Tag Archives: tariffs

The Favoritism Regime

As I often try to explain to students, there is an important difference between rights and privileges. The essential element of the rule of law–the characteristic that distinguishes it from the exercise of power–is that the same rules apply to everyone. If everyone doesn’t have rights, no one does. Some people may have privileges, but that isn’t the same thing.

The deal is, the person engaging in free speech who is saying something with which you disagree has the same right to voice his opinion as the person with whom you agree. If we don’t all play by the same rules, if some people have more “rights” than others, no one really has rights. They have privileges that can be withdrawn if they offend or oppose those in power.

The rule of law is fundamental to a constitutional government. It is glaringly obvious that Donald Trump does not understand either its definition or its importance. It is equally obvious that he wouldn’t respect it if he did. Like most autocrats and would-be autocrats, he is all about self-aggrandizement, the exercise of power and the ability to reward his friends and punish his enemies.

Trump’s lack of comprehension of, or respect for, the rule of law is one of the many reasons he is so unfit to hold public office.

What triggered this rant was an article about Trump’s decision to impose tariffs on steel and aluminum–a decision he has evidently been reconsidering in recent days. (When your policy pronouncements emerge from impetuous impulses rather than considered analyses, they do tend to change on a day-to-day basis…) The article described the proposed tariffs and their potential consequences, and reported on the number of  U.S. companies that were scrambling to win exemptions to them.

As of the time of the article, the Commerce Department had evidently received 8,200 exemption requests.

Let’s deconstruct this.

Assume you owned a company that relied upon imported metal to manufacture your widgets. The government moved to impose tariffs, which would increase your costs and make your widgets less competitive with the widgets manufactured in other countries. Assume further that you applied for an exemption from the new rule, based upon some tenuous argument or plea of hardship. Wouldn’t you be likely to do whatever you could to curry favor with the administration dispensing those exemptions? You’d almost certainly dig deep to make a political contribution.

“Pay to play” is, unfortunately, nothing new in American politics. Engineers and others who bid on government projects know that a history of political donations may not be enough to get them the contract, but is necessary to ensure that their bid is one that will at least be considered.

That said, unsuccessful bidders who believe that a contract has been awarded to a company that didn’t meet the statutory criteria–a donor whose bid was not “lowest and best”–can sue. And win. It happens more often than you might think.

Of course, the ability to sue and have your complaint judged fairly requires that the country’s judicial system be both impartial and competent. That’s one reason this administration’s rush to fill judicial vacancies with political cronies is so pernicious.

In places where government agencies can confer benefits at their discretion–routinely the case in autocratic regimes–and there is no legal recourse, corruption is widespread and inevitable. (See: Putin’s Russia) Quid pro quo replaces rule of law.

That’s the path America is on right now. If the GOP enablers in Congress survive the midterm elections, the prospects for turning things around will be very, very dim.

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Trump’s Economic Ignorance

One of the reasons I was a Republican back when that party actually existed was my belief in markets. I certainly understood that there are areas of the economy where markets don’t work–health care, for example–and I also understood the need for an “umpire”–regulations to ensure that competition occurs on that all-important level playing field. But with those caveats, I was–and remain– decidedly pro-market.

So was the GOP that used to be.

Last Thursday, Trump announced that he intends to impose tariffs on imported steel and aluminum; he evidently thinks that such tariffs fulfill his half-baked “America First” approach to trade.

Speaking at the White House, the president said he had decided to levy tariffs of 25 percent on foreign-made steel and 10 percent on aluminum.

The move prompted an immediate slide in the stock market, uniform condemnation by economists (you know, the people who actually understand how these things work–or more accurately–don’t), and threats of retaliation from the EU and Canada, among others.

The Washington Post reported that Trump had ignored warnings from members of his administration:

The president went ahead with the unexpected announcement even after Gary Cohn, his top economic adviser, reportedly threatened to resign. Treasury Secretary Steven Mnuchin told Trump that the stock market gains he loves to boast about would reverse themselves. Defense Secretary James Mattis, who he’s normally inclined to defer to, warned that this would hurt U.S. relationships with allies.

Companies that use steel and aluminum, including automakers, account for vastly more jobs than producers of the metals, and they argued that as many as 200,000 jobs were lost when George W. Bush imposed steel tariffs in 2002 that were later ruled to be illegal by the World Trade Organization.

Trump’s move, under a little-used national security provision of U.S. trade law, is expected to trigger legal challenges by China, the European Union and Brazil at the World Trade Organization. It also prompted predictions that it will backfire on American farmers and other exporters.

“It’s pretty much our worst fears,” said Rufus Yerxa, president of the National Foreign Trade Council, which represents multinationals such as Microsoft and Caterpillar. “This is a pretty clear indication that the Trump administration cares more about the old economy than it does the new economy.”

This wasn’t Trump’s first effort at protectionism; the announcement follows an earlier round of tariffs on solar panels and washing machines. Economic history tells us that all of these moves will lead to higher prices for consumers.  The recent ones will raise costs for manufacturers who use steel and aluminum (automobiles and beer in cans come to mind), and they will pass those increased costs to consumers.

The tariffs will also cost American jobs; the earlier ones have already caused at least one U.S. company that imports solar panels to announce layoffs.

Trump’s anti-competitive moves aren’t the only reason columnist Catherine Rampell now dismisses the GOP’s long-professed support for markets.

Republicans say they favor free markets. They’re not like those pinko-commie Democrats, who prefer “picking winners and losers.”

Oh, come off it already.

Republicans love picking winners and losers, too. They just choose different winners and different losers than Democrats do. In the case of today’s Republican officials, the winners are mostly donors, incumbents, culture-war favorites and cheats.

Rampell points to Trump’s efforts to prop up the coal industry, and the “carve-outs” and other favorable treatment given to donors and Republican governors. And she is especially scathing in her criticism of the Georgia legislature.

Republican officials there vowed to punish Delta Air Lines, one of the state’s largest employers, for canceling discounted prices for National Rifle Association members.

Lt. Gov. Casey Cagle, who is running for governor, gave Delta an ultimatum: restore the NRA discount, or forget the $50 million sales-tax exemption on jet fuel that Republican lawmakers had been considering. In other words, restore our special discount, or we won’t give you your own special discount. Delta didn’t budge, so lawmakers axed the tax break Thursday afternoon.

It takes a funny formulation of free markets to punish a private company for not giving your favored political group a good price.

It is also a perversion of market economics–not to mention a blatant violation of the rule of law–to tip off your advisor and good friend Carl Icahn about your intentions, so that he can unload nearly $31.3 million in a steel-related stock company before the news hits.

The GOP to which I once belonged no longer exists. What goes under that name today is an unholy merger between a cult and the mafia.

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