In March 1981, 365 economists wrote a letter to The Times denouncing Margaret Thatcher's monetarist economic policies. The letter criticised her government's approach of restricting the money supply to control inflation, arguing that it was exacerbating the recession and causing unnecessary unemployment. The signatories, including prominent figures such as Sir Richard Stone and James Meade, warned that the policies would deepen the economic downturn rather than resolve it.
Thatcher and her Chancellor, Sir Geoffrey Howe, ignored the letter, and her government remained committed to its monetarist stance. By the mid-1980s, inflation had indeed fallen, but at the cost of high unemployment and significant industrial decline. It was eventually understood that the Thatcher reforms - deregulatory, dismantling restrictive practices and veto networks - were essential to reposition the UK economy for the era of globalisation which followed.
Now the US administration is embarking upon a similar revectoring of the U.S. economy to confront America's new challenges - internal and external. Naturally, conventional economists are united in condescending fury. The ivory towers resound to the squeals of Trump Derangement Syndrome.
Let it go. With the help of ChatGPT, let's examine - calmly and professionally - why the Trump administration's tariff strategy is broadly correct from America's point of view.
And why, sharing similar problems, the UK government should be similarly radical when it comes to sacred cow slaying (although it won't be).
The orthodox economic consensus has long favoured free trade, viewing tariffs as an inefficient distortion of market forces. This perspective assumes a world of frictionless global commerce, where nations specialise according to comparative advantage, and capital moves freely to its most productive uses. However, this idealised framework has not always aligned with political-economic reality, particularly in the context of geopolitics, strategic industries, and long-term national economic resilience in a period of heightened inter-state tensions.
The Trump administration’s tariff strategy, often dismissed as crude protectionism, can be more accurately understood as an attempt to recalibrate America’s economic position in a global system that has, in many respects, disadvantaged its domestic manufacturing. One of the central issues is the persistent strength of the U.S. dollar, a consequence of its role as the world’s dominant reserve currency - a safe haven for the wealth of rich foreigners.
This status generates continuous international demand for dollars, driving up its value. A strong dollar, in turn, makes U.S. exports more expensive on global markets while simultaneously making imports cheaper. The result is a structural trade imbalance, where American industries struggle to compete internationally, and domestic production is displaced by the relocation of manufacturing abroad and by lower-cost imports.
Tariffs provide one means of addressing this imbalance. By imposing levies on imported goods, the government can create a more level playing field for domestic producers, mitigating some of the distortions caused by exchange rate dynamics, stimulating domestic investment.
While tariffs are often criticised for raising consumer prices, they can also serve a strategic purpose: ensuring that key industries—particularly those essential to national security and technological leadership—are not eroded by the vagaries of global capital flows.
The case for tariffs is further strengthened by the issue of unfair competition, particularly in the form of state-backed overproduction and dumping. China, for example, has a long history of producing goods at levels far beyond domestic demand, selling the surplus abroad at marginal cost. This practice, enabled by extensive state subsidies, undermines industries in importing nations, leading to deindustrialisation and job losses.
Tariffs can serve as a countermeasure, preventing domestic markets from being flooded with artificially cheap goods that domestic producers cannot match. In practice, most countries in the world have used tariffs in this way.
Historically, developing nations such as South Korea and Japan used protectionist measures to nurture their industries until they were able to compete on equal footing with established global players.
The notion that a country should simply allow market forces to dictate outcomes, regardless of strategic consequences, is a relatively recent economic orthodoxy reflecting the ideals of globalisation. In reality, the most successful industrial nations have always employed a mix of free-market competition and targeted state intervention to shape economic outcomes in their favour.
Beyond economic theory, there is a broader geopolitical imperative at play. The post-Cold War assumption of a benign, integrated global economy is increasingly untenable in an era of great-power competition. As global supply chains become a site of strategic rivalry, economic policy must reflect national interests rather than abstract efficiency. Tariffs, in this context, are not merely a protectionist tool but part of a broader strategy to ensure economic sovereignty and resilience.
While conventional economists will continue to argue for unfettered trade, the case for a more interventionist approach is gaining traction. The U.S. experience over recent decades—marked by the offshoring of production, the hollowing out of industrial regions, and persistent trade deficits—suggests that a reassessment is overdue.
The Trump administration’s policies, though controversial, reflect a pragmatic response to these challenges. Whether tariffs alone can achieve the desired economic realignment remains an open question, but their use as a corrective measure within a broader strategy of economic rebalancing is a completely defensible position.
