Trump’s tariffs have sent the world into a frenzy but there could be method yet. Economic theory shows that tariffs can in some cases reduce prices, writes Paul Ormerod

The reactions to President Trump’s tariffs have been frenzied, to say the least. The headline on many of the stories about them might well have read “The end of the world is nigh!”.

But once the dust is settled, it is by no means as obvious as most commentators suggest that the world will be worse off. A somewhat different pattern of international trade will emerge from which consumers might well benefit.

The basis of economic trade theory

The striking feature of international trade in manufactured goods between developed economies is that much of it involves what is known in the jargon as intra-industry trade. In other words, countries both export and import products which are in the same industry. BMW, for example, makes cars in Germany and sells them to France. In France, Renault makes cars and sells them to Germany.

Until the closing........

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