Earlier this month, Joe Biden announced a host of steep tariffs against electric vehicles, solar panels, semiconductors, and high-capacity batteries made in China. Although only $18 billion or so worth of goods are covered by the tariffs, dollar amounts don’t really convey the ambition of Biden’s move. The U.S. doesn’t import much green tech from China right now because the sector is still developing. The point of Biden’s policy is to make sure that we never do.
Contrary to the declamations from some of Biden’s ostensible allies, this is almost certainly good news for both the climate and the global economy. Biden appears to be learning the right lessons from an ultimately—gulp—successful Trump initiative. His new tariffs are indeed an affront to the conventional economic wisdom of the Obama era, but they are not a leap into the dark. They instead return U.S. economic policy to an intellectual tradition dating back to Alexander Hamilton—one that seeks to uphold the ideals of international reciprocity advanced by Adam Smith while adapting to the political complexities inherent to global exchange.
Avid readers of the business press may remember the Trump tariffs as, allegedly, the worst idea since 1680. By raising import duties on steel, aluminum, and a host of products manufactured in China, Trump was risking a recession, causing a recession, triggering a recession, and maybe producing a recession. Free-marketeers and ultra-neoliberals weren’t alone in leveling these accusations. Progressive economist, Nobel laureate, and all-around swell guy Joseph Stiglitz called the Trump tariffs “a very dangerous precedent,” singling out Trump’s tariffs against Chinese solar panels as a “job destroyer” that would hurt the climate.
With the benefit of being six years on, we can conclude that these people were wrong. The Trump tariffs created some costs for the global economy, but prophecies of inflation, recession, and job destruction were never fulfilled. Prices in a few sectors—washing machines, steel, aluminum—rose for a few months, and then fell. The United States preserved some long-term industrial capacity in exchange for a bit of short-term pricing friction.
Sound economic policy is about making the best of a strange, cruel world, and tariffs—like any other tax—can be either useful or destructive, depending on how they are deployed. If your only economic aim is to reduce consumer prices over the next six months, then tariffs aren’t a great place to start. But if you have broader objectives—say, national security, technological innovation, economic development, or addressing a climate emergency—then the payoff from tariffs can be well worth the price. Tariffs can even improve basic economic efficiency if they’re used judiciously to combat other problems in the global economy.
To understand how, I think it’s helpful to revisit the classic early American statement against laissez-faire economics: Alexander Hamilton’s 1791 Report on the Subject of Manufactures. You may not have heard of this extremely influential document for two reasons. First, as an economic treatise from the late 18th century, it is extremely boring. Second, it is largely unconcerned with the political themes that citizens of the 21st century have come to associate with economic policy. Laissez-faire has long been a redoubt of the political right, but Hamilton’s attack on laissez-faire is not a particularly left-wing document. Among other oddities, he enthuses about the prospects for employing children “of a very tender age” in factories and offers various remedies for the problem of high wages. Social inequality was not a top-line concern for Hamilton when it came to thinking about the economy.
He was instead focused on foreign policy, economic stability, and the future course of American liberty, all of which he believed to be imperiled without rapid economic development. He was essentially correct on all three points, and ever since, the economics profession has credited him with inaugurating Infant Industry Theory—a school of thought maintaining that transformative technologies require active and ongoing government support in order to survive against a status quo that is inevitably stacked against them.
The United States of the late 18th century was a semi-feudal agrarian nation. Hamilton wanted to transform it into a diversified industrial land of plenty, and urged Congress to adopt protective tariffs for American factories as part of a broad policy suite including government subsidies for new factories, multiyear patent monopolies for new products, and the elimination of then-existing tariffs on some raw materials. The basic idea was for the government to reduce costs for nascent American industrialists and top up their prospective profits to encourage investment.
