March 02nd, 2018

It Doesn’t Take a Genius to Know Tariffs Are Dumb

​President Herbert (Trump) Hoover has proven he’s not the genius he thinks he is.  After igniting a positive surge in growth with tax cuts, Trump’s tariffs will undermine the very growth the President is looking for. 
While President Trump’s business instincts are often positive, they are consistently negative when it comes to international trade.  He and his advisers use highly-flawed numbers for trade deficits as a guide to unfair behavior by others.  However, trade deficits can appear to show serious problems where none exist.  A trade deficit can as easily reflect a desire among foreigners to invest in the US, as they can some insidious behavior.   
Trump’s imposition of high tariffs on imports of solar panels, washing machines, steel and aluminum, provides certain industries and companies with government assistance.  The assistance comes at the expense of companies and individuals who pay higher prices for these items. 
It might appear the benefits to some companies are offset by the higher costs to others.  This isn’t the way trade works.  The efficiencies from the complex interactions of market forces overwhelm those from government dictates.  This is why countries promoting free trade tend to have higher productivity and higher wages than countries that protect industries with tariffs.
When Trump decides to reward some and harm others he is following in the footsteps of President Herbert Hoover.  Hoover encouraged Congress to place tariffs on foreign goods to protect American businesses and workers.   As the Smoot-Hawley Tariff moved through Congress in October, 1929, the stock market crashed.  It was a prelude to the Great Depression.
Blaming other countries for unfair trade is easier than to admit to our own weaknesses.  One self-inflicted weakness has been our high tax and regulatory burdens.  Trump has been removing these. 
Whatever trade complaints we might have had against foreign countries, Trump’s tax and regulatory reforms have leveled the playing field.  They have given US companies a major competitive advantage over businesses in other countries.  Instead of allowing this benefit to play out, the President’s imposition of tariffs is in the process of undermining his greatest policy achievement to date.  This is hardly the work of a genius.