As President-elect Trump approaches the second half of his discontinuous presidency, Americans seem cool to his signature economic proposal: steep new tariffs on America’s most important trading partners.
During the campaign, Trump suggested that his tariffs would be truly universal, levied on all countries and applied to almost every product. More recently, however, his advisers have signaled a more targeted approach.
“Rather than apply tariffs to all imports, the current discussions center on imposing them only on certain sectors deemed critical to national or economic security,” The Washington Post reported last week. “The potential change reflects a recognition that Trump’s initial plans — which would have been immediately noticeable in the price of food imports and cheap consumer electronics — could prove politically unpopular and disruptive.”
Trump has denied any backsliding. “The story in the Washington Post, quoting so-called anonymous sources, which don’t exist, incorrectly states that my tariff policy will be pared back. That is wrong,” the president-elect wrote on Truth Social. “The Washington Post knows it’s wrong. It’s just another example of Fake News.”
Trump’s plans are notoriously hard to pin down; in public comments, he often plays fast and loose with the specifics. Still, it seems reasonable to expect that his new tariffs will be dramatic, even if they never reach the height or scope promised at numerous campaign rallies.
Wary Voters
American voters seem lukewarm about Trump’s tariffs. A recent survey by Quinnipiac University reported that 51 percent of respondents opposed Trump’s plan to impose new tariffs on imports from Mexico, Canada, and China. Thirty-eight percent supported the proposal.
Politics continues to play a big role in contouring public opinion. Trump’s tariffs are popular with Republicans, with 76 percent in support, 12 percent opposed, and 12 percent unsure. But an even bigger majority of Democrats are against the looming tariff shakeup: 89 percent oppose it, 7 percent favor it, and just 4 percent are unsure. Independents oppose Trump’s tariffs 53 percent to 34 percent, with 13 percent unsure.
Apparently, the anti-tariff consensus among mainstream economists has resonated with voters. “Will tariffs targeting foreign countries, intended to level the import-export playing field, end up hurting Americans at home?” wondered Quinnipiac polling analyst Tim Malloy in his comments on the survey. “The numbers could suggest that’s exactly what voters fear will happen.”
But what if the experts are wrong?
Challenging Tariff Certainties
Opposition to the Trump tariffs is nearly universal among economists and trade experts. But the consensus is not perfect. “Tariffs are neither a panacea nor necessarily injurious,” observed Michael Pettis in a recent article for Foreign Affairs. “Their effectiveness, like that of any economic policy intervention, depends on the circumstances under which they are implemented.”
To be fair, Pettis isn’t an economist, at least not formally. In a Wall Street Journal profile, he described himself as “a finance guy,” reflecting his years working on Wall Street. More recently, Pettis has been teaching finance at Peking University’s Guanghua School of Management.
Pettis has made a name for himself as a tariff apologist — although he would certainly insist that no apology is necessary. He brings a distinctly historical view to his analysis of modern tariff proposals, arguing that history tends to dissolve universal, timeless certainties, including conventional wisdom about import duties.
“If you want to understand the effects of tariffs on the economy, ask economic historians,” Pettis wrote in the Financial Times last month. “Their views tend to be fairly nuanced, generally recognising that the history of tariffs is a varied one. Sometimes they are associated with higher economic growth and other times with lower.”
Pettis, who also serves as a senior associate at the Carnegie Endowment for International Peace, has made a splash with that sort of contrarian, historicized observation. Even more notable, he has had some nice things to say about Trump’s plans for aggressive trade reforms. “Done under current circumstances,” Pettis wrote, “tariffs could increase employment and wages in the United States, raising living standards and growing the economy.”
According to Pettis, economists take a one-dimensional view of tariffs, ignoring both complexity and historical specificity. “For many economists,” he contended, “tariffs have become an ideological litmus test with little acknowledgment of these variations. Tariffs in advanced economies — and especially in the U.S. — only matter, they argue, to the extent that they affect the prices of imported goods. For that reason, they are seen as always harmful to the economy because they always hurt consumers.”
In numerous articles, Pettis has tried to tell a different story — one rooted in history and nuanced analysis. And he frequently begins by talking about the infamous Smoot-Hawley tariff of 1930. (Prior analysis: Tax Notes, Dec. 19, 2016, p. 1398.)
