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Picking winners isn’t sound economic policy

  • Author: Anchorage Daily News editorial board
    | Opinion
  • Updated: July 28, 2018
  • Published July 28, 2018

Farmer Tim Novotny of Wahoo, shreds male corn plants in a field of seed corn, in Wahoo, Neb., Tuesday, July 24, 2018. The Trump administration announced Tuesday it will provide $12 billion in emergency relief to ease the pain of American farmers slammed by President Donald Trump’s escalating trade disputes with China and other countries. (AP Photo/Nati Harnik)

President Donald Trump, remarking via tweet on the trade war his administration started with America's biggest import and export partners, recently professed his love for tariffs. "Tariffs are the greatest!" he wrote, later making statements that his plans to force other countries to the negotiating table were going as planned. But even if the U.S. is indeed prevailing in some aspects of the trade war, Alaskans in affected industries may soon be tired of winning.

Until recently, tariffs weren't an economic weapon the U.S. used in a meaningful way, but in the early 1900s, they were commonplace. In fact, before the institution of a federal income tax in 1913, tariffs were how the U.S. government got much of its revenue. In the 1800s and early 1900s, tariffs were the accepted cost of doing business, applied to almost all imports by nations across the globe. In those days, tariffs were generally broad, a sort of international sales tax between nations.

But since governments have transitioned to taxes as their primary revenue source and moved gradually toward free trade policies, tariffs have been employed less often. When they have been used, it has often been in a punitive, protectionist manner, with high rates intended to hurt foreign countries' abilities to compete in the marketplace at all. Perhaps the starkest example of a harmful tariff in the past 100 years was the Smoot-Hawley Tariff Act of 1930, which jacked up tariffs on 20,000 types of imported goods in an effort to protect American industry. Backfiring stupendously, the tariffs ultimately isolated the U.S. and drove it deeper into the Great Depression.

Not all tariffs are explicitly bad or ineffective. China is famous for its judicious use of tariffs to protect industries it considers strategic. But tariffs that don't prompt massive backlash from trading partners are generally relatively low and specific.

By contrast, the tariffs now in place are broad, expensive and could prove economically devastating if they remain in place for an extended period. And Alaska's industries could feel the pinch. As a matter of fact, Alaska seafood could be hit with a serious one-two punch, as it is often shipped to China for processing before returning to the U.S. for final sale. Other state industries and initiatives could also see substantial harm: Alaska Gasline Development Corp. officials estimate the steel for the AKLNG natural gas pipeline project will cost $250 million to $500 million more if current tariffs are in place — as much or more than the state's annual allocation to fund the University of Alaska. And newspapers are staring down the barrel of a tariff on soft wood paper imports from Canada that could drive up newsprint costs by 30 percent, a serious blow to an industry with little extra money to spend on the costs of a trade war.

It's possible the tariffs could be an effective tactic in bringing trading partners to the table to negotiate, and the U.S. is fortunate to be in a place of economic strength. European authorities in particular were recently moved by the threat of tariffs to negotiate on some specific items. But there's also the serious danger that nations fed up with U.S. intransigence will sidestep America to draw up free trade deals with one another — perhaps even looking to China for global economic leadership. If that happens, it would mean serious damage for the U.S. economy for years, even decades to come.

And the short-term forecast isn't positive for Alaska interests: Although President Trump acknowledged the harm his tariffs were doing to U.S. farmers and offered a bailout in the form of $12 billion in proposed aid, there have been no similar overtures to help the myriad other industries facing economic hardship. In opposing the bailout, Sen. Lisa Murkowski called it a "Band-Aid." She's right; picking winners and losers in the trade war is no sensible economic policy. If the U.S. plays hardball on trade, it shouldn't bail out specific industries while letting others wither.

Consumers will soon feel the impact of retaliatory foreign tariffs that went into effect July 1, and the window in which the U.S. can avoid serious economic harm is closing fast. Playing an economic game of chicken with the rest of the world has the potential to end spectacularly poorly for the U.S., as anyone familiar with the results of failed games of chicken can attest. Alaska in particular can ill afford that type of carnage, as our state has a substantial deficit and the highest unemployment in the U.S. Our country's leadership should recognize that.

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