Three Arguments Against Tariffs

President Trump loves tariffs. The Americans paying them don’t. 

A recent CNN poll found that 65 percent of Americans blame Trump’s tariffs specifically for raising their cost of living. While Trump and his advisers are not going to change their ways, Congress and the courts can help correct them. The next administration, regardless of party affiliation, will have its own opportunity to set things right. Three helpful arguments for reformers are the knowledge problem, the incentive problem, and the impossibility problem.

The knowledge problem is that economies are too complicated for policy-makers to plan, since unintended consequences are everywhere. China’s retaliatory tariffs caught Trump’s economic adviser, Peter Navarro, by surprise; he had previously said on television, “I don’t believe any country will retaliate” against Trump’s first-term tariff hikes. Last year, those retaliatory tariffs briefly reached 125 percent. Allies’ muted response to assisting Trump’s Iran war is another unintended consequence of his tariffs.

Steel tariffs might help the steel industry, in theory. But they hurt steel-using industries such as auto, construction, and home appliances. Trump’s 10 percent universal tariff and 50 percent metal tariffs meant that, in some cases, American car companies paid more in tariffs for parts than importers paid for bringing entire foreign-made cars to America.

Decades of government protection have made the steel industry less competitive, leading to U.S. Steel’s acquisition by Nippon Steel, and the government receiving a golden share of stock that lets it veto certain company decisions. None of this is likely to have been the intention behind the policy.

The incentive problem is that, even if policy-makers were able to design a wise tariff policy, it would never make it through the political process intact. Tariffs are made by the government we have, not the government we wish we had. Tariffs also provide policy-makers with tools to reward friends and punish enemies.

In the last year, Trump has raised tariffs for reasons ranging from a television commercial that aired during baseball’s World Series to irritation with the Swiss president’s tone during a phone call.

More generally, politicians’ incentives are to look good so they can win reelection. Good policy is a lesser priority.

The impossibility problem is that different goals can contradict each other, which makes it impossible to set tariff rates that do all the things policy-makers want. A high tariff that shuts out imports might protect an industry, but it isn’t going to raise any revenue. Lowering the tariff might raise some revenue, but it won’t protect the domestic industry from competition.

If that tariff is part of a presidential negotiating strategy on some trade-unrelated issue, and the president removes the tariff as part of that deal, then the tariff will offer no protection, and it will not raise revenue. Whatever the tariff rate, most of its goals will be unmet.

Tariffs have many problems beyond those three. What about solutions? The best fix, both short- and long-term, is reviving the Constitution’s separation of powers. The presidency has become too powerful, and the other branches need to exercise their checks and balances.

Courts have already begun to play their part by striking down unconstitutional tariffs Trump enacted under two different statutes. While courts should not veer into activism by making their own policy, it is their duty to strike down unconstitutional actions. Future challenges to other dubious tariffs deserve to be heard, and quickly.

Additionally, Congress should repeal sections that have erroneously delegated taxing powers to the president. For instance, Section 338 of the infamous 1930 Smoot-Hawley tariff bill is still in effect, and the Trump administration could use it to enact tariffs of up to 50 percent. Congress can save families thousands of dollars on cars and housing by repealing Section 232 of the 1962 Trade Expansion Act, which is behind Trump’s steel, aluminum, and copper tariffs. Trump’s China tariffs depend on Section 301 of the 1974 Trade Act. Tariffs on solar panels and quartz cite Section 201 of the same bill. Congress should repeal those sections, too.

Read the full article at National Review.