Economy & Business

Against the Tariffs

(Reuters photo: Carlo Allegri)

Signaling that protectionist trade measures remain at the top of his agenda, President Donald Trump imposed punitive duties on imported solar panels and washing machines, a move intended to put pressure on politically connected manufacturers in China, South Korea, and Mexico, and by extension on the governments of those countries. This is a mistake.

Trump’s views on trade have always been and remain foolish — he has been going on about the Asian economic Superman getting ready to eat our lunch since Japan rather than China was the locus of our national trade anxiety. This has led to many unfortunate outcomes, including the abandonment of American leadership on trade-related issues: The U.S. decision to abandon the Trans-Pacific Partnership, for example, has not derailed the project, but simply left it to proceed with Canada rather than the United States taking the lead while also giving China more leverage in its trade negotiations with its neighbors. Trump called TPP “a terrible deal,” but he never explained his objections in any meaningful detail, and his aides have been trying to replicate some of its provisions in new trade deals.

Populists peddle tariffs as a punitive measure enacted on shadowy foreign business interests, but what they are in fact is a sales tax on American consumers. They protect inefficient producers by raising the prices of competitors that consumers would otherwise prefer. Sometimes, that results in the competitor being priced out of the market entirely, but it is just as often the case that domestic producers simply take the opportunity to raise their prices and broaden their profit margin. That’s fine for the CEOs and shareholders of the favored firms, but it is a raw deal for Americans who end up with higher prices and fewer choices.

Tariffs often end up having the opposite of the economic effect desired, as economists have understood for a very long time. If, for example, the United States puts a tariff on Japanese goods, that raises the U.S. price of Japanese goods and hence reduces U.S. demand for Japanese imports. (That is what protective tariffs are supposed to do.) That also reduces U.S. demand for Japanese yen (since U.S. importers will be doing less business with Japanese producers), reducing the value of the yen vis-à-vis the U.S. dollar — and thereby making Japanese imports cheaper in the United States. Which is to say, floating exchange rates essentially make an end run around tariffs, rebalancing in the foreign-exchange markets what politicians distorted with the tariff. What’s worse in this scenario is that the depressed Japanese yen and reduced exports to the United States leave Japanese consumers with less money with which to buy American goods, which are now more expensive to Japanese buyers because of the falling yen. That’s why the most significant development in the markets after Trump’s announcement wasn’t a crash in Chinese washing-machine stocks — investors had been expecting the move for some time — but a steep drop (1 percent in a few hours’ worth of trading) in the value of the Mexican peso.

Protectionist measures always hurt consumers and often end up enlarging rather than reducing trade deficits as consumers abroad buy fewer U.S.-made goods. The president is obsessed with trade deficits, which are not “deficits” in any real sense of the word (there isn’t any ballooning “trade debt” comparable to the national debt) but instead are mere record-keeping expressions that reflect certain economic realities. One of those realities is that people in relatively poor countries — the so-called emerging markets — have higher rates of savings, meaning that they use many of the dollars they earn selling goods in the United States to purchase dollar-denominated financial assets rather than consumer goods. The trade deficit is simply the flipside of the capital surplus. The Koreans are not getting over on us by providing Americans with excellent appliances at low prices. It is pure superstition to think that they are.

Speaking of which: Samsung already manufactures appliances in the United States, as do China’s Qingdao Haier and several other Asian manufacturing giants. Many also operate in Canada and Mexico. Assuming that they find themselves unable to simply pass costs along to consumers, it is possible they could shift some production to the United States, but it is just as likely if not more so that they would shift some production to Mexico, doing most of the manufacturing work in their Asian factories but reserving final assembly to a plant somewhere inside the NAFTA free-trade zone, where they will have a considerably better chance of successfully contesting the tariffs. Again, all tariffs would accomplish in this case would be to distort markets and disrupt supply chains.

The president shouldn’t be trying to interpose himself between Americans and their washing machines.

One might expect that the solar tariffs would put a little extra jingle in the pockets of Elon Musk, Al Gore, and other investors in solar power. But that isn’t likely to happen, either. About 80 percent of the solar equipment installed in the United States is imported, and the $28 billion–a–year industry complains that it will be handicapped by these measures rather than protected by them. The solar-industry trade association is predicting the loss of 23,000 jobs this year. There are in fact only a few U.S. firms engaged in the business of manufacturing solar panels. Kneecapping an entire industry in the service of a handful of politically favored firms isn’t shrewd economic policy — it’s crony capitalism.

The president shouldn’t be trying to interpose himself between Americans and their washing machines.


The Many Myths of Reaganite Protectionism

The Radiating Mischief of Protectionism

Globalization Can Be Good for American Workers

The Editors — The Editors comprise the senior editorial staff of the National Review magazine and website.

Most Popular


Trump’s Disgraceful Press Conference in Helsinki

On Monday, President Trump gave a deeply disgraceful press conference with Russian dictator Vladimir Putin. The presser began with Trump announcing that although the Russia–U.S. relationship has “never been worse than it is now,” all of that “changed as of about four hours ago.” It was downhill from ... Read More

Questions for Al Franken

1)Al, as you were posting on social media a list of proposed questions for Supreme Court nominee Brett Kavanaugh, did it occur to you that your opinion on the matter is no more relevant than Harvey Weinstein’s? 2) Al, is it appropriate for a disgraced former U.S. senator to use the Twitter cognomen “U.S. ... Read More
White House

The President’s Do-Over

I agree with Jonah on all counts: On net, President Trump’s do-over of his Helsinki remarks is a good thing; regrettably, it is not sincere; and while I hope the revised version is the one he sticks to, I don’t have confidence that will be the case -- as posited in my column Tuesday on the folly of having the ... Read More
National Security & Defense

Trump’s Helsinki Discord

Donald Trump is not, and never will be, the Moscow correspondent for The Nation magazine, and he shouldn’t sound like it. The left-wing publication is prone to extend sympathetic understanding to adversaries of the United States and find some reason, any reason, to blame ourselves for their external ... Read More