Stephen Miran on Optimal Tariffs
In a recent WSJ op-ed (which Julia Qin mentioned in the comments here), former Trump administration Council of Economic Advisers Chair Stephen Miran makes the case for an "optimal tariff in the region of 10% to 40%." In this post, I'm going to respond to three points from the op-ed, and then tack on two additional points at the end.
First, Miran is talking about "optimal tariffs," rather than ordinary protective tariffs, anti-dumping tariffs, etc., so I'll mention a general critique of this idea that I've articulated before on this blog. It's probably not worth repeating everything, but here's the conclusion of my most recent post on the subject:
Over the years, when this subject has come up, I've asked people to point me to a tariff out there in the real world that they think constitutes an "optimal tariff," in the sense of affecting the terms of trade so as to make the country better off. No one has taken me up on it yet, which leaves me skeptical that the term has any practical relevance. But given that, as noted, the term kind of sounds like it just means "really good and effective tariff," we may not have heard the last of it from tariff proponents.
Read the whole post if you are interested, but to sum up my view, optimal tariffs are an interesting theoretical phenomenon that gets discussed in economics textbooks, but as noted in the quote above, as far as I can tell there is no evidence of a real world optimal tariff on a specific product or products that has increased "overall national welfare" (as Miran puts it).
Second, a key element of Miran's argument is that he says recent Trump administration tariffs prove that retaliation by trading partners will be much less than expected, demonstrating that previous arguments about how retaliation would undermine the benefits of optimal tariffs were incorrect. In response, I'll note that it is true that under the Trump administration's approach to trade policy, in combination with its approach to foreign policy, there has been little retaliation (so far, although this may not be a sustainable state of affairs). And some governments have even agreed to reduce their tariffs and trade barriers on U.S. exports. But a key issue here is, what impact will all this have on U.S. exports?
I know that some U.S. agriculture producers in particular are hoping for a big increase in exports based on the lower tariffs/trade barriers they face. They should keep in mind, though, that retaliation isn't just about a foreign government imposing tariffs. What if the Trump administration's policies cause a broad backlash against U.S. goods and services exports? Foreign governments might lower their tariffs on U.S. wheat exports, but at the same time shift their purchases away from U.S. weapons. And foreign consumers might follow these events and have a negative reaction of their own to U.S. good and services. How exactly this all plays out – will there be lost sales of U.S. fighter jets? will U.S. liquor sales fall? – is unclear at this point. The evidence so far for an increase in U.S. exports under Trump's trade policies is mixed, and we'll have to wait and see what the coming months and years tell us.
Third, Miran argues that "[t]ariffs have earned a permanent place in the tax system, and economic consensus is slowly coming to appreciate it." My sense is that the economic consensus is pretty much where it used to be, but it can be hard to say for sure. On the Republican side, it seems like there are some people saying they support tariffs because that's what Trump wants to hear. When Trump is out of the picture, I can imagine these people shifting back to their pre-Trump views on tariffs though.
It's also worth emphasizing in this context that even during the "neoliberal" period (as usual, I put quotes around "neoliberal" to mock the term a bit!), there were plenty of people who supported tariffs. So, I'm not sure I see that much of a shift, other than in one obvious – and extremely important! – place: The views of the President of the United States.
And furthermore, there were plenty of tariffs during the prior period too. Miran refers to "near-zero levels" of tariffs that prevailed before January 2025, but the simple average applied tariff rate of 3.3% in the U.S. tariff schedule in 2024 masks some significant tariff peaks. Also, it doesn't take into account AD/CVDs, which can be much higher.
Let me wrap up this post by making two additional points.
First, to reiterate something I said in response to Julia's comment: Tariffs are regressive, and this political moment in particular seems like one in which regressive taxes will not play well with voters.
And finally, the Trump administration has adopted a highly stimulative fiscal policy, with budget deficits running around 6% per year. It's a procyclical version of the policy rather than a countercyclical one (most stimulus supporters would recommend the latter), but nonetheless it seems clear to me they are using deficit-spending for short-term stimulus. This policy may be able to mask the harmful effects of tariffs on the domestic economy for a while, but at some point a fiscal stimulus approach will run its course and U.S. economic policy will have to deal with the negative impact of tariffs.