Protectionism is iatrogenic government
The cascading effects of U.S. protectionism on U.S. producers and consumers constitute an ongoing tutorial about what Daniel Patrick Moynihan called “iatrogenic government.” In medicine, an iatrogenic ailment is one inadvertently caused by a physician or medicine. Iatrogenic government — except the damage it currently is doing is not inadvertent — was on display last week.
The Trump administration unveiled a plan to disburse $16 billion to farmers as balm for wounds — predictable and predicted — from the retaliation of other nations, especially China, against U.S. exports in response to the administration’s tariffs. The $16 billion does not need to be approved by Congress because not much that presidents do nowadays needs to be. The president said the sum will be paid for by the billions of dollars the Treasury takes in from China. The evident sincerity of his frequently reiterated belief that exporters to the United States pay the tariffs that U.S. importers and consumers pay is more alarming than mere meretriciousness would be.
The $16 billion is not the first such tranche ($12 billion was disbursed last year) and the $28 billion probably will not be the government’s final restitution, using other people’s money, for damages it is doing. So, taxpayers who are paying more for imported goods covered by the administration’s tariffs (which are taxes Americans pay) are also paying to compensate some other Americans for injuries inflicted on them in response to the tariffs that are injuring the taxpayers.
President Trump, who deserves Winston Churchill’s description of U.S. Secretary of State John Foster Dulles (a “bull …who carries his china closet with him”), has tweeted that the government could buy $15 billion worth of surplus commodities (for you keeping score at home, that would bring tariff compensation for farmers to $43 billion) from U.S farmers (“@POTUS loves his farmers”) and ship the commodities to developing nations. What could possibly go wrong?
In a masterpiece of understatement, Darci Vetter, President Obama’s chief agricultural trade negotiator, told Politico that this could have “serious market implications” in recipient countries. Implications such as the devastation of local agriculture, the largest industry in many developing nations.
The administration might be pleased that some non-Chinese companies that manufacture in China are moving production elsewhere to avoid U.S. tariffs on goods from China, thereby slowing that nation’s economy. What could possibly go wrong?
Presumably the administration has thought through the consequences of promoting an economic slowdown in the country that buys many U.S. goods — e.g., China is one of Boeing’s biggest customers, and Cadillac sells more cars in China than in America.
Zachary Karabell, an investor writing in The Wall Street Journal, has noted that China is not as vulnerable to U.S. pressure as Japan was in the 1980s, when the U.S. purchased about a third of Japanese exports and supplied about half of its foreign investment and much of its national defense. “China has a $700 billion trade relationship with the U.S., including imports and exports, but it has a $3 trillion trade relationship with the rest of the world.”
The New York Times recently reported that Treasury Secretary Steven Mnuchin, a member of an administration that purports to be a dike against a rising tide of socialism, is “encouraging (U.S.) firms to reorient their supply chains and source their products elsewhere” — meaning, out of China. Capitalists believe that market signals, not political appointees with political agendas, give satisfactory encouragement for reasonable commercial behaviors.
Today’s system is capitalism leavened by cronyism and administered by know-it-alls. What could possibly go wrong? A report by a Federal Reserve researcher and two University of Chicago economists has found that tariffs on washing machines raised their cost by $86 on average — but also raised the prices of dryers by $92 as, The New York Times reports, “manufacturers of laundry equipment used the tariffs as an opportunity to raise prices on things that were not, in fact, affected by the tariffs.” The tariffs, according to the report, have created about 1,800 American manufacturing jobs, but at a cost of over $817,000 a job.
This is the art of the deal as practiced by him who relishes his self-bestowed sobriquet “Tariff Man,” and who explains tariffs this way: “When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so.” Is that clear? Perhaps not, but this is: Protectionism is yet another example of government being the disease for which it pretends to be the cure.