wrote Wealth of Nations, the prevailing view on building a strong national economy was to ...