Lessons from the “Tariff War”: Free Trade vs. Protectionism

President Trump is waging a “tariff war” against the entire world. The targets in this war are not only so-called “hostile states” such as China, but every country without distinction, including allies and friendly nations such as South Korea. The other day, President Trump imposed a 10% tariff on exports to the United States from every country in the world, and tariffs of as much as 49% on countries classified as the “worst offenders.” He imposed tariffs of 34% on China, 25% on our country, and 20% on the European Union (EU). In addition, high tariffs have already been imposed on major items such as automobiles and steel.

Underlying this “tariff war” that President Trump is now waging against the world is the belief that international trade is not a win-win game that benefits all participating countries, but a zero-sum game of ruthless survival, a win-lose contest. This way of thinking is nothing new. It is the same logic that appears whenever protectionism, such as tariff barriers, is defended. President Trump’s recent remark in an interview—“We allowed the United States to be raped and pillaged.... We were ripped off by every country in the world, friend and foe”—clearly shows that he views international trade as a zero-sum game.

However, it has already been more than sufficiently proven, both in theory and through historical experience, that understanding international trade as a zero-sum game in which “if I do not destroy the other side, I die,” and shaping policy accordingly, is a mistake. There is no country that has become prosperous by building high trade barriers and pursuing self-sufficiency. One example is that one of the major reasons the 1929 “panic” deteriorated into the prolonged global Great Depression was the “tariff war” brought about by the Smoot-Hawley Tariff Act. The purpose of that law is clearly revealed in its original title: “An Act to increase the revenue of the United States Government, and for other purposes.” More specifically, it was intended to increase government revenue, regulate commerce with foreign countries, encourage U.S. industries, and protect American jobs. These are exactly the same objectives President Trump is now invoking in his “tariff war.”

This latest “tariff war” will lead to the same result. It may seem plausible at an intuitive level, but because the very perspective that sees international trade not as a win-win game but as a zero-sum game is based on serious error and illusion, the outcome is bound to end in failure. There are several such errors and misconceptions, but the most fundamental of all is probably the failure to distinguish between a country and a company in international trade, and instead treating them as the same. More specifically, it is the mistaken belief that countries compete in international trade in the same way companies do. It is to imagine that “America Inc.” is engaged in fierce competition in the global market with “Europe Inc.,” “Japan Inc.,” and “Korea Inc.” From this follows the idea that by waging a tariff war and winning it, the United States can be made into “the strongest economy in history.” But is that really so?

For example, Hyundai Motor Group and Toyota Motor Corporation can compete fiercely, with Hyundai Motor Group emerging victorious while Toyota collapses. And that would be good for Hyundai Motor Group. But competition between countries does not work that way. For example, if the Japanese economy were to collapse, would that benefit the Korean economy? Just as the saying goes, “When America sneezes, Korea catches a cold,” in competition between companies, it may be good for the winner when one side prevails and the other collapses. But in international trade, the collapse of the other country’s economy is not good for one’s own economy. Quite the opposite of competition between firms, among countries it is better for us when our neighbors prosper. The idea that countries engage in ruthless, life-or-death, winner-take-all competition in international trade is a major misconception.

In response to America’s “tariff war,” the entire world is criticizing it in one voice. The criticism is that obstructing free trade and turning toward protectionism will hurt not only the U.S. economy but the global economy as well. That is a valid criticism and a correct perspective. But then why is it that in most of the countries that say free trade, not protectionism, is good not only for other countries but also for themselves, protectionist measures are so frequently adopted? In our own country, for example, there was fierce opposition to the Korea-U.S. Free Trade Agreement, denounced as a “new Eulsa Treaty.” Is protectionism bad when the United States practices it, but good when South Korea does?

It is, of course, necessary and important that we make desperate diplomatic and trade efforts to avoid the concentrated barrage of this “tariff war” and minimize the damage. At the same time, this situation should also serve as an occasion to deeply remember that protectionism, not free trade, is an act of self-harm that hurts not only other countries but us as well, and that free trade, not protectionism, opens the door to opportunities for prosperity. In the medium to long term, learning that latter lesson may be even more important for prosperity.

Hyukchul Kwon (Director of the Free Market Institute, Economics)

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Original title: ‘관세 전쟁’에서 새겨야 할 교훈: 자유무역 vs 보호무역

Author: Hyeok-cheol Kwon

Date: 2025-04-09

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=1&idx=27513