In the wake of the Trumpian tariffs, we take a look at the theory of optimal tariffs

The theory of optimal tariffs has a long pedigree, but it became a staple of international economics when Nicholas Kaldor formalized it in 1940 .

In the standard analysis, there is a net deadweight loss, which shows that tariffs are inefficient.

The Austrian theory of tax incidence is different, and there is no clear rule for who pays—sometimes the incidence falls on consumers, sometimes on consumers.

Kristoffer Mousten Hansen: Tariffs always lead to a reduction in the international division of labor and overall lower real incomes for all.

He argues that if an optimal tariff lowers the world market price, foreign capitalists will not simply happily pay.

They will reduce demand for factors of production in the affected line of business.