In any Economics 101 class, one of the first things they teach you is that economics is about maximizing output/production given a scarce amount of land, labor, and capital. In other words, we don’t have unlimited resources, so how can we get the most out of them? With that goal in mind, free trade is absolutely essential. All nations have their strengths and weaknesses. We have different labor costs, tech know-how, climates, educational systems, natural resources, population needs, and so much more. Thus, to maximize production and get the best of all worlds, it’s crucial nations can specialize in what they do best.

Tariffs are an impediment. They add costs and inefficencies, often forcing nations to produce goods & services for which their production is weak, while subtracting resources from their greatest strengths. The only real benefits of tariffs are temporary, and usually they only apply to a specific segment of the population. For example, a tariff on steel may benefit steel companies in your country, but those who use the steel, both inside and outside the country, pay more.

However, there is one situation when tariffs must be used: retaliation! If nations impose them to benefit their own countries without any repercussions, they have no incentive to stop. In fact, it only encourages more tariffs. But if you punish the offender with retaliatory tariffs, eventually the lose-lose equation will motivate removal of the original ones. Sometimes even the threat of tariffs motivates bad actors to reverse course.

The word ‘retaliation’ sounds bad, but ultimately if it’s used correctly, most reasonable leaders will eventually learn it’s futile to try tariffs in the first place, leading to the free trade environment that’s truly a win-win for everyone.