President Trump this morning tweeted, “Tariffs are the greatest!” He added that a country that he deems has “treated the United States unfairly” on trade should negotiate a fair deal or it will get hit with tariffs. “Remember, we are the ‘piggy bank’ that’s being robbed.”
With all due respect, he is exceedingly wrong. Tariffs are taxes, and there is nothing great about them. Kevin Brady, chairman of the House Ways and Means Committee, recently said, “Tariffs are taxes. Lower is better and zero is always the best.” The father of modern economics, Adam Smith, explained this concept in “The Wealth of Nations,” writing, “In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest.”
{mosads}Trade is not a win or lose proposition. Every American benefits from trade through competition and lower prices. We should strive for a world free of tariffs. Imposing new ones not only moves us further from that goal, it also harms Americans in a misguided attempt to penalize other countries for their own misguided economic policies. When China, Canada, Mexico, or the European Union imposes tariffs on American goods, subsidizes their own exports, or devalues their currency, they do so only at the expense of their own citizens. Their economies are held back, subsidizing otherwise unprofitable and busywork ventures, while Americans benefit from cheaper imports and are free to innovate and produce higher order goods and services.
In addition, trade deficits, though ominous sounding, are not a problem. In fact, a trade deficit is a sign of a healthy economy that is generating significant wealth. Trade deficits are the combined result of Americans having significant purchasing power in the world market and the desire for foreigners to invest in America. Every dollar spent on imports, or robbed from the “piggy bank,” will find its way home to buy American products or invest in American companies. If the trade deficit were true cause for concern, then we ought to ban imports and foreign investment altogether, but then President Trump would not be able to tout economic projects such as the Foxconn plant in Wisconsin.
Unfortunately, economic nationalists in this administration fail to grasp these concepts, and their inability to understand the benefits of trade have hurt our economy. The Tax Foundation has analyzed the tariffs imposed by the administration. The findings are alarming, showing $15.68 billion in lost gross domestic product (GDP) and 48,585 jobs. If the administration were to move forward with proposed tariffs, the negative impact would be substantially greater. GDP would decline by nearly $90 billion and 277,825 jobs would be lost. Retaliatory tariffs imposed by our trading partners would cost another $12.38 billion in GDP and 38,376 jobs.
The economic benefits of the Tax Jobs and Jobs Act, which was signed into law by President Trump late last year and hailed as the biggest legislative accomplishment of his administration, would be significantly diminished. The Tax Foundation notes these tariffs would reduce impact of the tax cuts by 25 percent. This is a self-inflicted wound and history clearly demonstrates how severe it could be. In 1930, more than 1,000 economists signed a letter to President Hoover and Congress urging them to kill the Smoot-Hawley Tariff Act. They were ignored, and by 1934 total global trade was only a third of the level it was in 1929. Today, the extent of the economic debate is whether the Smoot-Hawley tariffs merely worsened the Great Depression or actually caused it.
Congress can stop this madness. The Constitution gives sole authority over trade to the legislative branch. Over time, Congress has unwisely ceded this power to the executive branch. The administration has taken this authority through Section 232 of the Trade Expansion Act, which allows an administration to impose tariffs or adjust import levels for national security purposes, to impose these tariffs on the specious argument that the security of the United States is somehow threatened.
Sen. Mike Lee (R-Utah) and Rep. Warren Davidson (R-Ohio) have introduced the Global Trade Accountability Act to restore the legislative branch’s role in trade policy. The bill would require congressional authorization for any unilateral trade action, including adjustments in import levels or the imposition of tariffs. Similarly, Sen. Bob Corker (R-Tenn.) and Rep. Mike Gallagher (R-Wis.) have introduced legislation that would require congressional approval for adjustments of import levels or unilateral tariffs under Section 232 of the Trade Expansion Act.
Congress does not have to sit idly by and watch this madness. When President Obama was in office, Republicans routinely called for the reclamation of Article I powers to serve as a check on destructive economic policies. Control of the White House may have changed hands, but the urgency of check and balances remains the same. There must be strong action to restore the role of Congress on trade.
Jason Pye is the vice president of legislative affairs for FreedomWorks. Patrick Hedger is the director of policy for FreedomWorks.