The Trouble With Tariffs

COMMENTARY Trade

The Trouble With Tariffs

Feb 21st, 2018
COMMENTARY BY
Edwin J. Feulner, Ph.D.

Founder

Edwin J. Feulner is the founder and former president of The Heritage Foundation.
Lower taxes, more jobs and fewer regulations are creating a much-needed boost. So why do we still have one foot on the brake? mf-guddyx/Getty Images

Key Takeaways

Protectionist measures act as a drag on our progress. Indeed, they threaten to undo much of it.

Things change, technology advances — often at astonishing speed — and NAFTA hasn’t kept up, often to the detriment of the U.S.

There is distinct room for improvement as NAFTA is renegotiated. The administration is absolutely right to play hardball and work to ensure that NAFTA is improved.

The stronger economy we’re enjoying now is no accident. Lower taxes, more jobs and fewer regulations are creating a much-needed boost. So why do we still have one foot on the brake?

I’m referring to trade. Protectionist measures act as a drag on our progress. Indeed, they threaten to undo much of it.

Consider the tariffs and quotas that the Trump administration recently slapped on imports of solar cells and modules, large residential washers, and washer parts. The price? As researcher Tori Whiting notes in a Daily Signal article, we get fewer jobs (roughly 23,000 American jobs this year, according to the Solar Energy Industries Association), higher prices for U.S. consumers, and retaliation from America’s trading partners.

Five of those partners — China, Taiwan, Singapore, South Korea and the European Union — have filed complaints with the World Trade Organization over these tariffs. This begins the long process of determining if the U.S. is violating Section 201 of the 1974 Trade Act. If the answer is yes, these countries can begin putting retaliatory restrictions on our exports to them. That’s hardly a recipe for economic growth here in the U.S.

Or look at the steep tariffs the administration has levied on Canadian softwood lumber imported into the U.S. American lumber companies might cheer this, but how does it affect U.S. consumers? These tariffs “reach deep into new homebuyers’ pockets, causing them to settle for smaller homes, or ones with fewer amenities,” writes researcher Patrick Tyrell. “Some families opt to buy older homes, rather than new homes, hurting home construction jobs. Others drop out of the market altogether.”

And then there’s the North American Free Trade Agreement. Last month in Montreal, President Trump’s trade adviser, Ambassador Robert Lighthizer, renewed the president’s threat that the United States could withdraw from NAFTA because in its current form, it is “really not a good agreement for the United States.”

But that’s the key point — in its current form. When NAFTA was first proposed, I supported it enthusiastically. As a strong proponent of freedom, I know the power of open trade. And NAFTA delivered. But that was 25 years ago.

Cell phones were in their infancy then. They were the size of a brick and could only make, well, phone calls. Today, most of us carry a small, powerful computer in our pocket that does a variety of things for us. Things change, technology advances — often at astonishing speed — and NAFTA hasn’t kept up, often to the detriment of the U.S.

Some things, meanwhile, have stayed the same (unfortunately). When NAFTA was first negotiated, U.S. energy exports to Mexico were virtually prohibited because the market there is controlled by a government monopoly known as Pemex. Those restrictions are still in place. Why? Because this antiquated agreement must be updated.

Speaking of technological advances, I have a friend in New Mexico who uses fracking technology to extract oil from deep wells. But he has to flare off the resulting gas from this process — gas that he could have piped and sold in Mexico. But NAFTA doesn’t permit it. Why?

In short, there is distinct room for improvement as NAFTA is renegotiated. The administration is absolutely right to play hardball and work to ensure that NAFTA is improved.

A pull-out, however, would be a serious mistake, one that would touch off severe economic ripples. “Let’s hope all the recent saber-rattling on trade by the Trump administration has been just the old trade negotiation tactic of ‘jawboning’ to get a better deal,” writes trade expert James Roberts.

Nobody wins a trade war. We help ourselves and each other when we stand foursquare for freedom. It’s time to trash the tariffs and update the “rules of the road” for all concerned.

This piece originally appeared in the Washington Times