Donald Trump is back—and so is the tariff. “It’s a beautiful word, isn’t it?” the president quipped before the joint session of Congress on Tuesday—so beautiful that he referenced tariffs 17 more times in his address. In the short time since his second inauguration on Jan. 20, Trump has imposed—and sometimes walked back or temporarily suspended—tariffs on China, Canada, and Mexico, and declared a policy of tit-for-tat “reciprocity” or retaliation for any foreign tariffs on American exports that are higher than U.S. tariffs on imports. And he has justified tariffs with multiple rationales, ranging from protecting or reshoring defense-critical American industries to pressuring America’s neighbors to take action to reduce the cross-border flow of illegal immigrants and drugs like fentanyl. In fact, he told members of Congress, tariffs were “about protecting the soul of our country.”

The chaotic and inconsistent nature of Trump’s second-term policy to date can be criticized. But when it comes to tariffs as a tool of economic statecraft in general, the gap between establishment rhetoric and actual government practice is big enough to drive a Chinese EV through.

The audiences of the dying legacy media are told that the tariff is a destructive policy revived by politicians like Trump who fail to understand elementary economics, which teaches that free trade benefits all sides all the time everywhere, with no exceptions. But from North America to Europe to Asia, developed countries are ignoring mainstream economists and their amen corner in the subsidized libertarian think tank world and slapping tariffs onto imports in favored industries like electric vehicles and renewable energy. Governments are resorting to tariffs and industrial policy, not because their prime ministers and presidents flunked Econ 101, but because they do not want their economies deindustrialized by a flood of low-priced, state-subsidized Chinese imports.

The Chinese import threat is why Canada has levied a 100% tariff on imported Chinese EVs, along with a 25% surtax on Chinese steel and Chinese aluminum. The European Union has slapped electric vehicles made in China with tariffs ranging from 7.8% to 35.3%, on top of the standard European tariff of 10% for imported automobiles. India imposes tariffs of 70%-100% on imported electric vehicles from China and other countries.

Like the leaders of Canada, the EU, and India, former president Joe Biden is not generally thought of as a disciple of the Donald Trump school. But last May, the Biden administration imposed new duties not only on Chinese EVs but also on Chinese-made steel and aluminum, semiconductors, batteries, critical minerals, solar cells, ship-to-shore cranes, and medical products. According to the Biden White House press release in May:

China’s forced technology transfers and intellectual property theft have contributed to its control of 70, 80, and even 90 percent of global production for the critical inputs necessary for our technologies, infrastructure, energy, and health care—creating unacceptable risks to America’s supply chains and economic security.

In December, the Biden administration announced new restrictions on the export of chip manufacturing to China. The Biden White House even taunted the first Trump administration for not having gone far enough with its protectionist policies: “The previous administration’s trade deal with China failed to increase American exports or boost American manufacturing as it had promised.”

The rehabilitation of tariffs, then, is a belated course correction in response to the rise of China, which has been driven by U.S. companies that offshored manufacturing. The Middle Kingdom has lost its position as the world’s most populous nation to India, but it has surpassed the U.S. as the world’s largest national economy. China dominates global manufacturing, accounting for a market share of around 30% of manufacturing value added in 2023. In comparison, that same year American manufacturing accounted for only 16% of the global total.

In 2023 China produced roughly half of the world’s crude steel. China is the world’s largest automobile maker, accounting for a third of the global total. China’s state-backed aerospace company, COMAC, threatens to take global market share from America’s Boeing and Europe’s Airbus. China is also the world’s largest commercial shipbuilder, responsible for more than half of all shipbuilding. America’s share of the global shipbuilding market is 0.10%. Yes, zero-point-10 percent. Most of the goods shipped across the oceans to and from the U.S. are in ships built in China (51%), South Korea (28%), or Japan (15%). During the COVID pandemic, Americans were shocked to learn how dependent the U.S. is on medical supplies from China, which provides around 30% of active pharmaceutical ingredients used in drugs by value and 78% of the vitamins in the U.S. A single Chinese company, DJI, controls 90% of the American drone market, including 90% of the drones used by American police departments and first responders.

