INTERVIEW: ‘Pure Protectionism’

By Reuvain Borchardt

President Joe Biden shaking hands with United Auto Workers President Shawn Fain, during a February campaign stop at a phone bank with UAW members in the UAW Region 1 Union Hall, in Warren, Mich.(AP Photo/Evan Vucci)

Scott Lincicome, vice president of general economics at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, discusses the Biden administration’s raising tariffs on electric vehicles (EV’s) and other products from China.

Lincicome is also senior visiting lecturer at Duke University Law School, where he has taught international trade law and policy. 

Prior to joining Cato, he spent two decades practicing international trade law at White & Case LLP, where he litigated national and multilateral trade disputes and advised multinational corporations on how to optimize their transactions and business practices consistent with global trade rules and national regulations.

Lincicome has a BA in political science and a JD from the University of Virginia.

They’re the continuation of a process that actually began in the Trump administration. Back in 2018 and 2019, the Trump administration imposed tariffs on about $300 billion worth of Chinese imports on all sorts of products on the basis that they were necessary to change Chinese intellectual property practices. As part of the law that authorized those tariffs, the tariff measures need to be reviewed every four years. The Biden administration began that review two years ago. This is the culmination of that review, which effectively is going to keep all of the Trump-era tariffs in place, and double down on certain “strategic” products, mainly electric vehicles, solar panels, batteries and component parts, steel and aluminum, and ship-to-shore cranes. 

The tariff rate on RV’s was quadrupled, roughly from 25% to 100%. Tariffs on some of the other items were doubled or tripled.

Yes. Well, it was a bunch of things, but that was the main one, known as tech transfer. But there were also allegations of state sponsored hacking, and non-enforcement of IP law.

Today’s measures have absolutely nothing to do with those underlying allegations. And the administration really hasn’t explained why they’re legally justified as part of the same measures. They’re just kind of doing it.

Scott Lincicome (Cato Institute)

Yes, 100%. 

The sad reality is that both parties have become convinced that to win presidential elections, you need to win a sliver of votes in the industrial Midwest, and that tariffs are the key to winning those votes. So you see both Biden and Trump pandering to that electorate in all sorts of ways, trade policy being an obvious and big one. And with Trump promising all sorts of new tariffs, the Biden administration apparently feels compelled to respond with their own tariff package. 

Great question. That’s why I used scare quotes when I said it!

I’ve yet to see a strong, coherent case for solar panels and EV’s being essential to national security or any other strategic objectives. The reality is that the Biden administration and Congress have decided to throw a couple of trillion dollars in taxpayer subsidies at these industries. They are thus “strategic” only in the sense that they’re the focus of all this industrial policy, but there’s no broad, long-term concern about “winning the solar-panel war” or something like that. 

They’re “strategic” only for the claim that the United States must lead in these industries of the future, and that Chinese-import competition will destroy or undermine it.

I think that’s part of it, for sure. But I thought we had learned from the 1980s that more competition is good for the domestic industry. 

When we slapped automotive quotas on Japanese automobiles, that did not suddenly save the Big Three, or make the United Auto Workers suddenly magically productive and competitive. It was only a decade later via pretty ruthless competition in the market, and after the protectionism went away, that the Big Three got their act together. And so the idea that we should be insulating American automakers and American producers from an innovative, low-cost rival really defies economic reality and lots of history.

It’s pure protectionism. They’re trying to protect jobs and production at very specific facilities, primarily in the industrial Midwest. You know, you don’t hear many folks in Georgia and Alabama, where the Kia and Hyundai plants are, complaining about Chinese import competition. And you certainly don’t hear President Biden out there vigorously defending Kia and Tesla and their non-unionized workforces. This is a specific play for specific jobs in very specific places. It is not truly about spurring innovation in the in the U.S. industry overall. 

It does. But the reality is that when it comes to this particular industrial policy, you can either protect jobs or encourage consumption, because these things play directly counter to each other. You encourage consumption with the lowest-priced product, wherever it comes from. But if you want to protect American jobs, then you want products made by American workers, and that’s going to be higher priced in this particular product segment. And they’ve just chosen the protectionism over the environmentalism. 

In the case of EV’s and solar panels, the tariffs are certainly higher than they were. But there already were tariffs on a bunch of this stuff. So the short-term economic impact seems pretty minuscule. It’s more political performance art than it is economic policy. 

Tariffs were so high already that Americans weren’t buying these products from China anyway. With EV’s in particular, the issue is far more long term. It’s about effectively banning Chinese EV’s from the U.S. market — at least until the Chinese build factories in Mexico. That’s a whole other can of worms.

I think it’s very much the latter. 

If you look at all sorts of polling — and we actually have new polling ourselves coming out soon — Americans don’t think about trade a lot. When they do, they’re generally supportive of free trade; you’ll find majorities in both parties say they support that. But because they don’t think much about it, they also kind of like tariffs, and they want to protect jobs. And so there’s not really a bottom-up, grassroots, broad-based movement for protectionism. It’s just kind of incoherent, because Americans don’t think much about it.

But there is one group that really, really cares about trade and cares about tariffs and import protection: industrial unions. They will vote based on these issues — at least they’re telling that to the Biden administration — and that’s what’s driving the bus here. Pun intended.

Somewhat, but it’s much more complicated for the companies themselves. 

I wouldn’t be surprised at all to see supportive statements with respect to Chinese autos from Ford and Stellantis and maybe GM, although GM has facilities in China. 

But these are global companies, they import goods and materials and inputs from all over the world to make their autos. There is no such thing as a car that is 100% made in America. In fact, the most “made in America” car is actually, I think, a Toyota. So U.S.-based automakers are not going to be full-on protectionists, though they might be okay with a China tariff. The unions will be very much on board with any sort of protectionism, regardless of the target. 

Chinese steel has been effectively barred from the market for a while by other duties and tariffs. So there’s not much concern there. Aluminum maybe a little bit. But Canada is our main aluminum supplier. And the companies have been trying to diversify supply chains away from Chinese inputs for a while to qualify for Inflation Reduction Act subsidies. So I wouldn’t really see them too upset about this, because I just don’t think there’s going to be that much of an economic impact on them. 

A lot of people have tried to sue the U.S. government related to the Trump-era tariffs, and they’ve lost every case. There are a few still pending in appeals. But the courts have been extremely deferential to the president’s tariff powers. And the Biden administration has fought to maintain that type of tariff authority. I doubt we would see any sort of new case from consumers. You might see something from like maybe the National Retail Federation or some group like that that’s upset that all these old tariffs are sticking around. 

It’s a great question, and I don’t know the answer. My guess is that this stuff sticks around. This is not the Democratic Party of Barack Obama and Bill Clinton, whose stances softened on trade a lot over the years. The Biden team is different in that regard. I would expect them to maintain a lot of economic nationalism even if Trump went away.But I think a lot will depend on what happens in the Republican Party. If the GOP decides to full-on embrace Trumpism for the future, I think that’s going to be a big determinant. But if the Republican Party shifts back to a freer-market, less-populist party, then you might see the Democrats change, too. But it’s really hard to say. 

rborchardt@hamodia.com

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