Recently talking from the Senate floor, Senator Charles Grassley (R-IA) candidly acknowledged what most AIER readers have known for a long time: politicians are influenced by special interest groups, and, in many cases, this influence prevents them from doing the right thing.
In this particular case, the senator revealed the great pushback he encountered when attempting, with two of his colleagues on the Finance Committee, to take away the power the president currently has to implement tariffs, without the consent of Congress, in the name of national security.
For eleven months now, I’ve been working with Finance Committee members on both sides of the aisle to establish separation-of-powers and checks-and-balances in the 232 process. These two basic principles of our system of government are sorely lacking from Section 232 as it stands today.… I’ve been optimistic that Ranking Member Wyden and I can reconcile the Toomey and Portman bills and hold a mark-up. More than once, I’ve spoken publicly about my intention to do so. However, every time we get close to marking up a Section 232 bill, Senator Wyden hears from stakeholders who are profiting from tariff protection.
To his credit, the senator goes on to say that he won’t cave because this matter is so important. I agree. That said, most people have no clue how big a payoff protectionism can be for the “stakeholders,” and in particular for executives of protected companies. Nor did I before I read the new study by Mississippi State University’s finance professor Brian Blank, recently released by the Mercatus Center.
The paper is titled “Executive Incentives, Import Restrictions, and Competition: Empirical Analysis of Antidumping and Countervailing Duty Orders,” and I hope that it will get a lot of attention from members of Congress and members of the press. What Blank proves is what we all suspected but weren’t sure about: import restrictions are very lucrative for executives of protected firms.
How much money are we talking about? Blank looks at firms that petition the government for special protection through antidumping and countervailing duties. (Over half of these cases, by the way, are about steel.) He also looks at firms positively affected by the countervailing duties but whose executive did not petition for them. He then examines whether executive pay is any different in firms that sought trade protection compared to the non-petitioning firms that likewise benefited from it.
What he finds is stunning: CEOs of firms that demand protection from foreign competition through antidumping and countervailing duties are rewarded later with compensation in cash and equity incentives even after controlling for firm performance and other characteristics. This is a lucrative business for these executives since on average they get a bump that is $1 million — or 17 percent — higher than expected otherwise. This relationship between protection and higher payouts to CEOs holds across industries — not just steel — that petition the government to shield them from foreign competition.
So going forward, when you hear Mr. Trump or his protectionist allies tell you that tariffs on steel and other industries are meant to protect jobs for American workers, you can laugh in their faces. Tariffs were never going to bring jobs back to America. We knew that. Tariffs were never going to increase overall employment or even raise most workers’ pay. We knew that too.
Now, thanks to Blank’s careful research, what we know for sure is that tariffs, by jacking up executive pay, are about flooding the swamp that Mr. Trump promised to drain. Incidentally, I suspect that the guys receiving the biggest payoffs are likely the same ones that Trump hosted in his office the day he suddenly announced his decisions to impose tariffs on Americans’ purchases of steel and aluminum.
This cronyism is tragic and disgusting in and of itself. But what is even more disgusting is the pain these tariffs have inflicted on millions of Americans so far. Think about all the companies that are downstream of these tariffs that have seen the costs of the inputs they import go up overnight by as much as 25 percent. Some companies have announced they will close their doors thanks to the trade war. Farmers, of course, are now (in)famously affected by the imposition of steel tariffs and the predictable retaliation that followed. Consumers of final goods too are affected.
Yep, that’s right, Americans shoulder the costs of the tariffs. In fact, Uncle Sam has collected $7 billion in tariffs in September alone from Americans. And according to the Wall Street Journal, “In the 12 months through September, the U.S. brought in more than $70 billion in tariffs, according to data from the Treasury Department. That figure is about double the amount of tariff revenue from before the trade war.”
All of that pain so that the typical executive at Nucor, U.S Steel, and other companies could get a nice $1 million bump in his or her compensation.