President Donald Trump is kicking off his second year in the White House by approving a host of tariffs, ramping up his protectionist policies to aid U.S. manufacturers and save American workers. On Monday, the president gave the nod to new levies on imports of solar products and washing machines from China and South Korea.
The solar industry will face such duties for the next four years. In the first year, a fee of 30% will be slapped on imported solar modules and cells, which will decline to 25% in the second year, 20% in the third year, and 15% in the fourth year. In each of the four years, the first 2.5 gigawatts of solar cell imports will be exempted from the tax.
Imported washing machines will face a combined tariff and quota for the next three years. In year one, the first 1.2 million will pay a fee of 20%, and all subsequent imports will pay 50%.
Trump made his decision based on consultations with the Trade Policy Committee (TPC) and recommendations by the U.S. International Trade Commission (ITC).
U.S. Trade Representative Robert Lighthizer called this part of the president’s America First agenda:
“The president’s action makes clear again that the Trump administration will always defend American workers, farmers, ranchers, and businesses in this regard.”
If 2017 was any indication, it is likely that the Trump administration has a lot more in store for trade.
China and Industry Respond to Tariffs
Soon after the announcement, the Chinese government expressed its “strong dissatisfaction” with the trade measures. The Commerce Ministry argued that the U.S. government should have filed complaints with the World Trade Organization (WTO) first rather than utilize U.S. law immediately.
Mexico called it “regrettable” to not be excluded in the final decision. The Economy Department pledged to use legal resources to fight the trade barriers placed on Mexican solar panels and washing machines.
Both countries will likely argue before the Switzerland-based body that the tariffs violate international law.
Meanwhile, the $28 billion U.S. solar industry appears to be split over the administration’s protections, primarily because 80% of its solar panel components are imported.
The Solar Energy Industries Association (SEIA), an organization that represents solar manufacturers, installers, sellers, and other professionals, estimates the tariffs would hike prices and eliminate approximately 23,000 jobs. However, SolarWorld Americas and Suniva, two bankrupt solar firms, celebrated the levies, projecting they would increase domestic manufacturing and create 100,000 jobs.
R Street Institute, a conservative free-market think tank, averred that it was a bad day for free trade. Clark Packard, trade policy counsel for the group, said in a statement:
“More good-paying jobs will be jeopardized by today’s decision than could possibly be saved by bailing out the bankrupt companies that petitioned for protection. Today's decision also will jeopardize the environment by making clean energy sources less affordable.”
So, are tariffs good or bad for Americans?
Protectionism Doesn’t Protect the Economy
Last year, President Trump authorized a plethora of duties on Canadian and Chinese goods.
In April, the White House announced a 20% tariff on Canadian softwood lumber imports. In November, Trump’s Commerce Department granted duties of up to 162% on Chinese aluminum foil. In September, Canada’s Bombardier was hit with a 292.31% tariff on its C Series jets. Reports suggest that he is still unsure about imposing 20% fees on Chinese and German steel.
But Trump isn’t the first president to go the protectionist route – and he won’t be the last. Former President George W. Bush implemented a 20% tax on imported steel, while President Barack Obama instituted a 35% additional charge on Chinese tires. The former was abolished after the Bush administration saw its adverse effects, but the latter persists despite higher prices and lost jobs.
The intentions of presidents – Republican and Democrat – may be noble. They want to protect American industries and jobs, and they believe that protectionist ideas from yesterday will be successful, boosting their chances of re-election to boot. But protectionism usually has the opposite effect.
For instance, in 2009, hearing the cries and whispers of unfair competition from American companies, Obama launched a war on Chinese tires. It was an initial success: 1,200 U.S. tire jobs were rescued, and tire output surged following a substantial decline. A few years later, the unintended consequences started to roll in.
Because it is more expensive to produce tires in the U.S. and there was less competition from China, consumers paid higher prices for tires, forking over an extra $1.1 billion. It was also estimated that 3,731 retail jobs were lost. Other industries were affected, too: China retaliated, installing penalties on U.S. shipments of chicken parts, costing $1 billion in lost chicken product sales.
Surely, the U.S. tire industry was saved because of the Obama-era tariff, right? In 2008, there were 60,000 American workers producing tires. Today, there are roughly 55,000.
Two-time presidential candidate and former Governor Mitt Romney (R-MA) was right when he wrote:
"President Obama's action to defend American tire companies from foreign competition may make good politics by repaying unions for their support of his campaign, but it is decidedly bad for the nation and our workers.”
And now President Trump is heading down the same path for solar manufacturers, appliance makers, lumber companies, and aerospace giants.
Is This Corporate Welfare?
Billion-dollar corporations usually whine about unfair competition when they demand special privileges from the government. The likes of Boeing or Suniva either want special support from Washington, or they want the federal government to fight their foreign competition battles for them.
The state may not be extending tax subsidies to wealthy corporations, but it is still meddling and intervening in the global marketplace to the benefit of these same companies. Giving the private sector more of its money back and slashing regulations is a far more favorable public policy – Apple is returning home, for example. Tariffs are nothing more than cronyism.
And, remember, tariffs are an attack on consumer freedom. Adam Smith wrote in Wealth of Nations:
“In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest.”
During the Bush and Obama administrations, conservatives and libertarians regularly slammed their liberal policies when it came to economics, fiscal management, and trade. Like his predecessors, Trump may have the right intentions – and we know what road they lead to – but the long-term damage is irreversible, particularly in a world of global competition.
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