Free Trade

Gary Johnson: Has Anyone Ever Won a Trade War?

I’m old enough to remember when Republicans at least claimed to be the party of free markets and free trade. Or at least more so than Democrats, whose union constituencies clung tenaciously to protectionism.

But now, when you go to buy that cool LG washing machine you have had your eye on, you can thank your Republican President for the $50 price increase the South Korean company has already announced. You can thank President Trump because he just decided that your chosen washing machine was too cheap, and slapped a 20% tariff on it. (Notwithstanding the fact that LG washing machines already cost more than Whirlpools.)

Solar panels for your house? After decades of being virtuous, but not making good financial sense for most homeowners because, well, they were too expensive, costs have finally come into alignment with economic viability in several areas of the country, and the solar panel industry has been booming.

That happened because China and other countries are producing cheaper solar panels, allowing U.S. companies to offer those panels, the installation thereof, etc., at a cost that makes them a reasonable choice. Years of subsidies, tax incentives and political shaming didn’t succeed in making solar power a legitimate part of our energy mix. The marketplace did that.

Some would call that a good thing. But not our President.

He decided that is a bad thing, and is fixing it with a 30% tariff on imported solar panels. Those would be the panels you would pay your  U.S. solar installation company and its employees to install, maintain, etc.

Name an industry that has been “saved” by government intervention

Yes, it is true that China, South Korea, and a host of other countries engage in “unfair” trade practices. The technologies that go into Chinese solar panels and LG washing machines often come from the U.S. and are deployed by those countries with little regard for intellectual property, labor protections and other factors that U.S. companies deal with. That is a reality that, to many, justifies intervention by our government. Reasonable people can and will debate that.

But here’s the other reality. There may be an example or two of which I am unaware, but I’m struggling to identify a U.S. industry that has ultimately been “saved” by government intervention in the marketplace, particularly price-raising tariffs.

Our increasingly global marketplace is simply too powerful and too complex for politicians to control, and when they try, it usually doesn’t work out very well. The simplistic notion that we can alter the power of “best product at best price” by artificially raising the cost of a specific piece of integrated, often complicated, supply chains is short-sighted at best, and foolhardy at worst.

All jobs are important, but is the solar panel manufacturing job more important than the solar panel installation job? Who decides that? And if “saving” the manufacturing job means raising prices to consumers, the end result will likely be that BOTH of those jobs are endangered.

Is the Whirlpool washing machine factory job more important than the LG sales or delivery or service job? And what about the kid working at McDonalds whose job or hourly wage may be impacted because we now have to spend an extra $50 to buy the washing machine we want — $50 that won’t be spent on Big Macs?

There are always unintended consequences: starting a trade war is no exception

Even setting aside the economic, philosophical and theoretical arguments for or against tariffs and other government interventions, the simple fact is that it doesn’t work when government attempts to manipulate what is perhaps the most powerful force on the planet: The marketplace.

Over the past several decades, the government has made similar attempts to “save” industries, such as steel production, textiles and apparel, that were perceived to be victims of unfair trade.

Whether or not the “unfair” characterization was accurate, the interventions didn’t work. They only raised prices for consumers, precipitated retaliation and at best, propped up a few jobs for a few years. Interestingly, in the case of clothing and other products, the marketplace has begun to place something of a premium on “Made in the USA”, resulting in upticks in manufacturing that had all but disappeared, despite government interventions.

And for the record…about those U.S. solar panel manufacturers President Trump is protecting? Two of the largest, Suniva and Solar World, are majority owned by Chinese and German companies, respectively. How is that for irony?

When all is said and done, protectionism is an insult to U.S. ingenuity, innovation and entrepreneurship. Industries and their jobs will not prosper at the hands of government intervention. They will do so because smart, hard-working and innovative Americans will figure out how to succeed in a global marketplace that is too big and too powerful for the politicians to out-maneuver.

(Photo of former Governor Gary Johnson of New Mexico speaking at the 2016 FreedomFest at Planet Hollywood in Las Vegas, Nevada by Gage Skidmore)


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