Sorry, Guys: Trump's Tariff Executive Order Makes Some BIG Mistakes

P. Gardner Goldsmith | January 24, 2018
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We’re all friends here, right?

Then I hope you won’t find me disagreeable when I note that on Monday, January 22, President Trump made a couple mistakes from which we can learn.

On Monday, the President signed an Executive Order increasing tariffs on imported washing machines and solar panels, all, of course, to the delight of many Americans who believe that certain foreign goods are being “dumped” with artificially low pries, and that increasing their prices through a federal tax will help the U.S. economy.

But, while it might help those U.S. companies that currently can’t compete against some lower-priced foreign goods, fundamental economics teaches us that it will harm consumers and the economy as a whole. (Additionally, it must be noted that President Trump does not have the Executive power in the Constitution to unilaterally impose tariffs on foreign goods. That’s Congress' mistake to make.)

The details of Mr. Trump’s move against washing machines, offered in a piece by Vicki Needham for The Hill, look like this:

For washers, the President approved a safeguard tariff-rate quota for three years starting with a 20 percent rate on the first 1.2 million units. A tariff of 18 percent will apply in the second year and 16 percent in the final year of action on washers from all countries except Canada. Imports after the first 1.2 million units will face a tariff of 50 percent in the first year and fall to 40 percent in the third year. 

And for solar panels:

…a tariff of 30 percent in the first year, 25 percent in the second year, 20 percent in the third year and 15 percent in the fourth year.

This pleases some folks in Ohio, where Maytag, Whirlpool, and Amana make washers. But, as Ms. Needham notes, the washer tariff wasn’t even close to high enough for Ohio Senator Rob Portman (R), who wanted it to be 50 percent. So what’s wrong with Mr. Portman’s idea, and Mr. Trump’s Executive Order?

To put it in low-key terms, tariffs help a particular industry and its workers at the expense of consumers and the jobs that their savings would employ if they could have gotten their products for less. It’s a classic case of 19th Century economist Frederic Bastiat’s economic axiom of “what is seen and what is not seen.”

More than 10 years ago, author James Bovard looked at the statistics on tariffs and noted that on average, tariffs harm consumers to the tune of about eight times what they do to help a particular industry.

Think about it. People believe they are supporting American jobs, but they are forcing consumers to pay more for what they previously could have gotten for less. All that extra capital is now going to the federal government in the form of the import tax, not the new startup industries that could receive the funds, not the bank where it could be leveraged for loans to start new businesses which would be able to fill new needs and create new innovations. None of that will happen because consumer capital is being shifted to the government, and inefficient industries unable to offer products that saved American consumers money are now being propped up in their inefficient ways.

This isn’t a way to expand a new and vibrant economy, but it is a way to focus only on jobs at washer and solar plants while punishing people for trying to save some cash. And we must remember that the entire purpose of a productive free market, where people are allowed to choose for themselves what they want, is to decrease toil and hardship, and increase pleasure and living standards. Saving jobs that cause consumers to have to work harder to get what they want is like taking away the inclined plane and forcing two people to lift a heavy block when one could have done it with the tool. Certainly, some could argue that the second man is “being employed,” but he is employed in labor that could have been saved, employed at the expense of the consumer, and he is missing the chance to do something else that could help mankind.

Some might argue that foreign nations subsidize their industries to “dump” products at cheap prices here, that this is not “a free market”, and should be stopped by federal tariff.

The fear is that the dumpers will "kill" a market in the U.S., and that will allow them to raise prices and demand whatever they want. But logic and the history of economics show the opposite. Competition is not just bilateral. Even if a foreign manufacturer gets help from "his" government to let him sell products cheaply in the US, and he does knock out a US manufacturer, that foreign company would have to continue selling cheaply because if it raises prices, then that signals a new entrepreneur to enter the field, which increases competition, and prices go down again...

Likewise, that government-subsidized business engaged in “dumping” has competition or potential competition not just from U.S. makers, but from all over the world, so the dumpers would have to crush every competitor or potential competitor forever into the future, and would never be able to raise prices beyond what consumers would pay. In fact, if their prices didn't continue to fall, then wily entrepreneurs would enter to offer the products for less. Regardless of what the home nation-state does, it never helps consumers to impose tariffs on imports from that or any foreign nation.

Why not let my neighbor decide what to buy and not buy, and not have politicians dictate it?

While it sounds counter-intuitive to say that a federal tariff that might “save” a U.S. industry is actually bad for the economy, it is.

And while it might frustrate supporters of President Trump to mention it, he does not have the Constitutional power to unilaterally, through Executive Order, impose a tariff. That is a prerogative reserved to Congress in Article One, Section Eight. One hates to bring it up and possibly frustrate his supporters, but it’s important to remind kindred spirits that if they call themselves Constitutionalists, they need to hold politicians to their oaths as consistently as possible.

This doesn’t make folks with opposing views evil or malicious. It’s just a brief reminder that sometimes, even people who were happy to avoid a Hillary Clinton presidency have to call out mistakes made by the alternative. And the tariff move, as seemingly good as it might look to some at first blush, needs to be held up to scrutiny for the mistakes in economics and constitutional understanding that it exhibits.