The Duality of Tariffs: A Subtle Game of Economic Shifts

In a recent discussion on the economic impacts of tariffs, Michael Pettis argues for their potential to promote growth. Pettis claims that tariffs can redirect income from net importers to net exporters by increasing the prices of imported goods. As a result, according to Pettis, the profits for domestic producers of these goods rise. He thus views tariffs as a tax on consumption and a subsidy for production. However, Pettis' analysis remains incomplete as he overlooks the Lerner Symmetry Theorem. This theorem states that changes in imports and exports move in the same direction. Thus, protective tariffs do not promote net exporters but rather favor protected industries through income redistribution from consumers and unprotected industries. In the end, tariffs reduce overall economic efficiency, ultimately representing both a tax on consumption and on production.