This poses the question: how worried should we be by the prospect of increased barriers to trade? Two things suggest: 'very much'.
One is that, for years, there has been a close link between equity returns and world trade: slowdowns in world trade have been associated with falling share prices. Granted, some of this link is simply because equities are cyclical. But there's a good reason why strong world trade should be good for shares. Greater world trade means a greater international division of labour and as Adam Smith pointed out it's this division of labour that increases productivity and incomes. Anything that threatens this should therefore be bad for shares.
Secondly, protectionism invokes horrible folk memories of the Great Depression of the 1930s. The Smoot-Hawley Act of 1930, which raised tariffs, is generally thought to have contributed to the global recession and is regarded as one of the worst laws Congress ever passed - a title for which there's some strong competition. One of Mr Trump's predecessors, Ronald Reagan, said it "helped plunge this nation and the world into a decade of depression and despair". This could hurt equities simply by contributing to a climate of risk aversion.
It's easy to see, therefore, why protectionism is a scary prospect. Equally, though, there are reasons why higher tariffs might not be catastrophic.
One lies in research by Silvia Nenci at the University of Roma Tre. She shows that cuts in tariffs had only a modest effect in stimulating growth in world trade in the later 20th century. This is consistent with research by the NIESR's Monique Ebell, which shows that free-trade agreements don't greatly boost trade. While this is bad news for anyone hoping that post-Brexit free-trade deals will unleash a UK export boom, it offers comfort to those worried about Mr Trump's ideas: it tells us that trade isn't sensitive to changes in tariffs.
There's a simple reason for this; there are countless things that matter more for trade than tariffs. There are non-tariff barriers such as different product regulations or just the hassle of dealing with customs officials. There's the home bias: consumers prefer local goods and services and to deal with companies they are familiar with. There's distance: this is far more important for trade than you might think. There's uncertainty about exchange rates, trading rules, credit and so on. And there's managers' abilities or not to oversee complicated global supply chains. One simple fact tells us that these things matter more for trade than tariffs: world trade growth has slowed down markedly since 2010 without significant rises in tariffs.
There's more. Tariffs are much like exchange rates. A 5 per cent (say) tariff on US imports has much the same effect as a 5 per cent fall in the exchange rate: both make imports dearer. This tells us something. Just as companies can absorb exchange rate changes by changing profit margins, so they'll absorb tariffs. These will squeeze the profits of companies selling into the US and of US importers, just as exchange rate falls do. But as Tyler Cowen at George Mason University points out, companies (or at least larger ones) are resilient to currency moves, so they should be resilient to tariffs too. Protectionism, he says, "won't quite have the negative economic impact that many people think".
Nor will they have the benefit Mr Trump expects. Imagine that his "border tax" does cause US companies to shift production back to the US so that domestic output rises. This greater economic activity should increase interest rates and demand for dollars, with the result that the dollar rises. That would make imports cheaper and exports dearer, which would offset the impact of the tariff. In Peddling Prosperity, his excellent account of the Smoot-Hawley Act, Douglas Irwin writes: "A tariff is generally ineffective under floating exchange rates; it reduces spending on imports, but also leads to an appreciation of the domestic currency, which diminishes exports and negates any stimulative effect on domestic output."
Mr Trump's protectionism might therefore have neither the benefits he expects nor the costs his critics fear. I suspect both sides are guilty of a common error - of overestimating the importance of economic policy and underestimating the countless other determinants of economic activity. Developed economies can be quite resilient to policy errors - a fact that has surely been often demonstrated down the years.
Does this mean investors can relax?
Not entirely. For one thing, protectionism might hurt particular companies even if its macroeconomic harm is limited. Also, it creates uncertainty, by calling into question the liberal international order to which we've become accustomed.
But there's something else. Demands for protectionism are based on a gross error - the belief that trade is a zero-sum game with winners and losers. This is not the case: except in rare cases, both sides benefit. This poses the question. If Mr Trump believes something as stupid as this, what other witless policies might he inflict upon us?
