Economists tend to disagree on pretty much everything. Often called the dismal science for its gloomy outlook on the world, the discipline could just as well be called the argumentative science.

But there is one area on which economists are unusually aligned: trade policy. Indeed, the Nobel Prize winner and New York Times columnist Paul Krugman once joked that if there were an economists’ creed it would end: “I believe in free trade”.

The re-election of President Trump has brought the issue of tariffs back to centre stage.

So – the most beautiful word in the English language, according to President Trump, or a scourge on prosperity, as suggested by economists?

What is a tariff?

A tariff is a tax on trade. So, it has the unhappy effect of shifting production towards less efficient locations. As an illustration, suppose Iceland imposed a tariff on tropical fruits, it could possibly grow mangoes and pineapples in greenhouses. But that would plainly be less efficient than importing themfrom abroad.

But what about manufactured goods and services, which can be produced in any climate? The same logic applies. Certain areas of the world have fostered particular skills, such as textile workers in Vietnam or machine engineers in Germany. It’s better to take advantage of these learned specialisms.

Even if a country is more efficient at producing every single product it consumes, economics suggests it would be better off to specialise in those goods at which it is “relatively more efficient”. All countries will be better off if they specialise and trade – this is a theory known as comparative advantage.

It’s similar to professions. We could be a jack-of-all-trades, but it makes sense to specialise. When I learnt economics back in the 1980s, the textbook suggested that even if an author is faster at typing than her secretary, she should still focus on her writing and pass it to the secretary to type it up.

How tariffs harm growth

For those still not convinced, what about the impact of tariffs on economic growth?

By hampering foreign competitors with taxes, tariffs allow inefficient or out-of-date companies to survive. In former communist East Germany, factories made basic consumer goods but survived. As soon as reunification took place they had to close because West Germany products were far superior.

What’s more, international companies learn from each other, and competition raises the bar for everyone. So, in this way, too, tariffs stifle the economy.

But at this point, I should concede that there are some arguments in favour of tariffs.

Perhaps the oldest defence of tariffs is the so-called “infant industry” argument. This is the idea that firms need protection when they’re starting out. The theory behind this view is a bit hazy but some countries – including the US in the 19th century – saw industries develop behind protectionist taxes.

Tariffs have also been justified for the opposite reason – to support declining or “sunset” industries. The idea is to allow an economy and society time to adjust when an industry is in terminal decline – like coal or steel in western countries these days.

Another justification for tariffs is as a defence against foreign firms if they threaten to undercut domestic business with very low prices – a practice is known as predatory pricing. Tariffs to prevent this happening are called anti-dumping duties. For example, the European Union imposed tariffs on Chinese solar panels after finding that Chinese companies were selling them below their cost of production in Europe.

And tariffs may be justified if a foreign government sets very low tax rates to attract business. Ireland, for instance, has set a very low corporate tax rate and enticed US pharmaceutical firms to manufacture drugs like Viagra and Botox. President Trump is perhaps right to argue that more of that tax should be paid in the US.

Foreign policy considerations are also used to justify tariffs. The US aims to be less dependent on China for anything from semiconductor chips to rare earths used in EV batteries and personal protective equipment such as medical masks. High tariffs are one means of reducing those imports.

Also, governments may choose to pay a price in material terms to protect a way of life that they value. Farmers often argue that they need protection to preserve the countryside. Many small farms in Europe and Japan survive only because of tariffs.

It would be cheaper for British consumers to import all their lamb from New Zealand, where the conditions for sheep farming are much better. But many Brits want sheep on the Welsh hills for aesthetic or sentimental reasons.

An archaic tax

Before reaching a conclusion, it’s worth taking a quick look at history.

Tariffs have been around for millennia because they are a relatively easy tax to collect.

The earliest recorded tariffs were in Mesopotamia in around 2000 BC while the Egyptians, Greeks and Romans also used them. And the very first act of the US Congress in 1789 was to introduce a tariff in the Hamilton Act – named for a character you may well be familiar with.

But after the industrial revolution things began to change in England. The urban industrial class was getting stronger and objected to tariffs because they kept food prices high to support the landed gentry. The urban middle classes also wanted foreign markets to sell to. So, in 1846 the British parliament abolished the Corn Laws that kept tariffs high.

Around that time the first modern economists – like Adam Smith and David Ricardo – developed key economic theories demonstrating that free trade is the most efficient system. Before long, the British government was promoting the idea of free trade and pushing other governments to remove their trade barriers. And in due course, export markets were opened up for British manufacturers.

The inter-war period saw a resurgence of tariffs around the world due to nationalism and economic insecurity. The most infamous example is the Smooth-Hawley tariff that was passed by the US Congress in 1930.

Ironically, this tariff made things worse, hastening a collapse in exports and production, and the rise in unemployment.

After the end of the World War II, countries dismantled their tariffs. Following a flurry of trade deals, the World Trade Organization was eventually established with the aim to keep trade as free and easy as humanly possible. When China finally joined the WTO in 2001, trade rose exponentially – as did global GDP.

And that pretty much brings us up to date and the latest swing of the pendulum back towards protectionism.

The verdict

So, let’s take stock.

Most of the arguments in defence of tariffs are not really economic arguments – they’re more to do with politics.

But even if you think the political objectives of protectionism are valuable, there are often other ways to achieve them. A direct subsidy for farmers would be more transparent and less costly for the economy than a tariff, for instance.

Ultimately, tariffs are widely disliked by economists for very good reasons. The current “trade war” risks substantially dampening growth in some countries – notably the US, Mexico and China – although President Trump’s recent decisions to row back on previous tariff announcements suggests that we can hope a global recession will be avoided.

So, true to my economists’ creed, I think the balance of arguments is strongly in favour of free trade.