Trump’s Tariff Threat Is Real

– January 25, 2018 Reading Time: 4 minutes

There needs to be a new activist group: Environmentalists for Free Trade. The trend in recent years has been the opposite. Environmentalists have tended to think that all local production is good while globalization should be opposed as costly and exploitative.

What happens when more efficiencies in their favorite technologies are realized through international trade rather than domestic or local production? This is precisely what has happened with “renewable energy” like solar. Thanks to free trade, the cost of solar panels has fallen 70% since 2010, driving many domestic makers out of the markets and yielding a striking result: more than 80% of the panels are imported.

Now you have the Trump administration’s new 30% tariff on solar panels from China. It’s going to be devastating for the solar power industry. The idea is to help domestic manufacturers (there are two behind the push for tariffs) but this is a two-edged sword: it massively raises costs for businesses that actually use this product. The entire industry will now be harmed with the equivalent of a high tax.

The president of the Solar Energy Industries Association told the New York Times that the decision “will create a crisis in a part of our economy that has been thriving, which will ultimately cost tens of thousands of hard-working, blue-collar Americans their jobs.”

Obviously, this is not really a pro-America policy. Protectionism never really works to boost productivity in the long run. But what is especially striking here is the irony of how this will harm the environmentalists’ pet alternative to fossil fuels. After years of fits and starts, and just at the point at which solar has become economically viable, thanks to low-cost production in China, regulations have intervened to boost the cost so high as to make it forbidding yet again.

What is a good champion of solar power to do? It’s time to join the real resistance and come to the defense of the global marketplace. Free trade is a pro-consumer policy but that’s not all. It’s also a pro-wholesaler, pro-retailer, and pro-B2B policy also. It is a pro-sustainability and pro-efficiency policy. All tariffs really do is tax the many on behalf of small but well-organized special interests who are being outcompeted by more-efficient rivals who happen to operate outside the borders.

The same applies to the washing machine tariff that was announced on the same day. It is going to raise prices (compared with what otherwise might have been) on consumers and make sales more difficult for every distributor. In general, the problems with protectionism are an applied instance of the problems with regulation and taxes in general. Trump seems to understand what is wrong with red tape and high costs within the borders but he seems blind to the terrible costs of doing the same to goods and services that cross the border into the United States.

When these new tariffs were announced, the Trump official in charge of trade promised more to come. The president will gradually announce new taxes of 15 percent to 50 percent on various imports. And let us be reminded here that there is nothing Congress has to say about it. It long ago gave up its authority of this domain to the executive state. In other words, Trump can do whatever he wants. So much for cutting the government! So much for reducing taxes!

Anyone with an educational background in economics spent 2016 wincing at the anti-trade rhetoric of all sides of the political divide. Indeed, on the topic of free trade, there was no real divide. Trump and Sanders were singing the same tune, while Clinton too paid obeisance to the protectionist cause itself. It was extremely frustrating.

Liberalism in the 18th century was bound up with the breakdown of the old mercantilist order. The advent of capitalism and the spread of the commercial ethos became inseparable from the idea of free trade. It was the passion of generations of economists to explain that the international expansion of the division of labor was a win-win for consumers and the prosperity of everyone.

That trade is good for everyone should be uncontroversial at this point.

And yet here were are again with politicians blasting out bromides about foreigners stealing our jobs, cheap imports flooding our shores, and the need for national autarky. One might think that such rhetoric would be seen as preposterous in times when our very material well being is so heavily dependent on imports and exports, and borders themselves matter ever less, especially on digital products.

When you download an app, are you making sure you are “buying American?” Of course not. Just the suggestion alone makes no sense. The point of a product or service is to meet a human need regardless of the geography of its production. Government has nothing to do with it.

There is no question that a convinced protectionist won the presidency, and I was among those who worried that we could be facing yet another debacle on the order of the Smoot-Hawley tariff that massively entrenched and worsened the economic downturn of 1929.

So it’s been with a sense of relief that many of us observed that the first year of the Trump presidency featured very little movement in this realm. There was no proposed legislation, no trade war, no concerted attempted to turn back the clock on commercial globalization.

This might have been a brief respite and those days are apparently over. The tax cuts and deregulation that have buoyed the business community and consumers thus far were apparently too good to be a continuing truth. The protectionism of this administration could threaten the entire great-again economic agenda.

Can we get some help from the environmentalists please?