1. Jamieson Greer argued that economists
should revisit traditional trade theories and develop models that better
reflect real-world economic outcomes, including employment, manufacturing
capacity, supply chains, and public health.
2. He contended that for roughly three
decades tariffs and import regulations were dismissed by mainstream economic
models, limiting policymakers' options for addressing economic challenges.
3. Greer stated that the post-World War II
trading system was originally designed to allow countries to use tariffs and
trade regulations to protect national security, domestic industries, and
economic stability.
4. According to the article, the era of
"hyperglobalization" in the 1990s led to
the creation of institutions and agreements such as the World Trade
Organization and North American Free Trade Agreement (NAFTA), which prioritized
trade liberalization.
5. He argued that unrestricted globalization
enabled multinational corporations to relocate production to countries with
subsidies, lower labor costs, and weaker
environmental standards.
6. Greer claimed that the United States
suffered:
o Loss of millions of manufacturing jobs.
o Closure of over 70,000 factories.
o Stagnation of working-class wages.
o Weakening of the industrial base.
o Growing trade deficits.
7. He criticized conventional economic models
for assuming:
o Full employment.
o Smooth worker transitions between
industries.
o Minimal adjustment costs from trade
shocks.
o Efficiency gains as the primary measure of
welfare.
8. The article cited research on the
"China Shock," which found that workers and communities heavily
exposed to import competition often experienced long-term earnings losses and
limited employment recovery.
9. Greer highlighted research suggesting that
increased import competition following NAFTA was associated with higher
mortality rates in affected regions, arguing that trade policy impacts extend
beyond economic indicators.
10. He argued that many trade models fail to
capture:
o Supply-chain complexities.
o Rules-of-origin effects.
o Manufacturing network linkages.
o Regional labor
market disruptions.
11. The article questioned whether comparative
advantage alone can explain modern trade patterns, noting examples such as:
o U.S. agricultural trade deficits despite
abundant farmland.
o South Korea becoming a major steel
producer despite limited natural resources.
12. Greer contended that government
interventions, subsidies, and industrial policies have distorted global trade
patterns and contributed to persistent trade surpluses and deficits.
13. He cited recent research from the
International Monetary Fund and the Bank of England suggesting that persistent
global imbalances can generate negative economic spillovers.
14. The article criticized IMF policy
recommendations that rely on tax increases, spending cuts, and international
cooperation to address U.S. trade imbalances.
15. Greer argued that IMF trade models
underestimate the effectiveness of tariffs because they do not fully account
for "tariff-jumping" investment, where companies relocate production
to avoid import duties.
16. Historical examples cited in support of
tariffs included:
o Auto industry investment following
President Ronald Reagan's restrictions on Japanese vehicle imports.
o New manufacturing facilities established
after President Trump's 2018 washing machine tariffs.
o Recent investments by companies such as
Samsung, LG, and Mercedes-Benz in U.S. production facilities.
17. He maintained that tariffs are a simpler
and more politically feasible tool for reducing trade deficits than
alternatives such as import certificates or taxes on foreign capital inflows.
18. The article highlighted that the U.S.
trade deficit with China reportedly declined significantly during 2025
following the implementation of Trump's reciprocal tariff policies.
19. Greer called for new economic models that
incorporate:
o Distributional impacts of trade.
o Labor-market frictions.
o Scale economies in manufacturing.
o Regulatory arbitrage effects.
o Rules-of-origin impacts.
o Public health consequences.
20. He concluded that economists should adapt
their analytical frameworks to evolving global economic realities and provide
policymakers with tools that better reflect how trade policies affect workers,
industries, and national economic resilience.
[ABS News Service/30.05.2026]
Ambassador
Jamieson Greer published an article in the June issue of the International Monetary
Fund’s Finance & Development Magazine calling for the economics profession to
revisit its assumptions and develop models that capture what matters to the real
economy—including distributional consequences of trade, labor
market dynamics, network and scale effects in manufacturing, effects of regulatory
arbitrage on workers and producers, impacts of detailed rules of origin on global
production networks, and public health outcomes. If we want smarter policy, we need
richer empirical tools that study how trade actually works.
The
full text of the op-ed is below:
For
roughly 30 years, tariffs and import regulation were policy pariahs. To paraphrase
English writer G.K. Chesterton’s quip about Christianity: Tariffs were not tried
and found wanting but rejected by au courant economic models and left untried. Policymakers,
scared of challenging the elite consensus derived from such models, closed off the
universe of options and strategies to solve America’s challenges. But President
Donald Trump has changed that and, in doing so, given a gift to economists. The
return of tariffs and import regulations creates an opportunity to update old assumptions
and dated models with the hard evidence of real-world data and experience.
It
is interesting that these policies ever became off-limits. The architects of the
post–World War II international economic system knew the risks of unrestricted trade,
such as significant trade imbalances or dangerous import dependencies. These architects
prioritized national sovereignty and security as equal goals alongside broad-based
prosperity. The General Agreement on Tariffs and Trade was deliberately negotiated
to allow robust use of tariffs to ensure essential security, prevent damage to domestic
industries, respond to unfair competition, foster economic development, and address
balance of payments challenges. The Coordinating Committee for Multilateral Export
Controls aligned export control policies across the United States and its allies
to present a common economic front against the Soviet Union and its satellites.
