Trump Tariff Policy and the Role of Economics

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President Donald Trump’s tariff policy is shaking the global economy. Following the imposition of tariffs on steel and aluminum, an additional 25% tariff on automobiles has been introduced. In addition, the imposition of high rates of individual country-basis reciprocal tariffs has been announced, with Japan subjected to an unexpectedly high tariff rate of 24%. It appears as if the Trump tariff policy aims to throw the global economy into turmoil.

Few economists would deny that imposing tariffs lowers economic welfare by distorting resource allocations and is therefore generally not desirable as an economic policy. Furthermore, the view that bilateral trade surpluses and deficits (trade imbalances) are problems, which underlies President Trump’s reciprocal tariff approach, is incorrect from the perspective of economics. That point was made clear more than 30 years ago by Dr. Ryutaro Komiya, who was then director general of the Research Institute of International Trade and Industry (MITI/RI), RIETI’s predecessor, based on the savings-investment balance theory (Komiya, 1994). It is difficult to understand why a trade policy focused on the bilateral trade balance is still being adopted.

The series of policy moves since President Trump took office is of serious consequence in that they not only affect trade and investment directly through the imposition of high tariffs but also sow uncertainty over what form of trade policy is likely to take shape in the future. The trade policy uncertainty (TPU) index for the United States is at a record high level, and the TPU index for Japan is also rising sharply.

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