Bailing Out the Trade War
"Tariffs are the greatest!" President Trump tweeted early Tuesday morning. "Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It’s as simple as that - and everybody’s talking! Remember, we are the 'piggy bank' that’s being robbed. All will be Great!"
Only, things haven't been all that "simple" or "great" in this ill-advised trade war. The administration announced that same morning that up to $12 billion in federal emergency aid would be dispersed to U.S. farmers who are suffering from the effects of Trump's trade policies. These farmers' exports have been penalized with levies from multiple countries in response to the president's new tariffs on steel and aluminum imports.
In other words, we're talking about a bailout, and yet another expansion of the agricultural sector's dependency on government. But unlike the traditional government bailouts we've seen for key industries in times of deep economic downturns, this one is being used — in the midst of a strong economy — to repair (or at least place duct tape over) an "emergency" situation brought on directly by a U.S. president's executive order.
One can only imagine the fire and fury from Republicans and conservatives if Obama had been the architect of this big-government taxpayer-funded fiasco.
Unfortunately, farming isn't the only American industry already being hurt by Trump's trade war. A new Bloomberg report shows that the savings U.S. automakers have enjoyed as a result of the corporate tax-rate cut have already been erased (and then some) by the hit they've taken from the president's steel and aluminum tariffs.
"For example, Ford saved about $208.4 million in taxes in the first quarter under a 21 percent corporate rate applied to its profit, compared to if the old rate of 35 percent had been applied to the same profit," the report states. "The steel and aluminum tariffs will cost the automaker about $509 million in 2018, according to Nomura estimates."
We found out last month that Harley-Davidson's having a hard time adjusting to the trade war. According to the company, retaliatory tariffs have driven up the cost of each exported motorcycle by an average of $2,200. This prompted the company to announce that it will be moving some of its production overseas — a business decision that brought on attacks (some would say threats) from Trump himself.
Here was just one of them:
Harley-Davidson should stay 100% in America, with the people that got you your success. I’ve done so much for you, and then this. Other companies are coming back where they belong! We won’t forget, and neither will your customers or your now very HAPPY competitors!
— Donald J. Trump (@realDonaldTrump) June 27, 2018
How dare an American company choose not to sit back and lose money for the sake of bad government policy and a politician's ego!
One can only imagine the fire and fury from Republicans and conservatives if Obama had attacked a private company in such fashion. Only, no imagination is required because he actually did it, to companies like Staples and Boeing, and the reaction on the right was far from dismissive.
According to Whirlpool CEO Marc Bitzer, his company is slated to have to pay $350 million more for raw materials this year, thanks to tariffs. Other major companies have reported similar leaps in tariff-related costs, including Alcoa, Coca-Cola, 3M, GE, and United Technologies (just to name a few).
And of course, it's consumers who will ultimately flip the dime to help make up for these increased costs being levied on American businesses. Tariffs are essentially taxes, and in the case of government bailouts of industries hurt by the trade war (today it's just farming, but who knows what tomorrow will bring?), we're talking about a wealth-redistributing double-tax.
One can only imagine the fire and fury from Republicans and conservatives if... Well, I think you get the point.
None of this makes any sense, of course. Our president has gotten us into a trade conflict that was totally unnecessary, due to a long obsessed over (but completely arbitrary) measure of "fairness" — in the context of trade deficits — that seemingly only he and his most devoted supporters subscribe to.
It would be one thing if the thesis was backed by economic or historical data, but it's not. It's propped up almost entirely by feelings.
"But this is about national security and intellectual property!" some of the people reading this column will undoubtedly argue.
Is it really? Because we haven't heard the administration make this argument in quite a while. Instead, the messaging has been focused on "better trade deals" and "fair trade" which is a much different (and even less compelling) argument. And if the goal truly were related to U.S. protectionism, imposing tariffs is a terrible, self-defeating way of going about it (as the CATO Institute's Scott Lincicome points out).
One has to wonder how much damage and government intervention into our economy conservatives are willing to accept from President Trump. After all, it really is just about Trump, being that Congress hasn't been involved in either of these decisions. Trump unilaterally started this trade war, and now he's unilaterally trying to cover up the damage it's causing (with taxpayers flipping the dime).
I guess the answer will be revealed by whether or not the Republican-led Congress decides to actually do something about it. Members of the U.S. Congress have it within their power to amend or repeal a small number of Constitutional statues that would put trade-related decisions back in their hands, and put a swift end to this mess. A number of DC representatives from both sides of the aisle have been outspoken in their opposition to the trade war. They should put their money where their mouths are.
Will they? Unfortunately, probably not, as Charles Cooke explains in a recent piece in the Los Angeles Times:
...the incentives for impotence remain strong. Allowing the president to take tough decisions inoculates representatives and senators from having to put on the record a difficult and divisive vote, and spares them from doing the elementary research that their job requires. Besides, at any given point both Democrats and Republicans can use the executive’s Caesarism to their political advantage. If their guy is in power, there exists little motivation to reduce his capabilities. And if the other guy is in, well, then his conduct makes the case for his replacement! Upon these craven theories of self-interest has Congress abdicated its role for 80-odd years.
Additionally, one has to consider the increasingly tribal political environment that now exists within this country's major political parties. This is especially true of the GOP, where the top political issue (as evidenced by the rhetoric thrown around during election primaries) seems to be whether or not Republicans are sufficiently loyal to President Trump. In which case, the trade-war pains will have to hurt a larger number of constituents directly before backbones in Washington may possibly take shape.
Until then, we can look forward to higher prices and more government subsidizing. But it's all okay because "trade wars are good, and easy to win." Right?