As part of my entry examinations for university, I remember writing an essay on the controversy within the Conservative Party over tariffs in the early part of the twentieth century. This was towards the end of the first great wave of liberal capitalist globalisation. By then Britain was facing severe challenges to its seemingly impregnable economic superiority from countries like Germany and the US. The idea that tariffs could stop this trend was associated with Joseph Chamberlain who had been a social reformer as mayor of Birmingham and had later split the Liberal party over his opposition to giving Ireland a degree of autonomy (Irish Home Rule). Chamberlain argued that tariffs could support British industry and strengthen ties with Britain’s colonies and dominions (Imperial Preference), but the revenues from the tariffs could be used for social reform. His prime minister Arthur Balfour was sympathetic, but not enthusiastic – he seems to have supported tariffs mostly as a bargaining weapon to get others to reduce their tariffs. On the other hand, the Chancellor of the Exchequer, Charles Ritchie, was a free-trader and actively hostile. Chamberlain resigned from the government to campaign for tariffs in 1903, and the split contributed to the Conservative’s defeat to the free trade Libarals in the national election of 1906.
Nevertheless, the issue never went away and by the 1930s, the Conservative government supported the principle of home producers first, empire producers second and foreign producers last. At the same time this was the period of the Smoot-Hawley Tariff Act (1930) in the US that increased tariffs on a wide range of goods. Most economists would argue that the economic effects of tariffs were harmful and contributed to the economic instability of the 1930s and the disasters that followed.
Post WWII we had a second period of capitalist liberal globalisation which began to be, al least partially, reversed after the financial crisis of 2009. In the early post-war period, tariffs were mostly the concern of developing economies that wanted industrialize and to catch up the more developed economies of the advanced capitalist economies. This approach, explicitly or not, was based on Friedrich’s List infant industry argument – temporary protection from international competition for countries in the initial stages of industrialisation. But Trump’s tariffs are very different since they are being proposed for the world’s strongest economy. In that sense the controversy around them resembles closely the debate in Britain in the early part of the previous century – the same need to protect a strong economy from new challengers (in this case China), the same case for strengthening domestic producers and some chosen foreign producers (on geo-strategic grounds), the same argument that the revenues from tariffs can be used for social programmes for those left behind by the previous period of globalization.
There is also another interesting parallel. Chamberlain’s crusade for tariffs was supported by the English Historical School of economists, who were influenced by the German Historical School. Both schools were critical of the then dominant atomistic marginalist school, what we now call neoclassical orthodoxy. Similarly, there is now a growing number of Republican economists supporting Trump’s tariffs and more interested in institutions, balance of power and global strategic issues than they are in the homo economicus beloved of the neoclassical.
The pre-WWII tariffs clearly did not work. Will Trump’s fair any better? The answer is no but it is important to understand why. Countries have used tariffs successfully to industrialise and catch up. One can think of Japan or Korea post-WWII. But tariffs were only one part of the strategy which included, depending on the particular case, industrial policy, directed credit and measures to alleviate income inequality – in the Korean case, for instance, the approach began with an agrarian reform to broaden the consensus for the industrialization strategy. Above all success relies on a developmental state to organize the overall approach, to coordinate the various players and give direction over which sectors or activities are to be mobilized. Even McKinley’s (1890)– much beloved by Trump – tariffs only played a minor part in the performance of the US economy – immigration, technological developments and investments were far more important. In short, tariffs by themselves do not constitute a viable strategy.
Trump will therefore fail to square the circle of continuing to appeal to the elites, through tax cuts for instance, while encompassing a sizeable part of working-class Americans into his project. He will not achieve an updated version of the two-thirds society. Right-wing governments in Europe that oppose tariffs will fair no better. Responding to climate change, inequality and the challenge of technology needs the type of developmental state that both Trump and Mitsotakis abhor. And for good reason: a response to the challenges faced needs a political and social alliance which will lead to a quite different configuration of winners and losers. Without the prospect of a renewed two-thirds society, with or without tariffs, political instability will continue.
Published in Kathimerini (8/6/2025)
