The usual story of protectionism – this pattern stretches back many centuries – is that producers in the home country lobby government. They want less competition from abroad. Government complies, imposes trade restrictions, and consumers are harmed with higher prices. Government gets revenue in two forms: taxes called tariffs and payments of gratitude from the home producers.
The current trade war departs from the norm in many respects. This trade war has not been pushed by lobbying pressure. Indeed, many companies whose industries are most affected are lobbying the other way, pleading with the administration to stop the madness. Politico quotes a White House official that these actions are not even supported within the administration itself: “it’s pretty much just the president and [Peter] Navarro who are in favor.”
It’s true that companies like Whirlpool pushed for import restrictions. The Trump administration was all too happy. Then came the steel and aluminum tariffs that dramatically raised costs of buying raw materials. Today the company’s stock price is down 15%. Incoming revenue is falling. Prices are soaring. Sales have dropped.
The ill-effects of this trade war are spreading in unpredictable ways.
The loss of foreign markets and confusion generally has resulted in record amounts of meat being stockpiled in facilities around the country.
Then there’s the disgruntlement of farmers who depend on foreign markets.
“I would like to tell the president, ‘Man, you are messing up our market,’” Kevin Scott told the New York TImes. He is a soybean farmer in South Dakota and the secretary of the American Soybean Association. They are losing markets and facing broken trade relationships that it took decades to develop.
Then you have the case of Harley-Davidson, the quintessentially American manufacturer of motorcycles. Most of its customers are abroad. To serve them requires moving some manufacturing out of the country. More jobs lost.
In addition, the US’s largest nail manufacturer, which happens to be owned by a company in Mexico, could soon go out of business due to higher costs and lost markets. The people in Poplar Bluff, Missouri, supported Trump in the election and now they are seeing their jobs wrecked through protectionist policies.
Autos and Trade
Let’s talk cars. Based on some romantic notion of the “American car” dating from the 1970s, the Trump administration is threatening a 25% tariffs on imports. The problem: cars no longer have a single country of origin. American cars are manufactured all over the world, just as many international companies operate in the US and employ Americans. It’s a global business now. Tariffs hurt absolutely everyone.
And this is precisely why American car manufacturers made a trek to Capitol Hill to make a plea for free trade. As Marketplace reports,
The line between domestic and foreign auto companies, between who’d benefit and who’d be hurt by tariffs, is now much murkier than in the past….
“All of our member companies are now global companies, so they’re all impacted by these tariffs in some fashion,” [Jennifer[ Thomas [of the Alliance of Automobile Manufacturers] said in an interview before her testimony. She said tariffs would make cars more expensive for consumers, decrease sales and put American jobs at risk.
“There are no major national car companies that are just American or just German or just Japanese,” said Emily Blanchard, a professor at Dartmouth’s Tuck School of Business.
I’ve been tracking all the features of this trade war that depart from the norm. We have to add another oddity: the merchant class has been vocally opposed to the actions of the Trump administration.
This round of protectionism is not born of strategy but ideology. It’s all about bolstering economic nationalism. These new policies – which Trump had promised all throughout the campaign – are seeking to completely restructure American economic life according to a theory of production that has essentially nothing to do with the modern world as it is. It can’t succeed over the long term.
The Opposition Grows
The Business Roundtable, the Chamber of Commerce, essentially all manufacturing groups, and even “progressive” advocates of renewable energy (who are upset about tariffs on solar panels, among other things), are all coming together to form, perhaps for the first time in living memory, an actual united front against protectionism and for free trade.
The Washington Post reports that the tariff push “has managed to unite big-business groups with left-leaning Democrats, as well as Europeans, Canadians and foreign-policy mavens on both sides of the aisle, with his ill-conceived decision to punish some of our closest trading partners — the European Union, Mexico and Canada — by imposing steep tariffs.”
The Economist reports that “a back-of-the-envelope calculation suggests that the ratio of firms opposed to Mr Trump’s protectionism to those in favour may be as high as 3,000 to one.”
For people who love economic liberty, this is all encouraging news. But there is a problem. Virtually all power over trade has been centralized in the executive branch and, actually, within the person of the president. This is of course completely contrary to anything you will find in the US Constitution, so where did this change come from? Congress long ago surrendered its power, under the seemingly solid motivation that trade policy should not be subject to the usual legislative shenanigans that govern the rest of its deal making.
This works so long as the centralized power is on the right side of free trade. But when that power flips to supporting massive protectionism – and Trump has been a consistent and ferocious advocate for decades – opposition groups that favor free trade can barely get a hearing, much less have influence over policy. Here is the problem with the centralization of power: it only works when the power is on the right side.
A Delicate Balance
Government interventions have both unintended and unanticipated consequences. The reason is that the actual operation of human choices and actions create an order far too complex to be understood by intellectuals, modelled on paper, or controlled by politicians and bureaucrats. To fail to fear this complexity is arrogance; to act in the attempt to override and reshape it can be deeply dangerous, sometimes catastrophic, in ways that are not entirely predictable.
Borders are less relevant to international trade with each passing year. Consumers, world prosperity, and freedom itself have benefitted. And now one man arrives with a thick black marker to redraw them, and then builds trenches and walls that no one is asking for and from which no one benefits. The whole project of liberalism from 500 years ago to our own time has been about stopping precisely such acts of despoliation.
What is to be done? Looking back at how Richard Cobden and John Bright finally achieved the repeal of the Corn Laws, the path to success is through education, agitation, and genuine pleas for the welfare of consumers and peace among nations. It is up to the advocates of free trade now to step up their game and speak out on behalf of a foundational principle of commercial life and human rights.
The cause of free trade is fortunate this time to have the support of the merchant class.
This article originally posted here.