President Trump’s recent decision to slap huge new tariffs on imported steel and aluminum is certain to wreak havoc on the American economy. So we argued last week when the decision was announced: Tariffs often make plenty of political sense but penalize domestic industries no less than foreign ones.
The arguments for and against free trade are too well known to rehearse yet again, but a comment by White House trade adviser Peter Navarro shouldn’t pass unnoticed. Navarro said on CNN that the White House would create “an exemption procedure for particular cases where we need to have exemptions so that business can move forward.”
The administration has not elaborated on what such an “exemption procedure” might look like. But the general idea seems to be this: Under the new tariff, manufacturing companies that use steel would be able to apply for exemptions to the tariff if they can demonstrate that doing so is crucial to their business.
Navarro’s comments implicitly acknowledge that tariffs hurt some businesses and could stall job creation. Otherwise why would manufacturers need to apply for relief from them? In fact, we’ve already seen this kind of market retardation happen in just the last several days: On Saturday, Swedish appliance maker Electrolux announced it was freezing its plans for a $250 million plant expansion in Tennessee. The company said the new tariffs will give foreign manufacturers “a cost advantage that is hard to compete against.” And the tariffs haven’t even gone into effect yet.
Leave aside the negative economic effects, though, and consider the political consequence of allowing companies to apply for exemptions to a tariff. Expect a frenzy of lobbying for special favors by corporations eager to prove their critical need for duty-free metals. This sort of rent-seeking has long been commonplace at the state and local level—think of the innumerable tax carve-outs and subsidies granted to specific companies by your local council and state legislature. Granted, the feds have been guilty of this sort of thing, too (remember Solyndra?), but Washington isn’t the capital most corporations look to for special tax favors.
Until now.
Even if an exemption process did manage to sidestep rent-seeking corporations, it would still distort the American economy for the same reason all carve-outs do. Giving companies the opportunity to apply for tariff exemptions would favor the interests of large, successful companies that can afford to lobby the federal government for exemptions over the interests of smaller, newer companies that lack that capacity.
The president’s plan to impose steel and aluminum tariffs is deeply misguided, in our view. We hope White House officials with sounder economic ideas can persuade him not to implement it, although the resignation on Tuesday of Trump’s chief economic adviser, Gary Cohn, suggests the free-traders failed to win over the president. If the president feels he has to retard U.S. economic growth in this way in order to fulfill a campaign promise, so be it.
If so, however, the administration ought to impose those penalties on everybody—and not just on the companies whose lobbyists and attorneys know how to get an exemption.