China’s trade with the U.S. resembles that of a dominant manufacturing nation with a resource colony. In 2023, China’s main exports to the U.S. were broadcast equipment, computers, and office machine parts. Apart from integrated circuits, one of the few industries in which the U.S. retains an advantage, America’s main exports to China in 2023 were soybeans and crude petroleum, with the value of soybeans ($15.2 billion) twice that of silicon chip exports ($7.01 billion).

Statistics like these explain why not only the U.S. but most other industrial nations and many developing nations like India are throwing up trade barriers against Chinese imports. If they do not, their national manufacturing industries will be wiped out and they will be reduced to supplying the Chinese industrial superpower with farm products or fossil fuels or services like finance and tourism.

The U.S. and other nations typically justify their defensive protectionism by accusing China of cheating. And indeed China is a quasi-market economy with companies that are directly or indirectly subsidized and controlled by the state, and an unfree, repressed labor force. But a liberal and democratic China that played fair would be just as great a threat, simply because of China’s size.

Manufacturing is characterized by increasing returns to scale, meaning that larger firms and supply chains and longer production runs are more efficient. That is why there are not a lot of mom-and-pop aerospace or automobile companies. In a truly free global market, a single country could make all of the automobiles in the world and all of the jets and all of the ships and all of the computers and phones. If other countries allowed it, China could literally be the sole workshop of the world.

The first industrial superpower in the modern world was Britain, where the Industrial Revolution began. In the 19th century, the U.S. and Germany adopted import-substitution industrialization, relying on tariffs to keep out British imports so that their own national firms could develop and dominate their home markets.

By World War I, the U.S. economy was larger than that of the entire British Empire. Already in the 1920s there were complaints in Britain and Europe about local industries undercut by floods of low-priced, high-quality American imports. After World War II, the U.S. was the only industrial nation that had not been bombed or invaded. While the other industrial countries took a generation to recover from the war, the U.S. effortlessly dominated global industrial markets. Like Britain in the 1840s, the U.S. in the 1940s abruptly switched from protectionism to promotion of free trade. The postwar U.S. no longer needed protection from foreign rivals and sought to open foreign markets to its own manufactured exports. Confident that American manufacturing hegemony would endure, policymakers in Washington turned a blind eye to the loss of one industry after another to America’s Cold War allies in Japan, South Korea, and Taiwan, which practiced strategic state-led mercantilism, not free market capitalism. Lose an industry, gain an overseas military base.

The belief of American leaders in America’s permanent economic supremacy was reinforced by the near-simultaneous collapse of the Soviet Union and the bursting of the Japanese economic bubble in the 1990s. What difference did it make, if a few low-skilled factory jobs went to Mexico or China? When the Texan billionaire Ross Perot ran for president in 1992 warning that bad trade deals like NAFTA would deindustrialize the U.S., he was treated by the leaders of both parties and the academic economic establishment as an ignorant and dangerous buffoon.

In a televised debate about NAFTA on Nov. 9, 1993, between Perot and Vice President Al Gore, Perot suggested quite reasonably that a “social tariff” on imports from Mexico could reduce the unfair advantage that Mexico gained from unfair labor costs. Gore responded by dramatically displaying a framed portrait of two men and handed it to Perot. “This is Mr. Smoot and Mr. Hawley,” Gore said. He pompously asserted that the 1930 tariff that they sponsored and that was named for them (actually, the Hawley-Smoot tariff) “was one of the principal causes, many economists say the principal cause, of the Great Depression in this country and around the world.” The establishment media declared Gore the winner of the debate and shortly afterward, pressured by the Clinton administration, Congress passed the NAFTA agreement.

