Blog Post

AEIdeas

Make no mistake, running a protectionist trade policy is another form of government intervention and central planning in the American economy. Imagine what’s happening in the Trump administration right now. Officials, probably pouring over spreadsheets, are picking and choosing which imported products to hit with tariffs, or import taxes. That means, of course, choosing winners and losers. Steel tariffs might help domestic steel producers but hurt steel users. But that’s a political choice.

Another example: The first round of tariffs on Chinese products avoids consumer goods to try and hide their impact from voters. But this sort of central planning suffers from the typical inefficiencies and incompetencies found in government central planners everywhere. A Syracuse University analysis found, according to Reuters, that “most of the companies that will suffer from the first rounds of tariffs are not actually Chinese firms.” Nearly 90 percent of “electronics-related products targeted were from non-Chinese multinationals and foreign-invested joint ventures.”

Of course one way around this is to simply slap tariffs on all imports from China, which seems to be where Team Trump is heading. And then it will be the government influencing all manner of consumer choices.

Subsidizing favored industries is another form of top-down central planning. This from the Financial Times:

The Trump administration on Tuesday readied billions of dollars in new aid to placate farmers and offset any economic impact from his trade wars, even as the president hailed his growing list of tariffs as “the greatest”. The new aid plan was aimed at soyabean, pork and other farmers who have been hit by retaliatory tariffs imposed by US trading partners such as China. Up to $12bn in aid will be offered for farmers in part through the New Deal-era Commodity Credit Corporation, which has the authority to either lend money to farmers or buy their crops in economic emergencies.

Kind of ironic, don’t you think, given that reducing farm subsidies has been a long-term budgetary goal on the right? As the Cato Institute notes in its Downsizing Government agenda:

The federal government spends more than $20 billion a year on subsidies for farm businesses. About 39 percent of the nation’s 2.1 million farms receive subsidies, with the lion’s share of the handouts going to the largest producers of corn, soybeans, wheat, cotton, and rice. The government protects farmers against fluctuations in prices, revenues, and yields. It subsidizes their conservation efforts, insurance coverage, marketing, export sales, research, and other activities. Federal aid for crop farmers is deep and comprehensive. However, agriculture is no riskier than many other industries, and it does not need an array of federal subsidies. Farm subsidies are costly to taxpayers, but they also harm the economy and the environment. Subsidies discourage farmers from innovating, cutting costs, diversifying their land use, and taking other actions needed to prosper in the competitive economy.

Or as my AEI colleague Vincent Smith wrote about the House-version of the recent farm bill:

The House bill expands spending on farm subsidies and wastes American resources. It does nothing to mitigate the flow of billions of federal dollars to large scale farm business operations, reflecting successful lobbying efforts by prosperous farm interest groups and agribusinesses. Instead, the House bill continues subsidy programs that have for decades funneled about 70 percent of all payments to the largest 10 percent to 15 percent of farm businesses.