OPINION:
President Trump’s tariffs and protectionism are hardly new among presidents.
Presidents Reagan and Clinton negotiated agreements limiting imports of Japanese cars, which resulted in more investment by Toyota, Honda and others into U.S. factories. President Biden continued most of Mr. Trump’s tariffs and added others on electric vehicles and other strategic products from China.
Those are part of a growing arsenal of economic statecraft dating back to Alexander Hamilton’s tariffs to foster domestic industry and finance the federal government.
All contribute to an even wider array of economic incentives, regulations and coercion designed to strengthen the U.S. economy and accomplish security and foreign policy objectives. Contemporary tools include industrial policies for semiconductor, EV, battery and green energy production and restrictions on foreign direct investment and export controls, such as on artificial intelligence chips.
The Biden administration deployed sanctions to punish Russia’s invasion of Ukraine, China’s human rights abuses in Xinjiang province, bullying in South China Sea nations and Taiwan, and manufacturing subsidies.
Statecraft has merits.
Damaging Russia’s economy by limiting oil export revenue is less messy and expensive than military intervention. Forcing China to develop indigenous semiconductor capabilities drains resources it could use for its provocative naval buildup.
We are hardly alone as protagonists or targets of economic nationalism.
In the late 1960s, Airbus was established by France, Germany and Britain and received generous subsidies. The United States had three major manufacturers of large commercial passenger aircraft: Boeing, McDonnell Douglas and Lockheed. Now, we have only one.
Nowadays, unbridled allegiance to globalization is seen as naive. Advocates of the Washington Consensus favoring open international markets for goods and investment to boost national economies have been marginalized. The free trade candle remains burning largely among academics in the economics and foreign policy disciplines and think tanks such as the Peterson Institute.
The pursuit of multilateralism and regional free trade agreements from Presidents Truman to Obama had the virtue of providing a yardstick to measure all national domestic and foreign economic policies. Do those encourage trade and investment premised on comparative advantages and promote economic efficiency?
Now, multifaceted objectives such as promoting union manufacturing jobs instead of public-facing services employment, environmental sustainability, income inequality and domestic resilience are the prisms.
Those may better balance competing social objectives beyond economic efficiency and wealth maximization but are prone to cynical abuse.
Mr. Biden nixed Nippon Steel’s acquisition of U.S. Steel to appease the United Steelworkers, even though Nippon offered new capital and technology to a large, troubled firm. Many rank-and-file steelworkers supported the deal.
The Biden Commerce Department made its largest semiconductor manufacturing grants to Intel but was beset by poor strategic decisions. It is losing market share and slowing investments at its Oregon and Ohio fabs.
The Chips Act has inspired similar government programs in Japan, Canada, the European Union and elsewhere, but now Germany, Poland and Israel are suffering setbacks, indicating all these subsidies may be creating a capacity glut.
Globalization is hardly dead.
China is aggressively investing in African mineral resources, ports in South America and elsewhere, EV and battery factories in Europe and electronics and other manufacturing in the Association of Southeast Asian Nations.
U.S. multinationals have about $7 trillion in foreign direct investments, and the economic output of their affiliates is equal to that of Brazil or Spain.
However, diversifying supply chains resulting from national rivalries requires multinationals to devote huge resources to monitoring, lobbying and compliance, which increases costs and prices.
Reckless tariffs, such as those directed toward Canada and on automobiles, whether sustained or just negotiating ploys, should be viewed with great caution.
Mr. Trump may be able to bully Denmark to obtain better access to Greenland’s mineral deposits, grab exclusive use for our military and keep China from gaining a foothold in the Arctic, but our larger allies can retaliate.
Treasury Secretary Scott Bessent believes tariffs can’t cause inflation because if we tax imports, households will reduce purchases of other products. Presumably, that drives down consumer prices. Apparently, taxing food would lower the price of housing.
Perhaps he got that reasoning from Stephen Miran, incoming chairman of the Council of Economic Advisers. He argues that a country large enough to influence import prices by how much it purchases can make itself better off by applying what we call in international economic theory an optimal tariff. That works only if other nations don’t retaliate. If they do, all participants become worse off than before.
Premising economic bullying on the assumption other governments won’t retaliate is naive.
The Trump 1.0 administration argued that tax cuts would pay for themselves. Then perhaps they can explain why, from 2016 to just before the COVID shutdowns in 2020, the federal budget deficit jumped from 3.1% of gross domestic product to 4.6%.
• Peter Morici is an economist, an emeritus business professor at the University of Maryland and a national columnist.
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