Hamilton wasn’t a fool. He admired Adam Smith’s Wealth of Nations and believed that expanding trade between countries could help everyone build wealth. But Hamilton’s idea of free trade involved reciprocity between nations, and back in the 18th century, the British Empire was deliberately obstructing American economic development by flooding the United States with cheap manufactured imports and blocking American exports. There was no way, Hamilton believed, for the United States to develop a modern, 19th-century economy without leveling the playing field in international trade. And if the United States failed to diversify its economy beyond farming it would remain exposed to some pretty extreme political risks. Its agricultural markets could be disrupted by war (or even bad weather), and the young nation would have to rely on the competency and goodwill of its trading partners in order to defend itself from a foreign attack—a lesson the Colonies had learned through what Hamilton called various “embarrassments” during the Revolution.
Not everyone agreed with Hamilton. Congress ultimately approved his tariffs and rejected his subsidies. Thomas Jefferson was perfectly aware of the British Empire’s trade restrictions, and believed the United States should simply forgo industrialization and specialize in agriculture, using its farming profits to import whatever else its citizens might find useful. If Britain wanted to flood American markets with cheap imports, so much the better. Everyone would ultimately benefit from lower prices.
There is a clear and coherent logic to Jefferson’s thinking, and variants of it remain popular in neoliberal economics. But for most of the past two centuries it has been decidedly out of fashion. The War of 1812 vindicated Hamilton’s fears about America’s economic vulnerability to foreign aggression, and a more thorough system of industrial protection arrived shortly thereafter. Specializing in agriculture and low-tech industries has not proven to be a reliable path to national wealth or political stability. The United States government has subsidized and protected the new technologies that have dominated each phase of its economic development. In the 19th century, it protected railroad investors from losses, and relied on hefty import duties to protect northern factories. In the 20th century, the American government aided automobile makers by subsidizing oil production and road-building, supplemented for many years by different tariffs.
Today, Americans intuitively associate computers and the internet with the technological frontier and associate manufacturing with déclassé smokestacks of yore. This worldview is largely the byproduct of the global economic program developed in the 1990s, whereby the United States offshored much of its industrial sector and supported its infant information technology industry through government contracts and various other initiatives.
As one might expect of a worldview developed a quarter of a century ago, this concept of the cutting edge is now a quarter-century out of date. Today, American “tech” companies compete to host crypto apps on your phone and mount video game consoles on your face, while the American economy remains chained to fossil fuels through a combination of dirty energy lobbying and political inertia. The future belongs to green tech and green manufacturing, and under the long policy hangover from the 1990s, the United States is only beginning to consider its role in the 21st century commercial milieu. China, no longer the developing country of the turn of the millennium, is currently setting the green tech global pace, dominating the markets for wind and solar production, and overseeing an 85-fold expansion of its EV exports over the past four years.
China hasn’t achieved this technological ascendancy through sheer grit and derring-do. Its government deliberately suppresses domestic consumption by keeping wages low, forcing its manufacturers to pursue profits through exports, which the government supports with subsidies as it restricts green tech imports. It is good for the world that China has developed these industries—the climate requires them. But one does not have to credit Beijing with any unique malignity to believe it is imprudent for China to effectively operate a global monopoly on green technology. Mistakes happen, priorities change, and the unexpected is always nearer at hand than we believe, as the COVID-19 pandemic so painfully illustrated.
Where the fight against climate change is concerned, more is more, and friends of both the planet and geopolitical stability should want the world’s largest economy to be involved in the green technology of the future. To that end, Biden’s tariffs are a necessary step—and very different from Trump’s recent campaign proposal of a universal 10 percent tariff on all imports, which has nothing to do with developing new industry, or really any other identifiable policy aim. Trump is just really into tariffs, a fetish every bit as odd as the laissez-faire totem that every tariff is inherently sinful.
Tariffs can’t do the work of economic development alone. They’ll have to be harmonized with green tech subsidies from Biden’s Inflation Reduction Act, coordinated with international allies, and adjusted in response to geopolitical change. Biden must pursue these goals without gratuitously escalating political tensions. There is plenty of room for a healthy American green tech sector that maintains a relationship of reciprocity with China. Hamilton’s vision for economic development was not a program for industrial isolation. He imagined American industrial policy as a program to grapple with the political complexities of the moment in pursuit of long-term international cooperation. That is an ideal worth emulating.