Plurilateral agreements, such as the International Tin Agreement, actively managed
trade in key commodities to safeguard supply chains.
By
the 1990s, policymakers, economists, and business leaders had forgotten the nuances
and pragmatism of their forebears—failing to realize that there are good reasons
for preserving countries’ ability to manage their trade relations according to national
interests. In the heady days following the fall of the Berlin Wall, there was a
rush to adopt the simplicity of hyperglobalization: Would
it not be better for all the people of the world to eliminate barriers to trade
all together? And so were born the World Trade Organization, the North American
Free Trade Agreement (NAFTA), and our present predicament.
It
was thought that this approach would bring peace and prosperity, but it really just
allowed multinational firms to chase subsidies and weak labor
and environmental rules around the world. In the US, voters grew more skeptical as they saw working-class jobs move overseas, and
economists responded with highly quantitative methods to calculate, often with false
precision, enormous theoretical gains to be achieved by letting in floods of imports.
And, at the same time, many other countries retained high tariff rates and nontariff
barriers. So much for the post–Cold War optimism.
By
the time President Trump first took office, the gulf between theory and practice
was too large to ignore. Americans lost millions of high-quality manufacturing jobs,
more than 70,000 plants shut down, working-class wages fell behind, the industrial
base weakened, innovation slowed, real productivity in manufacturing declined, and
communities across the country were harmed. The goods trade deficit exploded to
$1.2 trillion annually, which in turn fed the country’s unsustainable current account
deficit.
Writing
with humility in 1933, for it represented a change in his views, John Maynard Keynes
expressed doubts about “whether the economic loss of national self-sufficiency is
great enough to outweigh the other advantages of gradually bringing the product
and the consumer within the ambit of the same national, economic, and financial
organization.” This was a turning point for Keynes, who went on to be among the
most vocal advocates for stronger trade-regulating mechanisms at the Bretton Woods
negotiations. As President Trump is crafting a new international economic order—predicated
on balance, reciprocity, fairness, and resilience—it is time for the economics profession
to take a cue from Keynes and catch up with the world as it is, rather than how
we may wish it to be.
Mistaken assumptions
Nowhere
is this catch-up more needed than in economic modeling.
The models typically used to predict the effects of trade policy have many blind
spots. They often assume full employment and seamless worker transitions between
industries and geographies. The models do not reflect the complexity of supply-chain
linkages and focus primarily on long-run efficiency gains—defined as the ability
to source products at the lowest-possible cost. Such theoretical gains are treated
as unalloyed social goods. These models mostly assume away realities that regular
people, or trade practitioners like me, experience on a daily basis.
The
economy rarely runs at full employment. Labor force participation declines in particular
regions or for specific demographic groups, including working-class men, are proof
of that. Transition costs are also real and severe. For example, David Autor and
others have tracked what happened to the American workers and towns most exposed
to the “China Shock.” Geographic mobility declined in trade-exposed places. Cross-sector
reallocation of former manufacturing workers was minimal. When jobs eventually returned,
they were lower-skill occupations and went to different people. Incumbent manufacturing
workers, often Black and White men in midsize or smaller cities, never recovered
their earnings. They aged in place and did not, as America’s policy elite encouraged,
move to Phoenix to become home health workers or Seattle to code software.
The
cost can be measured in human lives—and this is not hyperbole. A recent study by
Amy Finkelstein and coauthors found that areas with average exposure to Mexican
import competition under NAFTA experienced a sustained 0.68 percent increase in
annual age-adjusted mortality. The damage was concentrated among working-age men
and was distributed across most major causes of death. The authors found that this
mortality impact more than erased the welfare gains identified in a leading economic
analysis of NAFTA, making the agreement a deadly net loss for the people it was
supposed to help.
Many
models also fail to account for the sector-level linkages that influence how trade
flows shift under rules of origin in modern trade agreements. We often do not gather
the statistics we need to enable more accurate empirical analysis, including on
supply-chain dynamics. Furthermore, limitations in statistical or modeling approaches feed false political narratives. For example,
research by Susan Houseman has found that oft-touted gains in US manufacturing output
were driven by how we measure increasing computing power, not by actually producing
more stuff. Accounting for distorted computer industry figures, US real manufacturing
output fell 6 percent between 2007 and 2016.
Achieving balance
The
traditional case for unrestricted free trade made by economists was grounded in
the principle of comparative advantage. It is absolutely true and nontrivial that
specialization brings efficiency. However, contemporary economics must account for
a world where scale economies and government intervention combine to create structural
trade imbalances divorced from comparative advantage. How can it be that the United
States, with the most bountiful cropland in the world, runs a trade deficit in agriculture?
How can it be that South Korea—with limited energy resources, no coal, and no iron
ore—became a steelmaking powerhouse? Economic interventions by countries have rigged
the global economy in ways that persistently put some countries in deficit and others
in surplus. This is not healthy for the countries in either category.