Even the Democratic opinion columnist and sometime economics professor Paul Krugman, a doctrinaire who spent the 1990s attacking those skeptical about free trade, has admitted that the idea that the Smoot-Hawley tariff caused the Depression or significantly worsened it was “a notion unsupported by either theory or evidence.” The Smoot-Hawley tariff was passed in 1930, well after the financial crash of 1929 plunged the world into Depression. Smoot-Hawley caused some countries to retaliate with their own tariffs, but the cause of the Depression was not a lack of trade but the collapse of demand. The Smoot-Hawley tariff’s average duty on dutiable imports of 45.4% was comparable to that of the 1922 Fordney-McCumber tariff (38.5%), the 1909 Payne-Aldrich tariff (40.7%), the Wilson-Gorman tariff of 1894 (41%), and the McKinley tariff (49%), none of which has been blamed for causing a global depression or a world war.

Nevertheless, from the 1990s until the 2010s, and even today in some circles, any suggestion that the U.S. might benefit from protecting important industries with tariffs or other measures has been greeted by stern admonitions to “remember the lesson of Smoot-Hawley!” Anyone who raised questions about the theory that both sides always benefit from trade was in danger of being marginalized as a protectionist (Pat) Buchananite, which sounded worse than a Perotista.

It is no coincidence that Trump, before deciding in 2015 to run in the Republican presidential primary, sought to take over Perot’s Reform Party in 2000 (Trump and his allies lost the struggle to a coalition led by Pat Buchanan and David Duke). Since the 1980s Trump has been an instinctive economic nationalist, a viewpoint he shares with most Americans, if not with ivory tower mathematical economists and Wall Street Journal libertarian editorial writers. But Trump, along with Biden, who kept and extended many of Trump’s tariffs, benefited from timing, thanks to the rethinking of free market orthodoxy that the rise of Chinese industrial primacy has forced on the governments of the world.

The “unipolar moment” of the 1990s and 2000s is over. In today’s Cold War II, the world is divided again between two superpowers, with China rather than its weakened client Russia seeking to minimize American power and influence. Cold wars are incompatible with global free trade. Both the U.S. and China are seeking to construct their own blocs in which trade and military policy and diplomacy are aligned instead of being treated as separate topics. The Republican “new right” is more unilateralist than Democratic foreign policy thinkers, who prefer to try to consolidate Europe and America’s East Asian dependencies in an integrated market/military alliance. But only a few aging dead-enders in economics departments and libertarian think tanks continue to chirp about the folly of tariffs and the glories of free trade in the 2020s.

The claim that tariffs are inherently misguided and inevitably harmful does not stand up to scrutiny. The verdict of history is clear. No country ever industrialized by pursuing free trade. Britain in the 18th century and the U.S. and Germany in the 19th century went from being agricultural backwaters to industrial great powers thanks to tariffs, while Japan and South Korea and Taiwan and China have developed with functionally equivalent nontariff barriers protecting their own infant industries and reserving their own home markets for their producers.

It is true that tariffs raise the prices of imports relative to domestically made goods. That is their purpose, after all. But once they have been adopted, competition among domestic producers and productivity growth can lower prices for consumers, as happened in America’s protected domestic markets before World War II. And given the alternatives—dependence on hostile or unstable foreign regimes for essential military, commercial, and medical supplies—the price of strategic protectionism can be worth paying.

As this suggests, national security is a major rationale for tariff-based protection of key industries and supply chains. But it is not the only one. Tariffs can also protect infant industries, allowing them to grow in the domestic market until they are strong enough to withstand foreign competition.

Tariffs can also be used as bargaining chips, in negotiations to open foreign markets to American exports, or to achieve other diplomatic goals. No less an authority than Adam Smith, the patron saint of free marketeers, supported the use of tariffs to retaliate against foreign trade restrictions:

There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods.

Decisions about whether to use tariffs as bargaining chips, Smith believed, should not be guided by general rules, and should be left to the discretion of policymakers in the executive branch:

To judge whether such retaliations are likely to produce such an effect does not, perhaps, belong so much to the science of a legislator, whose deliberations ought to be governed by general principles which are always the same, as to the skill of that insidious and crafty animal, vulgarly called a statesman or politician, whose councils are directed by the momentary fluctuations of affairs.

“[T]hat insidious and crafty animal, vulgarly called a statesman or politician …” Does anyone come to mind?