Friday, March 3, 2023
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Donald Trump Is Wrong About Tariffs

Tariffs are a form of taxation. They may in some quarters be popular and even help to win votes, as politicians have been proving at least as far back as President William McKinley, but they’re still destructive in the long term.

The 25 percent tariff President Donald Trump slapped on steel imports last week may win him a few more votes in Michigan and Pennsylvania and the rest of what used to be called “the Rust Belt” back when it was the hub of heavy American manufacturing. For the rest of us, it means higher prices.

It may indeed be the case that imported steel and aluminum are priced unfairly and anti-competitively because the governments in the countries where they are machined and manufactured subsidize their production. But is it wise to respond by saying, in effect, we will raise the price of these goods on our end to even things out and make the price of what you’re selling better reflect the cost of production? At best that’s a risky proposition.

The Trump steel tariff drove the price on the spot market up by 20 percent virtually overnight. The downstream economic effects of that are considerable, no matter what Commerce Secretary Wilbur Ross or anyone else has to say about it. Anything produced using steel just got more expensive. Anyone who got a raise or a bonus or both from their employer because of the recent tax cuts just saw a bit of it clawed back almost across the board. It’s hard to find an industry in America that doesn’t use steel or buy things made with it.

Sure, it’s nice to think we just stuck the Chinese in the ribs with a sharp elbow. They steal an estimated $500 billion worth of U.S. intellectual property every year and nothing we’ve done so far has been able to stem that tide. Some form of economic retaliation might be in order – no matter how much U.S. debt they’re buying up every time the U.S. Treasury auctions some off – but we want to be selling more things in and to China, not less. It would be irrational for Beijing not to respond to the tariffs in one way or another and, if we know one thing about the Chinese, it is that they are quite rational when it comes to business matters. They’re also playing the long game.

Political Cartoons on the Economy

But let’s leave aside for a moment the idea that Trump’s tariffs might produce a trade war with the Chinese or anyone else. Even in the global economy, the rest of world clings to what are its essentially mercantilist roots. The United States is by inclination inherently free trade, making us pigeons for protectionists in other countries who consistently wring out of us concessions that produce what the president has called again and again “bad trade deals.” Protectionism is, in the long run, not good for U.S. industry or U.S. workers.

Remember the economic displacement the occurred in the 1970s, when oil shocks and high inflation rocked the U.S. economy? We thought then that protectionism of our industry was the way to go.

It didn’t turn out that way. The protectionism of the economy as it went from industrial to post-industrial hurt badly. It killed jobs. It killed communities. It almost killed the country because no one was prepared to face reality and respond with the kind of measures necessary to be competitive in an emerging global economy.

It wasn’t just about tariffs – then or now. Other countries had learned to produce goods that were just as good or better than what was manufactured here, as well as less expensive, in more than one case because we showed them how to do it. American industry failed to respond, not just because they didn’t see the threat coming but because they couldn’t: There was an entire regulatory regime standing in the way, a regime that U.S. businesses eventually fled the country to escape once it became clear it was killing the very businesses its sponsors and protectors claimed it would save.

This president, like Ronald Reagan before him, has shown deregulation produces tremendous economic benefits. The actions taking by the Trump administration in its first year on the deregulatory front have rescued the American economy from a decade in the doldrums. It would be a shame to see all that begin to come undone by a new push towards protectionism that, while perhaps seeming sensible now, will be pushed to greater heights by those who may follow Trump in office who, like his immediate predecessor, had no understand of how economies work and were only interested in winning votes.

If this turns out just to be a negotiating ploy intended to convince the Chinese, the Canadians, the Mexicans, the Europeans and other trading partners he’s serious about ending the era of America getting the short end of the stick in trade deals, then these tariffs may someday be cited as an example of political daring that produced great dividends for the nation. If he’s serious about them, if he truly believes the rhetoric that accompanies these tariffs that are not only here to stay but auger more to come in future days, then he has already begun to dismantle the economic legacy of his own presidency. “Major McKinley” might have been able to make it work but that was then; this is now.

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