Lhe incoming Trump administration is preparing to impose substantial tariffs on all imports into the United States. The new Treasury Secretary, Scott Bessent, invoked the “optimal tariff” argument to justify such a decision. The new chairman of the Council of Economic Advisers, the White House's economic advisory body, Stephen Miran, citing our own work, proposes 20% as ” reference “ for the optimal American rate. We think this is a very bad idea.
The optimal price argument is not new. It is almost as old as the famous plea of the British economist David Ricardo [1772-1823] in favor of free trade. It is based on the idea that countries have market power and can profit from it. Just as a large company can increase its profits by manipulating the quantity it sells to its consumers and buys from its suppliers, a large country can enrich itself by manipulating the volume of its exports and imports and, ultimately, their prices. Import and export taxes are the tools to achieve this goal, with import tariffs being much more common than export taxes for a variety of economic and political reasons.
To understand how the optimal tariff argument works, suppose the U.S. government imposes a tariff on French wine. All things being equal, American consumers then face higher prices and reduce their demand. This could put downward pressure on the prices at which French wine producers would be willing to sell, thus generating gains for the United States, which could have access to wine from Bordeaux and other French terroirs at lower prices. discounted at the border, even though U.S. consumers would still pay a higher price in-store because of the added tariff.
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