Economists prefer free trade because it is the best policy for global welfare. But what the debate around tariffs often fails to recognize is that there is an economic rationale for U.S. tariffs of 15 to 20 percent.

Large countries like the U.S. have market power, which means U.S. demand affects global prices. Tariffs depress U.S. demand, pushing global prices down. As a result of tariffs, the U.S. imports goods at lower prices and also obtains revenue in the process.

Most economists estimate that the optimal tariff for the U.S. is between 15 and 20 percent but could be as high as 60 percent.

The major problem with imposing high tariffs is that if our trade partners retaliate with similarly high tariffs on imports from the U.S., the U.S. will be worse off. So, the U.S. wants a tariff if it can act alone, but cooperation on low tariffs is the best policy for all — and better for the U.S. — if the alternative is a trade war.

To get a sense of the magnitudes, a recent study estimates that 19 percent tariffs could expand U.S. income by roughly 2 percent and boost employment if other countries don’t retaliate. However, the effects on income and employment become negative when other countries also impose tariffs.

The basic intuition for the tariff is that foreign sellers want access to the huge U.S. market and are willing to pay a fee for that access.

Consider a German auto firm, say BMW, that sells lots of cars in the U.S. If the U.S. places a tariff on German cars, Americans will shift to buying more GMs and fewer BMWs. But the U.S. consumer is hard to replace, so BMW will lower the pre-tariff price of its cars to maintain........

© The Hill