Yes, the economy is rigged. Tariffs rig it even more

According to a recent Washington Post/ABC News poll, 62 percent of Americans believe the U.S. economic system mainly benefits those in power. There’s a simple reason this belief is so widespread – it’s true.

Examples abound of how government rigs the economy to benefit favored constituencies, from state and local subsidies for so-called economic development to federal tax breaks that benefit select industries. But there’s another slice of the economy not often thought of as rigged, but which in reality is rife with corporate welfare: tariff policy.

When the government uses tariffs – or taxes on consumers – it picks winners and losers by favoring one industry over another. In the current environment, producers of steel and aluminum are favored, while U.S. manufacturers that use those materials – and the people they employ – are harmed. So are consumers who have to pay more. Piled on top of that are the responses of our trading partners, who impose retaliatory tariffs that make it harder for farmers and other producers to sell their goods in the world market.

In a vain attempt to undo the damage, Washington does more rigging.

The government might give one company an exemption, while exposing its competitors to the tariffs. Or it might accept an objection filed by a steel or aluminum producer, in which companies that need those goods are out of luck. But in either case, what has happened is a blatant example of rigging the economy for a select few, based on murky criteria and with little or no transparency.

Commerce Secretary Wilbur Ross said his department has received more than 100,000 such “exclusion requests” for relief from steel and aluminum tariffs. Some companies get exemptions, others are denied. You can’t really blame the companies. They are simply playing the game established by our elected and other government officials. But the end result is that a handful of Commerce Department officials are literally deciding which businesses prosper and which do not. That’s not capitalism. It’s the very definition of rigging the economy and picking winners and losers. 

Behind the numbers and the bureaucrats are hardworking Americans trying to provide jobs to workers and products to consumers while earning a profit. They have to stop what they do best – innovate and create opportunity – so they can hire lobbyists and petition Washington for relief from the problem Washington created in the first place. 

And despite some very limited short-term relief for a few at the expense of the many, it’s all for naught anyway.

Consider the example provided by previous rounds of steel tariffs. A few companies benefited for a brief period, but the costs to consumers and the balance of jobs lost vs. those protected left the country worse off as a result. It’s no different today. Bloomberg reported recently how the U.S. steel industry is by some measures worse off now even with the protectionist policies of the current administration.

So, tariffs make the economy less fair by rigging it, hurting consumers and workers, and generally providing only short-term benefits to companies they’re supposed to help, since shielding firms from import competition over the longer term reduces their incentive to become world-class companies. Meanwhile, actual trade disputes exist and must be addressed. What to do?

Instead of taxing ourselves and rigging our economy, we should work with our trading partners to break down trade barriers and address legitimate complaints through rules-based systems such as the World Trade Organization, which the U.S. helped established to resolve disputes.

While it’s not perfect, the U.S. wins nearly 90 percent of the cases it brings before the WTO. Scholars have suggested the WTO could be particularly effective on issues involving intellectual property protection and enforcement, trade secrets protection, forced technology transfer and subsidies. “On the numerous occasions when the WTO has ruled against China, the Chinese government has willingly complied with the judgment and usually altered its laws or regulations to comply with WTO rules,” wrote Mark Wu, a Harvard Law School professor and expert on international trade law.

What can we do closer to home? Congress should enact bipartisan legislation like that by Sens. Pat Toomey (R-Pa.) and Mark Warner (D-Va.), which would require legislative approval of certain tariff increases. After all, the Constitution grants authority over tariffs to Congress. By requiring congressional approval before tariffs could be imposed, this type of measure would make it more difficult for the president to single out businesses and industries for favor and reduce the power of bureaucrats to pick winners and losers when handing out exemptions.

Anyone serious about unrigging the economy should support doing just that.

Tim Phillips is president of Americans for Prosperity.

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