Trump critics routinely invoke Smoot-Hawley as an object lesson, arguing that its high tariffs prolonged and worsened the Great Depression. By way of example, Pettis cites a 2024 claim by Desmond Lachman, an economist at the American Enterprise Institute. “Judging by his proposed import tariff policy,” Lachman wrote last year, “it is evident that Donald Trump does not remember our country’s disastrous economic experience with the 1930 Smoot-Hawley Trade Act.”
Pettis accepts that assessment of the 1930 law; it was a genuine disaster. But he rejects the idea that Smoot-Hawley is relevant to the policy debates of 2025.
Inequality and Underconsumption
Like many historians, Pettis blames the Great Depression on a mismatch between production and consumption. In 1930 Americans were producing too much and consuming too little. “Americans were unable to consume a large enough part of what they produced to balance domestic production,” he wrote in Foreign Affairs. “The huge U.S. trade surplus of the 1920s, in other words, reflected the inability of Americans to absorb what American businesses produced.”
Rising inequality was part of the problem, as Federal Reserve Chair Marriner Eccles (in office from 1934 to 1948) recognized at the time. As a form of regressive taxation, tariffs drained money from people with a relatively high propensity to consume. In doing so, they worsened the problems of overproduction. Pettis quoted Eccles’s 1966 memoir, Beckoning Frontiers, to make the point:
“As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth — not of existing wealth, but of wealth as it is currently produced — to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth.”
Eccles believed that progressive taxation could help reestablish a balance between production and consumption, shifting wealth toward active consumers. And he wasn’t the only one making that case in the 1930s; so were key figures in Franklin Roosevelt’s Treasury Department. The proto-Keynesian cohort insisted that soak-the-rich taxation wasn’t punitive: It was a prescription for recovery. (Prior analysis: Tax Notes, Dec. 8, 2008, p. 1189.)
Tariffs and Overconsumption
But what does this tell us about tariffs in 2025? After all, if tariffs are regressive, they won’t shift income and wealth toward people with a higher propensity to consume. So how does Pettis arrive at the idea that Trump’s tariffs might be a good idea?
As Pettis explains, the problem is one of inapt comparisons. Fundamentally, 2025 is nothing like 1930. A set of policies that were disastrous 95 years ago could be helpful today because conditions are different.
In 1930 the economy’s big problem was underconsumption. Wealthy voters and the investing class had failed to recognize that fact and how tariffs (and other regressive taxes) tended to make the problem worse. Pettis quotes Eccles again:
“By taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”
So high tariffs were a mistake in 1930 because they further curbed consumption in a country that was already producing too much and consuming too little. They were a mismatch to the conditions of 1930.
In 2025, by contrast, the United States suffers from a crisis of overconsumption. Higher tariffs — including ones consistent with Trump’s announced plans — might ameliorate this problem by raising prices and discouraging consumption. As Pettis says of tariffs:
“They reduce domestic consumption and force up domestic savings rates. A country with low consumption and excess savings (like the United States in the 1920s or China today) tends to be one with an undervalued currency, in which case tariffs, like currency depreciation, are likely to be deflationary. But in a country with excessively high levels of consumption, like the modern United States, the same policy can be expansionary. Done under current circumstances, in other words, tariffs could increase employment and wages in the United States, raising living standards and growing the economy.”
Pettis is making a historical argument as well as an economic one; he is determined to root tariff debates in the specific conditions of the modern economy, not some set of timeless economic truths. “Overall, the modern American economy is very different from the one of 1930,” he argues persuasively (if perhaps obviously). “In fact, when it comes to trade, the two are almost opposites. The United States now has by far the largest trade deficit in history. That means Americans invest and (mainly) consume far more than they produce. U.S. consumption in the 1920s, in other words, was too low relative to American production. Today, it is too high.”
Pettis may be wrong about his analysis of the modern U.S. economy. Indeed, many critics reject his notion that overconsumption is the big problem of 2025. His myopic focus on that issue can seem reductive. “The world is really complicated,” Maury Obstfeld, a senior fellow at the Peterson Institute for International Economics, told The Wall Street Journal. “For Michael Pettis, the world is really simple.”
Still, Pettis has won his share of fans — and not all of them hail from Trump’s end of the political spectrum. As Katherine Tai, President Biden’s trade ambassador, recently observed, “He is looking at things with a kind of objectivity that is unusual and incredibly valuable.”
That’s not exactly an endorsement, but it’s definitely food for thought.
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