“I want tariffs. And I want someone to bring me some tariffs.”
That’s what President Donald Trump reportedly told top aides in a meeting this summer. It just so happens a trio of formal trade complaints by U.S. manufacturers may deliver exactly the sort of tariffs the president has been hankering for.
One moves forward today, a complaint brought by bankrupt solar panel manufacturers Suniva and SolarWorld Americas, grousing about below-cost solar panels from Asia. The U.S. International Trade Commission has sent its recommendations to the White House that imported solar panels and parts get taxed up to 35 percent.
The other two involve very different industries, but similar complaints. After Boeing griped about Canada’s Bombardier, the Commerce Department proposed a 300 percent tariff on imports of Bombardier’s CSeries jetliners, saying Bombardier used government subsidies to sell them at “absurdly low” prices. And the International Trade Commission recently ruled in Whirlpool’s favor as well, after the appliance maker complained its business had suffered serious injury from cheap washers made by South Korea’s LG and Samsung. Under the Trade Act of 1974, President Trump gets the final decision in both the solar and washer cases.
Free-trade purists are upset, but consider: while free trade has ruled in recent decades, the U.S. has a long history of protectionist tariffs. In the early 20th century, Republican Sen. Reed Smoot was their biggest champion. He and Congressman Willis Hawley co-sponsored the Smoot-Hawley Tariff bill of 1930 which sparked counter-tariffs, damaging the world economy and worsened the Great Depression. But back then, tariffs and patriotism went hand in hand. “To be pro-tariff was to be American,” explained Eric Rauchway, a historian at the University of California, Davis.
If Sen. Smoot were alive today, he’d probably be tweeting his support of Whirlpool and the other U.S. companies, complete with the hashtag AmericaFirst.
To be clear, we’re not on the verge of another Smoot-Hawley. That infamous tariff law was protectionism gone wild, the craziness that comes when you hike import duties on 20,000 goods, including pet goldfish. But there are echoes of Smoot-Hawley in these trade spats:
1. Good politics, bad economics
In the late 1920s Republicans wanted to do something, anything, to show struggling, debt-ridden American farmers who felt ignored by Washington, that they cared. The party settled on tariffs, even though most American farmers faced little foreign competition. It was good politics, but bad economics. The tariffs didn’t solve farmers’ problems and the bill ended up igniting a trade war, which, economists agree, hurt everybody. Dartmouth historian Douglas Irwin said it was “more of a signaling thing” to farmers to win their votes.
President Trump knows a thing or two about “signaling.” If the president signs off on higher trade barriers in the solar and washer cases, he shows his base he’s following through on protectionist campaign promises. At the same time, Irwin said, the president is signaling to industry that he’ll be sympathetic to its protectionist trade petitions – “So basically it’s Trump hanging up a shingle saying 'we’re open for business.'”
2. Consumers left out
When Congress debated Smoot-Hawley, it gathered an exhausting 11,000 pages of testimony. In the end, business hijacked the bill so much of it came from manufacturers. Consumers, on the other hand, rarely voice their views, even though tariffs raise prices, said Harvard political scientist Jeffrey Frieden.
That’s because under protectionist tariffs, consumers pay “a nickel more here, a nickel more there,” Frieden said. It’s hard for consumers to feel the cumulative effect. So consumers don’t speak up. But producers do, Frieden said, because “they have a lot at stake.” Those extra nickels can mean the difference between staying in business or closing shop.
Trade politics has always been stacked against the consumer. Take the case involving Suniva and SolarWorld. The key question for commissioners at the ITC is whether a flood of solar panel imports has injured those two companies, not consumers. The White House will likely approve new solar tariffs, though there is a possibility that they will be more modest than Suniva and SolarWorld would like. The companies that buy and install solar panels will likely get hurt, as will consumers who will pay more in the end. This all could destroy more jobs than it saves in the end.
3. Warnings ignored
Before President Herbert Hoover signed Smoot-Hawley into law, critics pleaded with him to veto it. A close economic advisor told him the tariff bill was “asinine.” Over a thousand economists thought so too and warned him of trade retaliation. He signed it anyway, and ignited a global trade war that cut off American exporters from global customers, deepened the Great Depression, and helped sink the world economy in the run-up to World War II.
Today, those economists are raising their collective voices once more. And U.S. trading partners are cueing up that familiar retaliatory trade tune. Canadian Prime Minister Justin Trudeau has already threatened to cancel a big Boeing order in response to the Bombardier tariff, as has U.K. Prime Minister Theresa May. Bombardier happens to be Northern Ireland’s biggest industrial employer.
Bombardier recently signed a deal with Airbus to move some CSeries jet production to Alabama, a move that may or may not circumvent U.S. tariffs.
The U.S. companies who’ve filed petitions for relief in these three cases may each have legitimate grievances. But if as Irwin suggests, president Trump is “hanging out a shingle saying 'we’re open for business'” – the business of protectionism – we’ve heard this story before. And it doesn’t have a happy ending.