President Trump’s decision to levy tariffs on imported aluminum and steel might finally trigger the trade war that economists have feared since he was elected. But it may also confirm something much more troubling: the president’s preference for crony capitalism over principled free enterprise.
At first blush, the tariffs might seem very conventional: routine policy tools intended to level an international playing field that unfairly tilts in favor of global competitors subsidized by foreign governments. But this rationale is not one the administration used to justify the tariffs. Instead, it invoked a little-used clause — Section 232 of the Trade Expansion Act of 1962 — which authorizes the president to slap quotas or tariffs on foreign imports if the U.S. Commerce Department deems them a risk to national security.
The tariff decision was foreshadowed earlier in the year, when U.S. Treasury officials argued that high tariffs were necessary to increase domestic steel and aluminum production to 80 percent of operational capacity. Since domestic producers couldn’t get there on their own, trade barriers were needed to prop them up and fund their inefficiencies through higher prices paid by U.S. consumers.
The administration is clearly interpreting the Trade Expansion Act broadly. Even U.S. Commerce Secretary Wilbur Ross admitted to CNBC that its analysis includes “a very big variety of things one would not normally associate directly with national security.” He also made the policy justification clear: “economic security is military security” and “without economic security, you can’t have military security.”
The circuitous nature of the Trump administration’s reasoning for protecting domestic producers is striking in its breadth. The federal government already has the power to regulate virtually every aspect of American economic life, thanks to a 76-year old court case. In Wickard v. Filburn (1942), the U.S. Supreme Court held that the federal government may control the production of goods by individual companies because the very act of producing something (in this case wheat on a farm) implied an impact on interstate commerce even when the product is not sold (or consumed) on national markets.
Now, with an expansive definition of national security, the Trump administration has validated government economic intervention through international trade.
The tariff decisions, which may soon be extended to automobiles, signal a fundamental shift in national economic policy away from competitive markets and straight toward crony capitalism. By intervening directly to prop up two industries with very narrow geographic bases — in regions Trump will need to carry should he run for re-election in 2020 — the White House has openly demonstrated its willingness to use the levers of federal policy to support interests that serve its own personal and partisan political interests.
The Trump administration has amped-up the likelihood of a full-blown trade war with its tit-for-tat tariff threats against China. Exports of U.S. pork to China virtually halted after the first round of escalation. Most analysts expect the European Union, Mexico, and Canada to retaliate with their own tariffs on American exports. The EU, in particular, has identified a list of American exports to offset the $3.3 billion the administration expects to generate from its tariffs. Trump’s trade policies, may finally lead to the national industrial policy liberals have been advocating for since the 1990s.
The irony is hard to ignore. Trump was elected on a wave of conservative populism fed up with the progressive policies of Barack Obama. The Tea Party was the tangible political backlash to federal overreach, Wall Street bailouts, and government takeovers of failing private businesses deemed “too big to fail.” Yet now, President Trump is blowing big holes through what few barriers still existed to protect private enterprise from federal government meddling.
In jettisoning a free market, the Trump administration is showing little restraint in adopting the same tactics used by political progressives to pursue his own priorities, which are becoming more partisan and less principled with each passing month.
