In a column that ran in the NYT a few days ago, Robert Lighthizer suggested a new two-tiered approach towards world trade: the outer circle (primarily China) would be subjected to stiff new tariffs by the inner circle; and smaller tariffs would be used within the inner circle to eliminate trade surpluses and deficits caused by regulations other than tariffs. Probably not coincidentally, Trump just announced that he would be imposing reciprocal tariffs on the rest of the world in the near future. Can these schemes work?
The Trump plan won’t work, because as Lighthizer correctly notes, trade imbalances are often created, not by tariffs, but by subsidies, regulations, and other subtle government mechanisms that may be difficult to find and quash. The Lighthizer plan wouldn’t work because most trade imbalances between, for example, Germany and the US are attributable to different national attitudes towards working, consumption, and saving, not government regulations which discriminate against foreign products.