Tariffs, Power and Decline

About the job

Tax law in transition

Swiss tax law is undergoing change. International developments, economic shifts and political expectations are causing ...

A large inland country is under pressure: debt is rising, employment in traditional industries is falling, while smaller countries are advancing innovatively. How should this large country behave? The best idea seems to be to invest selectively in national "champions", oblige innovative companies to produce domestically and use the large population as demand. Tariffs are intended to curb imports and create funds for the state. With additional military and fleet expansion, the position of power is to be secured.

What sounds like an omnipresent "Trump" strategy is by no means new. The introductory example comes from France under Louis XIV, better known as the "Sun King". His finance minister, Jean-Baptiste Colbert, responded to Dutch innovations and French stagnation with high tariffs, active economic espionage and the establishment of state manufactories and large enterprises.

So does the idea actually work? Correctly, it must be noted that employment rates increased significantly at the time, thereby stabilising the financially desperate situation in the short term. However, the effect was very brief. The costs for court and military expansion continued to grow dramatically and inflation rose relentlessly.

And how does the small country behave? A look into the past shows: the Netherlands remained more innovative. The USA, which tried this approach earlier, also did not have better experiences. When the Japanese industry was on a successful course in the USA in the 1980s, the country was initially forced to impose export restrictions. And when this was of no use, 100% punitive tariffs were imposed. The shortage did not lead to the desired result, but to a leap in quality by the Japanese manufacturers and accelerated the decline of the already increasingly inefficient US suppliers.

The past does not repeat itself, but it could certainly be worthwhile to draw certain conclusions from it.