The Trump administration’s decision this week to remove the 10% tariff imposed in August on Canadian-produced aluminum, one put in place in spite of the then just-completed U.S.-Mexico-Canada Agreement, may be the result of election-year politicking, fear of Canada’s threat to retaliate, or maybe, just maybe, momentary recognition that freedom to trade is more important than tariff revenues collected from the Americans who purchase aluminum products.
The decision, announced in Washington and Ottawa, came with a caveat that the relaxation could be temporary and that the United States would monitor shipments and, if surges are detected, could reimpose the tariff. The Canadians advised that they would be watching, too, and that if the Americans again raised tariffs, they would retaliate.
Once again, President Trump is engaged in gatekeeper capitalism, where he employs the misguided conceit that he holds the keys to the U.S. economy, and that he can marshal enough information to actually manage this massive economy from a White House conference room.
Whether it be the mandated sale of TikTok, strong-arming U.S. manufacturers to produce ventilators that are then distributed by White House staff and not the market, or limiting the number of visas issued to highly trained foreigners recruited by U.S. firms in their efforts to expand production and create wealth, Trump obviously believes that his economic wisdom is superior to what is generated by the multitudes who together comprise the market process.
But no matter how considerable a president’s IQ is, and no matter the collective intelligence of a remarkable White House assembly of specialists, it is simply impossible for decision-makers to account for the responses of hundreds of millions of economic agents when tariffs and other regulations are imposed. Indeed, rewarding important industries (or, for the skeptical among us, key political interest groups) in an effort to make America great can backfire.
For example, tariffs on Canadian-produced aluminum affected Pittsburgh-based aluminum producer Alcoa’s supply chain, which drew on products made in its own Canadian operation before being exported to U.S. plants for final completion. Efforts to restrict the flow to U.S. firms of highly educated foreign engineers and scientists, presumably as a payoff to U.S. workers who want the same jobs, can simply lead to expansions of just-across-the-border, high-tech Canadian firms that gladly accept the U.S. gesture. Indeed, when faced with visa limitations, Washington State-based Microsoft simply adds workers at its Vancouver operation.
Politicians in power positions are understandably tempted to become gatekeepers to America’s marvelous economy. It is then that they become what Adam Smith called “men of system,” which is another way of saying they see themselves as social engineers who can out-guess the market:
“He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.”
Smith’s warning applies to would-be legislative gatekeepers, but applies equally well to presidents and their administrations.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.
