I talked to Erica York of the Tax Foundation about what’s wrong with tariffs on the latest episode of Econception, my podcast with the American Institute for Economic Research. We discuss how, when it comes to tariffs, there’s always a catch. If the tariff protects, it doesn’t raise revenue, and if it raises revenue, it doesn’t protect. Tariffs do reduce imports, but they also reduce exports, possibly leaving the trade deficit unchanged or larger in the end. We recorded this conversation before Biden’s announcement of more tariffs on China, but it’s still relevant to that topic as well. Read Erica’s paper on tariffs for the Cato Institute here.

I also talk about place-based industrial policy, and the problems it faces for implementation. Of course different areas of the country are affected differently by economic trends, but politicians face terrible incentives to targeting policy appropriately. One example is the Biden administration’s designation of “workforce hubs” for special attention for federal dollars. As Matt Darling of the Niskanen Center has pointed out, the eight workforce hubs the administration has designated are not located in states with exceptional need for economic development. Two of the eight are in Pennsylvania, which just so happens to be an extremely competitive swing state with 19 votes in the Electoral College.

The industrial-policy mentality carries over into government ownership of airports, where politicians view them as economic-development projects rather than as facilities that provide transportation services to paying customers. The U.S. is unusual in still having nearly all passenger traffic flow through government-owned airports, as a wave of privatization has occurred in Europe, Asia, and Latin America since the Thatcher government privatized the British Airports Authority in 1987.

For the Paper of the Episode, Erica picked “Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector,” by Aaron Flaaen and Justin Pierce. You can read that paper here.

And you can listen and subscribe to Econception on several different platforms by clicking here.