The Free Press
The single most important issue in polls during the last presidential campaign was inflation. Thus it is ironic that one policy Donald Trump has preached with particular fervor is tariffs, the goal of which is to raise prices.
But the greater irony of Trump’s tariff plans is that America’s tariff system is the quintessential example of what he sometimes attacks as the deep state. Tariffs are managed by opaque bureaucracies and manipulated by high-priced lobbyists in order to extract funds from American consumers. And if one’s goal is to pare back the powers of the modern administrative state, abolishing the tariff system would be a good place to start.
Economists tend to be against tariffs not only because they prevent trade and raise prices, but because they increase what the discipline calls “rent-seeking.” Rent-seeking is the money and effort required to get special favors from the government. Every dollar a company spends on lawyers arguing for a tariff exclusion is one dollar less spent on building things that Americans actually want.
Trump, of course, doesn’t see it that way. He is threatening a 25 percent tariff on all Canadian goods unless Canada does a better job of keeping immigrants and fentanyl from crossing the border. In the case of China, which he has threatened with a 60 percent tariff, he hopes the levy will make Chinese goods so expensive that American-made goods will look cheap by comparison. See what I mean about tariffs and inflation?
What the incoming president is going to discover is that his “put-a-tariff-on-everything” approach is likely to get stuck in the maw of modern bureaucracy. And Trump appears set on creating even more bureaucracy—which he’s calling the External Revenue Service—to collect all these new tariffs, even though the U.S. Customs and Border Protection agency already handles that task. Maybe DOGE should take a look at this new agency.
The heart of the U.S. tariff system is the Harmonized Tariff Schedule of the United States. This tariff Talmud contains thousands of pages of scholastic distinctions on every product imaginable, such as in Chapter 46, on “manufactures of straw, of esparto or of other plaiting materials; basketware and wickerwork.” (Esparto is apparently a type of coarse grass.) Then there is Chapter 66, on “umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips, riding-crops, and parts thereof.” The chapter does say it excludes “firearm sticks, sword-sticks, loaded walking sticks or the like.” Each item in these chapters, and many variations thereon, has its own tariff rate.
Since tariffs can be a life-or-death matter for many companies, lobbying around them takes on a life-or-death quality. Companies impacted by tariffs can lobby for “exclusions” that allow them to import at reduced cost. The Commerce Department keeps a handy list of over 425,000 company requests just for steel and aluminum tariff exclusions in the last five years. More than 200,000 such exclusions have been granted.
It is not surprising that political favoritism can creep into tariff exclusions. One study found that donations to the president’s party made a company significantly more likely to get an exclusion. Those donations paid off because companies that won exclusions together gained billions of dollars in market value.
Companies also lobby to impose tariffs on their competitors. One of the most successful lobbies in the last round of tariff hikes was the washing machine industry, which wanted to exclude foreign competition. You know who benefited from these tariffs? Whirlpool. You know who took a hit? The consumer.
Here’s how: Whirlpool’s lobbying expenditures jumped by a third to over $1.3 million in 2017—after which the government imposed tariffs on foreign imports of washers. A study found that the price of washers for Americans increased by about 12 percent. Dryer prices rose by the same amount—probably because washers and dryers are sold in pairs. Americans had to pay more than $150 extra for a new set.
In the tradition of reaping what one sows, however, washing machine companies were hit hard by the steel and aluminum tariffs that the Trump administration imposed soon after the washer tariffs. After a bad quarterly earnings report in 2018 caused Whirlpool to suffer its worst stock drop in more than 30 years, CEO Marc Bitzer complained that “we are impacted by the tariffs” that were driving up his costs.
Even foreign washing machine companies can petition the U.S. government for exclusions. Samsung received tariff exclusions so it could import steel to its South Carolina washer plant (specifically, on “hot dipped galvanized cold-rolled steel sheet that is coated with a high polymer type paint”). LG also got an exclusion for aluminum used to make its washers. One of the ironies of the washer tariffs is that Samsung and LG washers were cheaper for consumers than American washers. Which is another thing about the tariff system: It’s full of unintended consequences.
All that lobbying can take a toll. In 2018, after Trump imposed 25 percent tariffs on many Chinese imports, one company, Arrowhead Engineered Products of Blaine, Minnesota, which makes auto repair parts, filed for a staggering 10,000 exclusions. “We basically put everything else on the back burner” to apply for tariff exclusions, the company’s chief operating officer, John Mosunic, told The Wall Street Journal. The company even hired a group of temporary workers to submit the requests and involved the office of their powerful local congressman, Tom Emmer, to facilitate them. “For an administration that claims to be ‘draining the swamp,’ it’s certainly been a bonanza for trade lawyers and lobbyists,” Clark Packard at the R Street Institute, a right-leaning think tank, told the Journal.
Economists’ confidence that tariffs cause economic losses might border on cockiness if the evidence were not so strongly in their favor. A survey of economists about the steel and aluminum tariffs found that zero percent thought they would improve economic welfare. Every single one surveyed thought they would reduce the well-being of Americans. They noted how the tariffs tended to enrich a small group of connected companies—and imposed higher prices on everyone else.
It’s possible that foreign leaders could begin to open up their markets or change their policies in response to Trump’s threats. But the people who really have to pay if the threats are carried out are Americans, while an intricate web of bureaucrats and lobbyists reap the benefits. The deep state rarely loses.
