Why are governments turning to tariffs again? Explore the global shifts in trade, power, and policy behind their renewed rise.
This post is by Dr Roberto Roccu, Programme Director for the online Global Political Economy MA at King's.
Trade tariffs are once again in the news, with US President Donald Trump announcing earlier this month that goods imported from the European Union and Mexico will face a 30% tariff rate starting on 1st August.
Despite the idiosyncrasies of individual decisionmakers, it would be profoundly misleading to present tariffs as merely irrational moves of volatile politicians. For a start, the idea that free trade makes everyone better off is deeply contested by prominent economists, such as for instance Ha-Joon Chang.
In his Kicking Away the Ladder, Chang argued that even Great Britain and the United States, until recently among the staunchest promoters of free trade globally, relied extensively on tariffs to help their manufacturing sector become internationally competitive. Not too dissimilarly, strategic trade policy has been a central component of the developmental catch-up for countries such as Japan, South Korea and more recently China.
If tariffs have historically had a place in how states handled trade relations in the global political economy, we can abandon the unhelpful dichotomy between free trade and protectionism and shift our attention towards questions such as: why tariffs now, and what are their implications today? Our online Global Political Economy MA provides essential tools to address these crucial questions.
On the first question, realist scholarship has emphasised the importance of the geopolitical competition between the US and China, especially but not exclusively in sectors pushing the technological frontier such as for instance advanced semiconductors.
At King’s, colleagues of mine such as Joseph Baines and Sean Starrs have been producing groundbreaking research on these competitive dynamics and their implications.
Other scholars have instead identified secular stagnation and reduced firm profitability as key drivers in the rise of a zero-sum mentality that increasingly affects how states think about international trade. Indeed, early estimates of the distributional effects of the ‘Trump tariffs’ suggest that the US stands ‘to raise nearly $50bn in extra customs revenues at little cost’.
Irrespective of which explanation we go for, what appears to be materialising before us is a struggle for capturing as much as value as possible from the global value chains (GVCs) that have emerged in the past half century. At the same time, trade tariffs also engender transformations in production, including the relocation of productive activities, which in turn reconfigure GVCs.
Through its explicitly interdisciplinary outlook, our online Global Political Economy MA also permits an examination of exciting questions on the implications of tariffs today from a variety of perspectives. Let me briefly outline three of them.
From the perspective of international organisations, the rise of tariffs today raises a big question about the function of the World Trade Organization in the global political economy today. How can an international institution designed to liberalise trade survive in an environment where more and more tariffs are imposed? More broadly, what questions does this pose about the future of the so-called liberal international order?
From the perspective of firms and corporations, what will happen to GVCs? Evidence seems to be pointing in different directions on this crucial issue. For instance, some value chains have become less global and more regional, with offshoring practices being recalibrated towards so-called ‘nearshoring’.
Other value chains have instead been reorganised so as to reduce vulnerability vis-à-vis rivals and competitors (‘friendshoring’). Value chains in less strategically central sectors such as garments have instead remained relatively untouched. We should thus resist the temptation to look for blanket answers, and instead engage with the specificity of specific sectors and regions.
From the perspective of governments, what do tariffs mean for states? US tariffs in the context of non-retaliation impose a double loss for trade partners in the form of fewer exports and higher customs costs. At the same time, the US imposition of tariffs also contributes to delegitimising the ‘less state, more market’ mantra that characterised policymaking in the global political economy in the past four decades.
A consequence of this is the opening up of policy space, particularly through the return of industrial policy, with more than 2,500 industrial policy interventions recorded by Global Trade Alert in 2023 only. We should not forget that these state interventions are distributed very unevenly, with states in the wealthiest quintile accounting for more than three quarters of all industrial policy interventions.
These asymmetries notwithstanding, recent research shows how some developing countries such as Indonesia and Morocco have been able to navigate these new geopolitical and geoeconomic challenges towards crafting ‘a strategy of “polyalignment”, leveraging diverse financial partnerships to fund industrial development while avoiding alignment with any single country or geopolitical bloc’.
In sum, the resurgence of trade tariffs reflects deeper shifts in the global political economy that defy simplistic binaries such as free trade vs. protectionism, demanding instead that we embrace the complexity of our current moment and bring together intensifying geopolitical rivalries, GVC reconfigurations, and the return of industrial policy.
This in turn requires moving beyond headlines and engaging critically with the broader forces at play, something our online Global Political Economy is ideally positioned to provide: