A finance professor argues that tariffs could increase employment and wages in the United States, raising living standards and growing the economy.
Finance professor Michael Pettis notes that today’s US economy is distinct from the one that was crushed by disastrous tariffs in the 1930s. Unlike then, America now has high consumption rates, whereas low consumption and excess savings characterized the Smoot-Hawley Tariff Act era.
Pettis suggests that under current circumstances, tariffs could boost employment and wages, increasing living standards and expanding the economy. This is because tariffs essentially subsidize domestic producers, leading to job creation and wage increases.
However, Pettis cautions that tariffs are not a panacea or poison, as their impact depends on economic conditions. In the case of high consumption rates, tariffs can redirect demand toward increasing production at home, ultimately leading to higher employment and wages.
The professor also argues that tariffs could counter the economy’s “pro-consumption and antiproduction” stance by allowing US producers to focus on domestic needs rather than accommodating foreign rivals.
Pettis emphasizes that economists should focus on addressing underlying causes of economic issues, such as excess consumption and low savings, rather than solely relying on tariffs. By understanding these factors, policymakers can develop more effective solutions to improve economic outcomes.
In contrast to the Congressional Budget Office’s prediction of a 0.6% reduction in real GDP by 2034 from Trump’s tariffs, Pettis presents a nuanced view of tariffs’ impact.
Source: https://fortune.com/2025/01/05/tariffs-donald-trump-us-economy-jobs-wages-producers-consumers