Recent
IMF research found that persistent trade imbalances harm deficit economies and benefit
surplus ones by reallocating productivity gains. The Bank of England put a finer
point on it: When a country “combines industrial policy with different forms of
consumption suppression—such as weak social safety nets, capital controls, or high
precautionary saving—subsidies generate persistent trade surpluses and become a
beggar-thy-neighbour policy with negative international spillovers.” The Trump administration
could not have said it better.
The
IMF acknowledged recently that imbalances are “concentrated and persistent” and
driven at least in part by surplus country policies. In its most recent Article
IV report, the IMF raised the alarm on the US current account deficit (driven primarily
by the trade deficit), noting that the resulting negative net international investment
position “raises the risk of an eventual disorderly external rebalancing.”
But,
to address this problem, the IMF recommends untenable and outrageous solutions:
large-scale tax increases (including a 10 percent federal sales tax) and austerity
measures (including deep cuts to popular entitlement programs). They acknowledge
this would at best have only a moderate effect while requiring that surplus nations
also take action to boost demand. The IMF’s recommendation to achieve that? “Work
constructively with trading partners” to address “concerns over the fairness of
the global trading system.” The growing imbalances of the past decade demonstrate
the ineffectiveness of asking nicely for structural economic changes.
Misguided models
Why
does the IMF recommend drastic and unpopular policies while criticizing the Trump
administration’s tariff-driven approach? The answer lies, partly, in model assumptions.
The IMF’s Global Integrated Monetary and Fiscal (GIMF) model shows that tariffs
would have a negligible effect on narrowing current account imbalances. The IMF
points to that result in its 2025 External Sector Report to dismiss the tool as
a solution to what it says is an urgent problem. But the IMF acknowledges that the
model does not account for “tariff jumping through the cross-border reallocation
of production.”
This
minor technical note contains multitudes. Tariff jumping is precisely the mechanism
through which protective tariffs and other trade measures have induced the “reshoring”
of production and changed patterns of trade. President Ronald Reagan’s restrictions
on Japanese autos in the early 1980s incentivized an onshoring boom that produced
over 100,000 new American auto jobs at more than 300 new production facilities by
the 1990s. President Trump’s 2018 safeguard tariffs on washing machines triggered
a wave of investment, including in large new facilities by Samsung and LG in South
Carolina and Tennessee. Mercedes-Benz is investing $4 billion in its Alabama plant,
explicitly citing tariffs as the cause. McKinsey’s research shows how recent tariffs
have already caused a large-scale reordering of supply chains around the world.
How can we write off tariffs based on a model that assumes away the mechanism through
which they work?
There
are those who acknowledge the social and economic problems posed by structural trade
deficits but recommend tools other than tariffs to address them. Warren Buffett,
among others, famously recommended requiring companies that want to import goods
to buy a certificate from a domestic exporter of any goods or services of an equal
value. While perhaps viable on paper, this approach would likely present significant
implementation challenges. Others have suggested a market access charge on foreign
financial inflows to reduce the deficit by gradually depreciating the currency.
Such a solution would likely elicit organized insurrection from the financial services
sector, could be seen as a tax on incoming investment, and is difficult to explain
to the public.
Tariffs
that directly target the primary sources of the deficit are the simpler, and more
flexible, solution. This was long accepted across party lines before the shift in
focus to hyperglobalization, including in the 1980s, when
future Democratic House Majority Leader Dick Gephardt’s proposal to impose mandatory
large-scale tariffs on persistent surplus economies passed the House of Representatives
(before ultimately being dropped in favor of the strengthened
Section 301 authority my office is currently using). We are already seeing the salutary
effects of President Trump’s tariffs. The US trade deficit with China was down 32
percent, year over year, in 2025. The overall trade deficit in goods has decreased,
year over year, every month since President Trump began implementing his reciprocal
tariff policy in April 2025.
As
we move forward, we need models that capture what matters to the real economy. This
includes distributional consequences of trade, labor market
frictions, network and scale effects in manufacturing, effects of regulatory arbitrage
on workers and producers, impacts of detailed rules of origin on global production
networks, and—in light of the new NAFTA research—public health outcomes. If we want
smarter policy, we need richer empirical tools that study how trade actually works.
New challenges, new tools
We
do not have time to wait. The United States is using tariffs and agreements on reciprocal
trade to encourage inbound productive investment, increase incentives for domestic
production, and open markets for US exports. The IMF concedes that durable rebalancing
requires action by both surplus and deficit economies. Without real pressure a surplus
economy has no reason to act, but that does not mean that deficit countries must
remain inert. Hence, the United States is taking bold action to lay the foundation
for an international economic system grounded in balance, reciprocity, fairness,
and resilience.
Alfred
Marshall once wrote, “Economic conditions are constantly changing, and each generation
looks at its own problems in its own way.” It is urgent that economists take that
advice. As the global economy changes, so too must the economics profession. Economists
may be dismal scientists, but they have no reason to live with their heads in the
sand.