Easy to Win? Trump's Trade War Requires Handing More Power to Unelected Bureaucrats
One government intervention into the economy begets another, and American businesses are caught in the chaos. Good and easy to win? Not so much.
At three manufacturing plants in Arkansas, some 1,500 workers are waiting to hear whether the Commerce Department will let them keep their jobs.
Those workers make a product that you've probably never thought much about: tire cords. They are the lattice-like structures, often made of steel fibers, that line the inside of rubber tires to help them maintain their shape. The owners of those three Arkansas-based tire cord manufacturing plants say they will have to close their doors and lay off their workers, Arkansas Today reports, because the type of steel wire needed to make tire cords is not available from domestic manufacturers and foreign suppliers are now subject to a 25 percent import tax. They have applied for a special exemption from President Donald Trump's steel tariffs, and the Commerce Department is considering the request.
Perhaps nothing else about the ongoing debate over tariffs so clearly demonstrates the quiet horror of the Trump administration's attempt at central planning. Workers and factory owners who produce a necessary but unremarkable product, filling a hole in a supply chain that few Americans ever notice, now fear that they will be forced out of business if their application for relief does not find favor with federal bureaucrats.
They are hardly alone. More than 1,200 businesses have filed over 20,000 requests for exemptions from the Trump administration's steel tariffs. The Commerce Department is sorting through them, one by one, deciding which companies get a special favor from the government and which have to deal with an unexpected new tax that might force layoffs or worse—destroy entire businesses.
"The only reason the Commerce Department is supposed to grant companies waivers is if a certain steel or aluminum item they need cannot be made anywhere in the United States," The Washington Post's Heather Long noted in April, when the waiver process began. Businesses applying for waivers from the tariffs have to argue that they need a specialized item not produced domestically, "but the Commerce Department has wide latitude to make the call if that is truly the case."
In other words, the federal government is literally picking winners and losers. It's a cliche, yes, but the idea of the government picking winners and losers used to drive conservatives mad when the Obama administration was seen as doing it in less direct ways.
Last week, the first set of seven winners were announced by Commerce Secretary Wilbur Ross. At the same time, the department rejected 56 applications from 11 different companies.
Those that do get exemptions get more than a lifeline. They also gain a huge advantage over any competitors not lucky enough to score an exemption from federal bureaucrats.
Ross is "doling out to the early comers a huge market advantage in the form of these exemptions, which might not be available for everyone else," Dan Ikenson, director of the Cato Institute's Center for Trade Policy Studies, tells Reason. "Don't make companies waste their time and resources standing in line to kiss his ass down at the Commerce Department."
Far from being "good and easy to win," the Trump administration's determination to pursue protectionist economic policies requires ever more government intervention into the economy. The tariffs, which are really just import taxes paid by consumers and businesses, are a burden for all. More insidious still, the waiver system empowers the government to relieve that burden at its own discretion.
Now, Ross is talking about yet another potential intrusion into the market. He told the Senate Finance Committee last week that the administration is launching an investigation into whether American businesses might be unfairly profiting off the White House's decision to slap tariffs on imported steel and aluminum. While the tariffs, which are taxes paid by consumers on imported goods, were meant to increase the price of imported steel by 25 percent (and imported aluminum by 10 percent), Ross says the White House has seen evidence of higher price spikes.
"That's clearly a result of antisocial behavior by participants in the industry," Ross told the committee.
Speculation is a part of any global commodity market, of course. Instead of being evidence of "antisocial behavior," though, the rising prices caused by the Trump administration's trade policies are another indication of the extent to which this White House has underestimated the complexity of the global marketplace. Huge changes to current policy—like imposing tariffs on America's $29 billion annual steel import market—have consequences that ripple out in all directions.
Once the government has made that mess, it will have justified further intruding into the marketplace, picking more winners and creating more losers. Someone has to clean it up, after all.
Indeed, Ross' idea of targeting companies that have supposedly cheated the tariffs for profit has been encouraged by some businesses and industries that opposed the tariffs in the first place. Now, they have a perverse incentive to invite this additional governmental interference.
Jim McGreevy, President and CEO of the Beer Institute, a national craft brewing trade association that had sharply criticized Trump's aluminum tariffs when they were implemented, says he supports government efforts to ensure that "unfair market practices do not disproportionately harm end users, such as the beer industry."
There's a lot of money at stake. According to the Beer Institute, the beer industry purchased 36 billion aluminum cans and aluminum bottles, which contain about $2.7 billion worth of aluminum.
But this is all folly. The underlying assumption is that the tariffs will work if only the federal government can pull the right levers and enforce the right penalties against those who try to cheat—which, in this case, is anyone who responds to the economic incentives created by the tariffs. It is a socialist mentality, and a "new form of central planning," as Jeffrey Tucker argues.
Ross made the rounds on cable news in March and April to assure Americans that tariffs on steel and aluminum would barely be noticed. America would reap all the benefits of getting tough on trade without having to pay for any of the costs. "They should have known at the outset what they were doing," says Ikenson, "and realized it was going to be more complicated."
Taken together, the stories I've reported from people hurt by these tariffs belie the big claim Trump made at the beginning of this economic nightmare: that trade wars are "good, and easy to win."