Trump Is Playing A Long Game On Trade Policy And He Knows What He Is Doing
President Donald Trump approved the application of tariffs on the imports of solar panels and certain appliances from particular countries in Asia last week. Immediately the hits began coming from all directions, and virtually all of these complaints were directed at Trump individually. The left is accusing the president of being overtly hostile to alternative energy, because clearly, he hates it and wants to bolster big oil and coal. Many on the right, including the editors of the National Review, have also expressed contempt for the move, indicating that it upsets the free market. The editors of the National Review went so far as to name the president’s views on trade as foolish in an article published on January 24 entitled, “Against the Tariffs.” It is overly simplistic to label this action as simply “protectionist policy measures” by the president. Such views from both sides are misguided and focused more on defaming the president than on sound, strategic trade policy.
The president did not come to this decision out of the blue. The International Trade Commission (ITC) voted 4 to 0 to recommend that the president implement these measures, after an investigation determined that the applicable products were being “dumped” onto the U.S. market. Much of the investigation into such matters is handled by the International Trade Administration, an arm of the Department of Commerce. If you are unfamiliar with the ITC, it has been in place for over 100 years. On the 100th anniversary of the ITC, then-President Obama wrote a letter commending the organization which read in part, “Countless American businesses and workers have benefited from the USITC, whether through your efforts to end harmful trade practices or provide insight on our country’s competitiveness. Although we have come a long way since this small but robust agency was founded, its mission is critical now more than ever as we continue to expand our Nation’s reach in an ever-changing global economy.”
President Obama followed the advice of the ITC himself over the years. In 2009, Obama applied a 35 percent tariff on tires imported from China, because the ITC determined that China was “dumping” tires on the U.S. market at prices well below market, consequently damaging the ability of U.S. manufacturers to compete in that sector. Such a measure was important, because contrary to what some might believe, the existence of a thriving manufacturing base for tires is of strategic importance to the U.S.
Dumping is an international trade term that essentially means that companies within a country sell products internationally at a price lower than those products would cost in their own country. In many cases, these companies are in fact subsidized by the government of their own country, allowing international sales to occur at rates below the cost to manufacture the goods. China is notorious for such practices, and in many cases, they have been successful.
In 2005, in the wake of Hurricane Katrina, windows and doors (painted and ready to install) imported from China flooded the Mississippi market at prices below that which the domestic millworkers could purchase even the raw materials. Consequently, the mill-working industry in the U.S., and particularly in southern Mississippi and the greater Southeast, was driven from the market by the Chinese government, which through subsidization and de facto slave labor, sold the products at prices the contractors and insurance agencies repairing homes could not resist.
From an economic perspective, these measures are considered a form of predatory pricing, in that the goal is to drive out competition from the international market so that the offending country derives a monopoly on the product, essentially controlling not only the future price, but the rate of innovation and the quality of the particular product. This becomes even more important within industries of emerging technology.
Much of the criticism the president has received has been from the perspective of those trade groups selling and installing solar systems in homes and businesses, and those on the left are all too happy to use such reports to bolster their hatred for the president. One report stated that the tariffs would result in the loss of some 23,000 jobs related to the sale and installation of solar panels in homes and businesses in the U.S. The National Review article stated that such measures are essentially counterintuitive and will be offset by moves in foreign exchange rates that nullify the effects of such tariffs, while only harming American consumers. Such positions are, at the very least, tremendously short-sighted.
When foreign governments — in this case China — are allowed to so manipulate the market, the free market is anything but free. The result is not only the loss of competition, but a surrender of a particular market to the offending country. This stifles productivity in all other countries and robs the rest of the world of the economic incentive to innovate. Rest assured that when all competition is eliminated, the companies within the offending country will raise their prices to market rates, and will effectively control the research, development, manufacture, and distribution of products within an entire market sector. Moreover, we are not talking about losing the ability to manufacture the ball-point pen. The solar market is critical to the long-term clean energy production of not only the U.S., but the world. And will most assuredly become, if it is not already, a vital and strategic capability for the United States.
This is not to say that the loss of installation jobs and sales in the near-term is desirable. However, in short order, we can train installers and salesman. What takes years to develop are the scientists, engineers, and manufacturing infrastructure to produce such materials and innovate next-generation systems within our own country. Rather than ceding this critical technology to the Chinese and other nations, the president, on the advice of his trade experts, has taken a step to level the playing field so that entrepreneurial companies here in the U.S. can form and develop, harnessing breakthrough advances in solar technology, absent the effects of hostile action from a foreign government.
In time, the market will produce even better products, expensive at first, that later become more affordable through the natural process of supply and demand in an unmanipulated free market. Is the imposition of tariffs a perfect solution? No, of course not. But it is the only mechanism proven to keep predatory dumping practices in check and pave the way for U.S. companies to participate in the important field of alternative energy production. It is a long-term strategy no doubt, but one that offers U.S. businesses a seat at the table in this market of the future nonetheless. To argue otherwise misses the forest for the proverbial trees, and within the effected market, trades short-terms sales and artificially cheap products for long-term domestic market extinction.
Clay B. Baldwin is an attorney and principal at Baldwin Law Firm, PLLC in Madison, Mississippi. He is licensed to practice law in Mississippi and Washington, D.C. Bar.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.