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We Are in a Trade War … With Ourselves
The Trump administration’s recent decision to impose new tariffs (border taxes) on selected products has stirred up talk of a trade war. The announcements of border taxes reaching 20 percent to 50 percent on imported washing machines, and 30 percent on imported solar panels, is cause for alarm. Even Chinese business titan Jack Ma is scared.
It is a trade war, but not with China. It is a war with ourselves.
Border taxes for select products end up pitting special interests against Americans. Consumers and importers pay a higher price, and there is less healthy competition to satisfy consumers’ needs in the marketplace. Our trade laws were designed to protect the interests of a few domestic producers at the expense of hundreds of thousands of other domestic firms, workers and consumers.
President Trump wants Americans to be prosperous. He sees imports surging and American firms hurting. On the surface, using a border tax to raise the price of imports relative to domestic goods seems like a nudge in the right direction to help domestic firms.
He is not alone. Nearly everyone who has occupied the Oval Office has succumbed to the desire to protect American firms from competition abroad. Meanwhile, workers in industries later in the production process, firms and consumers have suffered the force of these taxes.
For instance, the Solar Energy Industries Association stated that the 30 percent tariffs on solar panels would cancel billions of dollars in investment, weaken demand, and eliminate 23,000 installation jobs in America. Worse still, solar panel installer is the fastest growing occupation across America. Requiring only a high school diploma or equivalent and on-the-job training, these jobs are sorely needed for much of our workforce. Meanwhile, the domestic firm that the tariff is meant to help employs just 300 people.
Our trade remedy laws were written several decades ago when trade was a small share of the economy, and what we did trade was mostly agriculture and final goods. Today, exports and imports are 11.9 percent and 14.7 percent of the U.S. economy, more than double what they were 50 years ago. And a big part of that trade is in intermediate goods, which are in-between raw materials and final goods. More than 15 percent of U.S. imports are intermediates.
U.S. firms rely on access to the best inputs at the best prices to stay competitive. Overall, imports contribute 15.3 percent of the value of U.S. exports. Two of our most competitive industries — advanced manufacturing and energy — are among the most reliant on imports.
Like it or not, this is what firms have to do to stay competitive.
Rich or poor, few households want the government dictating prices in the marketplace. Worse still, this government meddling causes more harm than good. The few domestic companies that may (or may not) benefit from special treatment shouldn’t outweigh the costs for the rest of the economy.
It is time to update these burdensome trade laws. Our elected officials mean well, and the desire to promote U.S. economic growth and a better quality of life for all Americans is nearly universal across policymakers. But the unintended consequences are stifling.
Congress, which appears to be reasserting itself in trade policymaking, can help. A record number of congressional staff has been in Montreal for the latest NAFTA gathering, Congress is demanding more frequent and comprehensive trade policy updates, and the president will need congressional renewal of his Trade Promotion Authority if he is to make any new deals. These outdated trade remedy laws are well worth their attention.
Congress should revise these trade laws and require a full consideration of the effects of border taxes on all American firms, workers, and consumers before such measures are taken. By putting their interests on equal footing with those of special interests, we can eliminate this war with ourselves.