By Tang Guhan
Most Americans thirst for free trade, especially many of the manufacturers，said Thomas J. Sargent, the Nobel Prize Laureate in economics at the 2018 World Forum on Scientific and Technological Innovation on Saturday.
Thomas J. Sargent, Nobel Prize Laureate in economics, delivered a keynote speech at the 2018 World Forum on Scientific and Technological Innovation.(Phote Credit: Chen Xinyi)
"But monopolies and inefficient manufacturers do not want competition from overseas," he said.
"Governments are not supposed to use tariffs to protect inefficient manufacturers since more and more people will suffer from the move eventually."
He said， for the majority of people most of the time, international trade is beneficial.
"But not all the time," Sargent added, "for those countries who have inefficient domestic manufacturers, they want their respective governments to protect their interests and impose tariffs on imports."
According to Adam Smith, a division of labor could enhance efficiency and therefore increase the profitability of the society as a whole, if a nation wants to close and depend on itself, it will restrict its division of labor and market expansions. Ultimately, it will hurt itself in the long run, Sargent explained.
"Tariffs have always been used as instruments and bargaining tools by the US government in trade negotiations to threaten their counterparts for opening up their domestic markets," Sargent said.
There are successful cases, but this strategy did bring plenty of risks. Sargent quoted a historical event when the US was initially founded; the government threatened to raise tariffs on imports from the UK, then it suffered from the retaliatory measures taken by its counterpart.
The GDP of Argentina one hundred years ago was at the same level as Canada's and Australia's, and even closer to the US, but its current average GDP is now only one-third of these countries. The reason is that the previous Argentine governments were trying to protect their domestic economy and refused to engage in free trade.
"The US is now facing great challenges with its trade policies," said Sargent.
