October 17, 2018 at 5:00 am ET
“Government interventions,” warned celebrated 20th century Austrian economist Ludwig Von Mises, “always breed economic dislocations that ‘necessitate’ more government interventions.”
Nowhere is this dictum truer than with President Donald Trump’s tariffs. His government import taxes have led to higher prices, supply shortages and tariff retaliation by our trading partners — all of which policymakers are attempting to remedy with additional government programs.
Consider that late last month Reps. Ken Buck (R-Colo.) and Jim Costa (D-Calif.) introduced legislation called the Aluminum Pricing Examination Act, which would bring aluminum pricing under the purview of the federal government. Specifically, it would grant the Commodities Futures Trading Commission the statutory authority to conduct oversight of the aluminum market, and grant it “exclusive jurisdiction over the setting of reference prices for aluminum premiums.”
Why the need for government price controls on aluminum? Because Trump’s aluminum tariffs have caused the benchmark price of aluminum to skyrocket. This is causing a lot of pain for businesses that use aluminum as an input, including both major consumer brands like Coca-Cola and small businesses like Hopkins Manufacturing in Kansas.
Tariff cronyism is perhaps most evident in the opaque Commerce Department tariff exemption process for which U.S. manufacturers can apply if they face supply challenges. Companies like Engineered Material Solutions in Massachusetts, Independent Can Company in Maryland, and Seneca Foods in New York say there’s not the domestic supply of steel or aluminum necessary to meet their manufacturing needs.
Despite the fact that countless businesses are having difficulty sourcing domestic aluminum and steel thanks to tariff-induced shortages, only a small fraction have been granted an exemption: To date, the Commerce Department has received about 40,000 exemption requests and approved roughly 5 percent of them.
“The current exclusion process is broken — it’s opaque, unfair, and breathtakingly inconsistent,” says Rep. Jackie Walorski (R-Ind.). Incredibly, big U.S. steel companies can quash the exemption requests of smaller businesses. This means the government is not only in the business of picking winners and losers but that it’s also getting an assist from big businesses which have a clear conflict of interest.
Then there is the $12 billion in subsidies for farmers, who have been among the biggest victims as a result of China’s inevitable tariff retaliation on U.S. crops. In addition to payouts to farmers, the government has also enacted a Great Depression-style purchasing program to artificially support farm prices. Farmers have predictably responded that this bailout will not be big enough to cover their tariff-related losses.
So, to recap: Trump’s tariffs have caused higher prices, supply shortages and foreign tariff retaliation. The government has answered these by introducing price control legislation, setting up a Soviet-style government exemption framework and Depression-era government purchasing program, respectively. And these are Republican policies — supposedly coming from the party of free markets and limited government.
Keep in mind that this big government response to tariffs comes in addition to the pain and uncertainty they’ve already caused consumers, small businesses, and exporters. I’ve aggregated more than 200 separate stories of businesses being negatively affected by tariffs.
The kicker: Tariffs aren’t even improving the trade deficit — their stated aim. The U.S. trade deficit increased to a six-month high in August, widening by the highest amount since January 2006 when adjusted for inflation as soybean exports declined further.
President Trump has decided to take an ax to a trade problem that needs a scalpel. Witness the splinters flying in all directions.
Jordan Bruneau is a senior policy analyst at Republicans Fighting Tariffs.
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