Understanding the Republican Reversal on the Merits of Free Trade

Every Econ 101 student is taught the theory of international trade and the gains and losses from free trade. The students then answer a question about the short-run effects of introducing a tariff. When the tariff is phased in, the government collects some tariff revenue (that depends on the tariff rate and the amount of imports that now flow into the nation), the domestic price of goods increases, and domestic producers now produce more of the goods than they would have in the absence of the tariffs.

Economists use a graph to document the waste (the deadweight loss) caused by the tariff as domestic producers “over-produce” and consumers can’t engage in mutually beneficial trade with the exporters.

Econ 101 Graduates, does this look familiar?

With this preamble, let’s look at some quotes from a great Wall Street Journal piece.

Economists will note that Peter Navarro and Steven Miller are in the background here. These men are fans of “walls.” I want to explore why.

A quick checklist on the Populist Case for Tariffs includes;

#1 Tariffs protect American jobs

#2 Tariffs raise revenue allowing U.S taxes to be cut.

#3 Tariffs give the U.S negotiating leverage in future trade deals

#4 Tariffs will cause the reshoring of U.S supply chains, and this will make our economy more resilient in the future to many possible shocks.

I want to focus on #1 and #4 here with a slight twist.

#1 Tenured university faculty have a very good deal. We have guaranteed lifetime employment, and our nominal salaries cannot be cut, and we have access to health insurance and retirement benefits that reduce our risk exposure. We have ample vacation time as the school year is roughly 7 months a year. We are invited to conferences in nice places during nice times of the year. Our children often have the opportunity to study at University “Lab Schools” with the children of other faculty.

In contrast, most manufacturing and service workers throughout the United States do not have access to this deal. Yes, the University Professors have advanced degrees, but millions of American workers face much more risk and uncertainty in their daily lives. Their firms compete with other firms, and the workers compete against each other. Cost-cutting firms have increased their integration of AI and robotics to do labor tasks.

American workers do face increased international and AI/robotics competition. The populists have embraced a short-run approach to protect themselves that, in the long run, will be very costly for all of us. In a previous Substack, I argued that the American Public School system did not properly prepare these individuals for the 2025 economy. The human capital theory of flourishing focuses on the family, schools and peers as playing a central role in shaping people and preparing them for adult life.

Here is a quote from a Substack I wrote in February 2025.

Middle-aged people in the U.S have planted roots in their community, and most do not want to leave. They own a home in the area, and their family and friends live there. Foreign competition has injured many U.S towns. The populist Republicans seek votes in the Rust Belt, and voters there are listening to them. However, federal policy has played a role in the fact that these voters have “locked in” to depressed local labor markets. Let’s return to my February Substack.

A new point I want to raise here is that U.S liability law discourages the redevelopment of rusted industrial sites in Rust Belt cities because the land buyer assumes the past liability bill.

So, a combination of the U.S public school monopoly, homeowner incentives, and environmental regulations has all played a role in increasing the demand for populist politicians. In 2025, who supports free trade? Exposing your family to the wild competition with all international firms and workers is risky. Who is up for this “cage match”? The Ivory Tower professors (including myself) can sit in our cushy sinecure and point out the waste from populist policies, but given the cards that 45-year-olds in Ohio have been dealt, I understand the demand for populist solutions.

Of course, sensible economists will counter #1 and point out many cases where free trade creates American jobs. Which U.S. workers in which cities/occupations/industries gain from frictionless globalization? Why aren’t these individuals more vocal about their gains? The populists would say that the elites are the main winners here, and the Average Joe gains little in terms of work opportunities. Is this correct?

Let’s wrap up by discussing the reshoring of American Supply Chains.

Several interesting issues arise here. In what scenarios is it crucial to have such reshored supply chains? For example, if war breaks out or a significant new infectious disease breaks out globally, how much more nimble will we be if everything is “Made in America”? What are the probabilities of different scenarios where, for National Security reasons, we gain from reshoring?

Would the reshoring of American jobs set off a virtuous cycle in which high school students would invest time studying because they anticipate that there are jobs for them in their city when they finish school? I discuss this theme in my new book, Free to Choose in the American City.

Looking forward, it is very difficult to quantify how much we gain from tariff-induced U.S resilience. A serious researcher would need to measure the causal effect of tariffs on raising the probability that factories are located in the U.S. and that these factories help us adapt to surprise shocks. An alternative to reshoring factories is to store inventories or have redundant supply chains with several nations to reduce supply chain disruption risk.

To Wrap Up, academic economists value reducing global poverty and improving global living standards. A commitment to free trade and to relatively open immigration flows contributes to increasing global prosperity and to increasing goodwill towards the United States. The Zero Sum Game mindset embraced by populists takes us to a dangerous place because it creates a dangerous precedent. Investors make long-term investment decisions. Increased political uncertainty in the United States is an implicit tax on such investment.

I would love to see Milton Friedman debate the new Populists such as Steve Bannon.

Mr. Bannon is making an interesting interest group claim about capture. Friedman would likely argue that a small slice of a growing pie is better than a big slice of a shrinking pie. Friedman would also say that privatizing efforts to deliver early life skill formation would significantly increase opportunity for all. He would argue that the U.S has never run his social experiment.