Instead of setting up conditions to “make America great again,” the trade and economic policies proposed by President Donald Trump and Vice President Mike Pence threaten to increase the government’s power over U.S. workers, which would make economic prosperity more difficult for many to achieve.
At a December 1 press conference, Pence seemingly renounced his belief in capitalism, telling The New York Times, “The free market has been sorting it out and America’s been losing.”
Trump interjected, saying “every time, every time.”
On December 4, Trump launched an early-morning tirade on social media, during which he wrote, “… any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. without retribution or consequence, is WRONG! There will be a tax on our soon to be strong border of 35 percent for these companies wanting to sell their product, cars, A.C. units etc., back across the border.”
Trump added that he plans to make attempts to relocate a business to avoid government regulations and mandates an “expensive mistake.” In other words, Trump plans to build a regulatory wall around the United States to keep businesses and people in—whether they want to stay or not.
Government bureaucrats and lawmakers use tariffs, sometimes literally, to get in the way of voluntary exchanges between consumers and producers. Anti-trade policies such as those proposed by Trump and former free-marketeer Pence would harm everyday consumers, just as much as the anti-consumer policies of outgoing president Barack Obama have.
Ironically, Trump’s war on trade, which he says he’ll wage in the name of working-class men and women, may put working-class people out of work. By using the power of government to increase the cost of foreign-made goods, the cost of manufacturing goods in the United States may increase as well. More businesses may choose to leave the country and manufacture goods elsewhere, similar to how U.S. tariffs on sugar encouraged Mondelez International, the company responsible for producing Nabisco food products, to leave the country in 2015.
According to official government data, an increasing amount of domestic goods and services are produced using foreign components, a trend not even a reality television star’s force of personality can reverse. These “sectoral intermediates,” as they’re termed in economic jargon, prove the inescapable reality the wellbeing and prosperity of U.S. workers and free-market principles are complimentary, not contradictory.
“The data show that 24 percent of sectoral intermediates in manufacturing were imported in 1998; the percentage grew to almost 34 percent in 2006,” Lucy Eldridge, senior economist for the U.S. Department of Labor’s Bureau of Labor Statistics, wrote in the June 2010 issue of Monthly Labor Review.
Eldridge continued later in the piece, “There has been a steady increase in the share of imported intermediates used by U.S. manufacturing firms relative to sectoral and total intermediates observed for the private business sector, imported materials accounted for the majority of imported intermediate inputs. However, service inputs also were imported by the manufacturing sector. Imported services’ share of sectoral intermediates in the manufacturing sector grew from 1.4 percent in 1998 to 2.1 percent in 2006, while imported energy’s share grew slightly, from 0.1 percent to 0.3 percent, over the same period.”
Simply put, an increasing number of U.S. workers now use components from both domestic and foreign sources when producing and/or providing goods and services.
By using the force of government to target some businesses for tax hikes and punishments and others for tax breaks and favors, the Trump business wall would make U.S. manufacturing businesses even more uncompetitive compared to economic climates in other countries.
Trump should stick to ensuring “the United States is open for business,” the conclusion of his early-morning December tweetstorm, by embracing free-market principles such as reducing corporate tax burdens and moving the country from a global tax system to a regional one.
What Trump should not do under any circumstances is use government force to reshape the complex and beautiful web of manufacturing inputs and outputs, described by Milton Friedman as the “millions of tiny know-hows … naturally and miraculously form[ing] and cooperat[ing]” to satisfy even the smallest of man’s necessities.
By ending the federal government’s practice of taxing U.S. companies’ foreign earnings and money transferred from overseas affiliates to headquarters in America, fewer businesses would seek to leave the country for friendlier business climates.
Ego-boosting adventures in government economic engineering, such as the economic wall-building and connection-breaking proposed by Trump and Pence, do nothing to benefit everyday working people—the very group Trump claims to be waging his economic crusade for. In fact, the policies proposed would prove to be disastrous for people who would benefit the most from economic growth.
Jesse Hathaway ([email protected]) is a research fellow at The Heartland Institute.