The truth is the United States has never been a truly free trade country, that is allowing other countries free access to US trade markets. However, recently the United States has drafted legislation and attempted to forge trade partnerships in efforts to do so. The North American Free Trade Agreement (NAFTA), the Dominican Republic Central America Free Trade Agreement (DR-CAFT) and the Trans-Pacific Partnership (TPP) are a few partnerships that are a testament to the aforementioned goal of free trade.
Hey, President Donald Trump – why the drastic change?
President Trump’s 2016 presidential campaign slogan “Make America Great Again” foreshadowed the protectionist policies soon to come. Since taking office, President Trump has threatened to withdraw from NAFTA, withdrew from TPP via executive order his first full day in office and recently ordered 25% and 10% tariffs on steel and aluminum imports respectively. The question is who benefits – American consumers or producers? How about neither?
Advancements in American protectionism will undoubtedly lead to democratic erosion by highlighting and fostering political dysfunction and decreasing economic stability. Here’s how:
The constitution of the United States grants congress the enumerated power to lay and collect taxes, duties, imposts and excises. This begs the question, how does the president have the unchallenged authority to impose tariffs? The answer is the weakening of checks and balances. Trade has become an intricate part of foreign policy, which is an area of executive control, and as such congress has willingly deferred the power to impose tariffs to the executive branch. This is problematic as any large democracy must have institutions that depend on votes and other expression of preferences (Dahl, 1972). Congress is the quintessential avenue for voters expression and as such, the primary job of congress is to restrain the executive branch by limiting legislation to represent the sovereign. By deferring powers to the executive branch, congress relinquishes its legitimacy and the will of the sovereign is lost as well.
The result of this is executive aggrandizement. Bremeo notes that executive aggrandizement is the most common form of backsliding and due to its slow pace, hardest to detect as well.
James Madison once stated the constitution grants congress war making powers and the president having these powers is the true nurse of executive aggrandizement. This same argument can be applied to the executive branch having the power to levy taxes and tariffs or any other power explicitly granted to congress; it is an unconstitutional way for the executive branch to amass more power at the expense of Congress and limits all opposition of executive preferences (Bremeo, 2016). To substantiate this argument, both houses of Congress largely oppose the tariffs including 107 prominent House Republicans who sent the White House a letter opposing the measure. Despite their efforts, President Trump formally ordered imposition of the steel and aluminum tariffs a day later.
Beyond the political dysfunction that is weak check and balances and executive aggrandizement, protectionist policies also decrease economic stability.
To begin, international trade is not the zero-sum game that President Trump paints it as – the US loses are not the world’s gains and vice versa; such assumption represents primitive thinking. The reality is that international trade is a complex system where countries specialize in goods and services where their opportunity costs are the lowest. This allows all nations to consume outside of their production possibilities curve while neither adding expenses nor lacking efficiency. A win-win situation for everyone.
By enacting tariffs and quotas, domestic producers are forced to either use more capital to produces less goods and services (e.g. inefficient production) or to not produce them at all (e.g. continue to produce services they specialize in). Either way, consumer consumption is decreased resulting in more domestic competition for basic goods and services and inflating prices. This is where protectionism transforms into populism as the lack of good and services result in the state rationing them and enacting price controls to meet the needs of the society. The ongoing turmoil in Venezuela is evidence of this phenomenon.
Contrary to the President’s argument that such tariffs will decrease the trade deficit, the retaliation promised by the likes of China and Canada prove otherwise. The fear stoked in other countries would likely diminish their confidence in US trade practices as well resulting in a virtually unchanged or increased trade deficit.
Furthermore, the 2002 US tariff on steel serves as a recent case study. President George W. Bush imposed a 30% tariff on steel imports to appease the steel industry and protect American job. Unfortunately, the tariff, intended for 3 years, ended after only 20 months. Why? According to the Trade Partnership, the total number of jobs lost in 2002 as a result of higher steel prices far exceeded the number of jobs available in the steel industry in its entirety. The economic cost of such tariff was $400,000 per steel job saved. This proves that such tariffs are not economically feasible and the current steel tariff could have far-reaching consequences as it is a more expanse tariff that, as of now, has few exclusions.
All and All, protectionist policies provide no real benefits to our society. It serves a cynical ploy to increase executive influence unconstitutional at the expense of our economy and our rights.
Photo From The Economics Review, “Trump Tariff Policy: The Border Adjustment Tax Reviewed” by David Riccione
Bermeo, Nancy. “On Democratic Backsliding.” Journal of Democracy, vol. 27, no. 1, Jan. 2016, pp. 5–19., doi:10.1353/jod.2016.0012.
Dahl, Robert. “Democratization and Public Opposition.” Polyarchy: Participation and Opposition , Yale University Press , 1971, pp. 1–16.