President Donald Trump slapped steep tariffs on imports of solar panels and washing machines, kicking off his second year in office by showing he is ready to start implementing his long-promised “America First” trade policy.
The moves were announced Monday in response to U.S. industry pleas for relief from a recent flood of cheap imports and are the first of what administration officials said would be a series of trade-enforcement actions in the coming months.
This ill-conceived and counterproductive action, which amounts to a tax on consumers, risks setting off trade fights with our most critical trading partners. (“The tariffs are aimed mainly at Asian manufacturers—Chinese makers of solar panels and South Korean producers of washing machines. But the administration announced few exceptions for any countries, indicating a willingness to impose comprehensive new protective policies for U.S. companies against global competition. The new curbs also would affect trading partners from Mexico and Canada to Europe.”)
Think of it this way: If you have to buy a washing machine this year, part of that tax cut you were promised is now taken away, in the form of a tax (tariff) on the machine you need. Home-builders who sell houses with appliances installed will pass costs off to consumers. The same is true of purchasers of solar power panels — be they individuals or businesses, which will turn around and charge consumers more and/or hold off on wage increases. If you argue that corporate tax cuts help consumers and/or workers, then tariffs logically would hurt both. If you are concerned about an uptick in inflation, then tariffs should be off the table.
You won’t hear any reputable economists, even supply-siders who have cheered Trump along, celebrating this. Beyond the damage from a few isolated tariffs, the real risk is that it reflects the rise of protectionism sentiment in the administration that may lead to a truly cataclysmic decision, such as a withdrawal from the North American Free Trade Agreement. (That would be one sure-fire way to crash the markets and snuff out the recovery.) Likewise, if it spurs further conflict with our Asian allies, China will be the big winner both economically and politically. As we pick fights, China will seek to make new friends at the expense of the United States.
The question remains why, if such actions are so plainly counterproductive, Trump insists on going forward. If he feels compelled to make good on a campaign promise, White House chief of staff John F. Kelly might say he was “uninformed” and should move away from an economically illiterate position. That Trump has not raises a question as to why. Is he illogical or confused about basic trade policy? (He seems never have to understood that the trade deficit is not a bill we have to pay other countries.) Are advisers around him not doing their jobs, refraining from telling him he is wrong? Alternatively, is he so panicked about offending his low-information voters and keeping their affection that he’s willing to do real damage to the American economy?
Maybe it is a little of all three. And once again Republicans in Congress remain quiet, afraid to enrage Trump or alienate his base. The result is dumb policy and a hit to Americans’ wallets.
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