Economy & Business

Tariffs Are Bad, and Exemptions Can Be Worse

Steel pipes to be exported are seen at a port in Lianyungang, Jiangsu province, China, May 31, 2018. (China Daily via Reuters )
If you want to drain the swamp, stop letting tariffs feed it.

There are plenty of reasons to oppose tariffs, in theory and in practice — most prominently because they impose higher costs on consumers, workers, and businesses. What’s less reported, though increasingly problematic, is that their proliferation has empowered government bureaucrats ill-suited to the task to pick industry winners and losers.

After years of stagnation, our economy is a great success story that is working for most Americans. Thanks in part to the Trump administration’s support of tax relief and removing regulatory barriers, unemployment is down, wages are up, the stock market is roaring, and hard-working Americans can keep more of their income.

Trade is also critical to that success. It supports millions of jobs and has dramatically advanced Americans’ quality of life and standard of living.

Tariffs, by contrast, make us poorer. They are a tax on consumers, businesses, and workers. Tariffs inflict the most harm on those who can least afford it. They also threaten the tremendous economic gains this administration has fostered.

But there is another, subtler way that tariffs hurt Americans — while putting Washington in the driver’s seat to micromanage the U.S. economy. Here’s an example of how it works.

On August 7 the Trump administration announced a 25 percent tariff on $16 billion in Chinese imports. (Predictably, China responded swiftly with an identical duty on the same volume of U.S. exports.) Soon the administration will announce the process by which the public can petition for exemptions from these new tariffs.

This will trigger a flood of applications from U.S. companies demanding a carve-out. Any company with a stake in the outcome — say, domestic steel producers that support tariffs on overseas competition — can file objections to protect market share.

Career employees at the Department of Commerce generally have no industry expertise to balance the arguments, yet they must judge the petitions as if they did. Already, more than 20,000 exemption requests have been filed with the government. They have overwhelmed the feds, who are falling short of their initial goal of a 90-day response.

Career employees at the Department of Commerce generally have no industry expertise to balance the arguments, yet they must judge the petitions as if they did.

More to the point, this whole process amounts to an open invitation to businesses everywhere: Send money to Washington to hire lobbyists and politicize the market to grow your profits. As the Washington Post editorialized, “that’s what central planning does.” The Wall Street Journal aptly put it this way: “Far from draining the swamp, tariffs feed the swamp.”

This is crony capitalism and corporate welfare at their worst.

Here’s how it works: The president decides to impose tariffs on a particular industry or country. Bureaucrats at Commerce compile a list of specific imports that will be affected. A comment period follows that allows companies to ask to be taken off the list. Alcoa, for example, has sought relief from aluminum tariffs. GM wants an exemption for its Chinese-built Buick SUV.

The entire process has been accurately described as “opaque, unfair, and breathtakingly inconsistent” by Representative Jackie Walorski (R., Ind.), a member of the House Ways and Means Committee.

As you might expect, the companies with the deepest pockets can best capitalize on this situation. And that’s exactly what’s happening.

As The Weekly Standard noted, major agribusiness companies have leveraged tariffs to their advantage. They can rapidly redeploy their resources to other markets and leave smaller, U.S.-based producers to absorb the losses:

[Archer Daniels Midland] said in July that profits doubled last quarter, largely on the strength of its grain-trading business. “Correct me if I’m wrong, but I sort of think this tariff is good for you,” a Morgan Stanley analyst told company executives on their quarterly earnings call. They didn’t correct him.

It’s perfectly reasonable for Alcoa or GM, Apple or ADM — or mom and pop down the street — to apply for relief when the government does something that harms them. What’s not reasonable is the process through which such decisions are arrived at, by unelected bureaucrats who may or may not have enough expertise to make a rational economic choice. That’s one of the underlying problems with tariffs to begin with. Washington picks the winners it will “protect” with tariffs, and the losers — especially those with deep pockets — can then beg for relief.

The Trump administration deserves great credit for many of its pro-growth policies. In addition, the president has articulated a truly exciting vision for zero-tariff trade. But there is a better way to get to no tariffs than through more tariffs — and more corporate welfare.

Instead, the administration should work with trade partners to lower barriers here and abroad to open new opportunities for American companies and workers.

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