Lessons to be Learned from the `Tariff War`: Free Trade vs. Protectionism

President Trump is waging a “tariff war” against the entire world. The targets of this war are not limited to so-called “hostile states” such as China, but include allies and friendly nations as well—South Korea among them. Just days ago, President Trump imposed a 10 percent tariff on all goods exported to the United States from every country in the world, while levying tariffs of up to 49 percent on countries classified as the “worst offenders.” China was hit with a 34 percent tariff, South Korea with 25 percent, and the European Union with 20 percent. In addition, high tariffs have already been imposed on key products such as automobiles and steel.

Underlying President Trump’s global “tariff war” is the belief that international trade is not a win-win game that benefits all participating countries, but a zero-sum, win-lose struggle in which one side survives only at the expense of the other. This way of thinking is hardly new. It is the familiar logic that resurfaces whenever protectionism and tariff barriers are defended. President Trump’s recent remark—“We allowed America to be raped and pillaged… We were looted by every country in the world, friend and foe alike”—clearly reveals his view of international trade as a zero-sum game.

However, the idea that international trade is a zero-sum contest in which “either you kill the other side or you die” has long been proven wrong, both theoretically and through historical experience. No country that has built high trade barriers and pursued self-sufficiency has ever prospered. One notable example is the Great Depression: a major reason the 1929 economic downturn escalated into a prolonged global depression was the “tariff war” triggered by the Smoot–Hawley Tariff Act. The purpose of the act is evident from its original title: “An Act to provide revenue, to regulate commerce with foreign countries, to encourage the industries of the United States, to protect American labor, and for other purposes.” This is precisely the same set of objectives President Trump now cites in justifying his tariff war.

The current tariff war will lead to the same kind of outcome. While it may appear intuitively plausible, the very premise of viewing international trade as a zero-sum game rather than a win-win process is based on serious misconceptions and errors, making failure inevitable. There are many such misunderstandings, but the most fundamental one is the failure to distinguish between countries and companies in international trade. In short, it is the mistaken belief that nations compete with one another in the same way that corporations do. This view imagines “Company America” competing fiercely in global markets against “Company Europe,” “Company Japan,” or “Company Korea.” From this perspective, winning a tariff war is seen as a way to make the United States “the strongest economy in history.” But is that really how it works?

For example, Hyundai-Kia Motors and Toyota may compete fiercely, with Hyundai-Kia emerging victorious while Toyota declines. That would indeed be good news for Hyundai-Kia. But competition between nations does not operate in the same way. If the Japanese economy were to collapse, would that benefit the Korean economy? As the saying goes, “When the United States sneezes, Korea catches a cold.” In corporate competition, one firm’s victory and another’s downfall may benefit the winner, but in international trade, the collapse of a trading partner’s economy is not good news for one’s own economy. In fact, the opposite is true: countries benefit when their neighbors prosper. The notion that nations engage in a life-or-death, take-and-be-taken struggle in international trade is a profound misunderstanding.

With regard to America’s tariff war, voices around the world are speaking out in unison in criticism. Blocking free trade and turning toward protectionism will harm not only the U.S. economy but the global economy as a whole. This is a valid critique and a sound perspective. Yet a puzzling contradiction remains: in many of the very countries that argue that free trade—rather than protectionism—is beneficial both for themselves and for others, protectionist measures are frequently adopted. For instance, in South Korea, the Korea–U.S. Free Trade Agreement was once fiercely opposed as a “new Eulsa Treaty.” Is protectionism bad when practiced by the United States, but good when practiced by Korea?

It is, of course, necessary and important for Korea to make every possible diplomatic and trade-related effort to avoid the direct line of fire in this tariff war and to minimize the damage. At the same time, this episode should serve as a reminder—one that we take deeply to heart—that protectionism, rather than free trade, is a form of self-inflicted harm that damages not only other countries but ourselves as well, and that free trade, not protectionism, opens the door to prosperity. In the medium to long term, this latter lesson may prove even more important for achieving sustained growth and prosperity.

Kwon Hyuk-cheol
Director, Free Market Research Institute / Economist

Korean version: https://www.cfe.org/20250409_27513