While much of the world recoils at turmoil in the markets, the upending of the global economy and overwhelming uncertainty, I am feeling an odd sense of calm. Why? Because I am a proud neoliberal, and after US President Donald Trump’s tariffs destroy what is left of the post-neoliberal world order, neoliberalism itself would be due for a comeback.
There is no perfect policy. Everything has trade-offs and creates winners and losers. However, free trade and markets tend to make societies richer, more productive and more innovative. Over the past several decades, neoliberal policies helped reduce poverty and raise living standards, kept interest rates and inflation low, and enabled astounding innovations.
None of that protected neoliberalism from a backlash, which started with traditional lefties. Entire books were written about how free-trade-loving economists led the world astray. Research documenting how free trade hurt some workers was used as proof of general market failure. Eventually, even the right joined in the criticism.
Trump’s tariffs might be higher than anyone expected, but they are a symptom of a much larger problem: Popular confusion about which policies create the conditions for prosperity, and the widespread (and mistaken) belief that the government can engineer an economy that makes everyone richer and no one poorer. In a poll released last year, a majority of Americans questioned whether they benefited from trade.
This discontent showed up in policy, such as Trump’s first-term tariffs. Former US president Joe Biden kept some of those tariffs and added heavy-handed industrial policy in an attempt to make a new post-neoliberal paradigm. Now Trump appears to be taking a wrecking ball to the whole neoliberal endeavor.
Suddenly, everyone is appreciating the virtues of neoliberalism. Just before “Liberation Day” — April 2 — voters thought Trump was too fixated on tariffs — and recent polls indicate Americans do not want higher tariffs and are not worried about the trade deficit. Odds are they would be even more unhappy when they get their next retirement savings plan statements. Now some former critics of neoliberalism are extolling the benefits of the old economic order.
This is not just a vibe; nostalgia for neoliberalism, like nostalgia for most things, would deepen with the passage of time. Part of the reason would be the visible damage Trump’s tariffs would do to the economy.
How Trump would proceed is hard to predict, but it is a safe bet that this year tariffs would be higher than the 2.5 percent average rate the US had last year. That would mean higher prices, higher interest rates, less predictable supply chains, a possible recession and (no spoiler alert necessary; it is already happening) market chaos. This is where post-neoliberalism gets us. Even if the tariffs are reduced or delayed, they would pose costs to everyone.
Trump would own the economic fallout — and if history is any guide, it would not be pretty. In 1930, the world was in a similar state of uncertainty amid the transition from agriculture to manufacturing, and there was a misplaced nostalgia for a fading way of life and work. Partly as an attempt to control the economy by shutting out trade, the US enacted the infamous Smoot-Hawley tariffs. Not only did they make the Great Depression worse, but they also engendered retaliation and made the world poorer.
Opposition to the tariffs emerged as early as 1932, and they were lowered in 1934. Now Smoot-Hawley is synonymous with bad and destructive policy. Paradoxically, it paved the way for free trade and cooperation to become tenets of the post-war global economic order. For generations, people around the world believed that multilateral trade agreements led to better economic outcomes. It is a system that helped free billions from poverty and spurred historic economic growth.
The good news is that high tariffs probably would not stick today, either. They might get negotiated down during this 90-day “pause” Trump announced on April 4, or struck down by the courts, or even repealed by the US Congress. In the worst-case scenario, if there is a recession, the next (Democratic) president would remove them. Americans are likely to turn against tariffs more quickly now than they did in the 1930s, because the economy is more dynamic and dependent on trade.
If Trump does keep his high tariffs, his name might well take its place alongside Smoot and Hawley as shorthand for disastrous economic policy. Or maybe this is all negotiation, and the world would end up with lower tariffs, more cooperation and trade, and less poverty. Either way, it would be the end of the so-called post-neoliberal world order.
Allison Schrager is a Bloomberg Opinion columnist covering economics. A senior fellow at the Manhattan Institute, she is author of An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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