IMPLEMENTING THE CONSERVATIVE VISION

Vision will be crucial for the next conservative Administration, but nuts-and- bolts policies are also important. Making the conservative vision for trade a reality will require several actions, some of which may prove to be more difficult to achieve than others. Specifically:

Implement tariff relief to help counteract inflation by reducing prices for affected goods as well as to strengthen supply chains and boost manufacturing. End Section 232, 201, and 301 tariffs. Work with Congress to pass legislation repealing those provisions so future Presidents cannot abuse them.

Resist calls for more spending on trade adjustment assistance, which is often hijacked for progressive ends. Technology and changing tastes displace six times as many workers as does trade, yet those workers get no such special treatment. Displaced workers should receive the same benefits regardless of the reason.

Remove never-needed supply chain restrictions, which give families fewer places to which they can turn. The recent shortage of baby formula, for example, was caused largely by heavily protectionist regulations. Strength and resilience come from openness. Enact mutual recognition policies with allies. If a product is safe enough for European or Japanese consumers, then it is safe enough for Americans as well—and vice versa. This can reduce regulatory costs and open new markets. Close the Export–Import Bank, which serves mainly to subsidize foreign buyers’ purchases of goods from a handful of well-connected American manufacturers.

Work with Congress to restore the President’s Trade Promotion Authority, which would expedite the negotiation of trade agreements with the United Kingdom, Switzerland, Taiwan, the European Union, and other allies, and keep trade-unrelated provisions out of trade agreements. Restore the World Trade Organization’s dispute resolution process to full strength.

Create a successor to the WTO (assuming that it has been fatally wounded) that is open only to liberal democracies. This would prevent authoritarian countries like China from abusing the organization for their own ends. Adopt a multi-pronged China strategy to convince the Chinese government to reform its illiberal human rights and trade policies. Rejoin the Trans-Pacific Partnership (TPP), whose 11 members are developing institutional trade norms in an important geopolitical region without U.S. input or involvement. Reorient the proposed Indo-Pacific Economic Framework for Prosperity to focus only on trade issues, which it currently ignores in favor of progressive wish-list policies.

Strengthen diplomatic pressure (in concert with allies) against Beijing’s abuses. Encourage cultural and intellectual engagement with the Chinese people, remembering that blue jeans and rock ’n’ roll helped to win the Cold War.

Tariff Relief. When people try something repeatedly and it still doesn’t work, they should stop doing it—especially when the consequences turn out to be just what conservative economists have long predicted they would be.49 With tariffs, the proper reform is not only to get rid of the individual tariffs that have backfired, but also to build institutional safeguards against future abuse.

We are five years into the biggest experiment with tariffs since the Great Depres- sion, and the results are in: The new tariffs raise consumer prices for ordinary Americans by about $1,200 per household every year50 and benefit only a small number of special interests. Steel and aluminum tariffs, enacted on national security grounds, angered allies. Beijing made not a single substantive reform in Repeal the Jones Act,48 a century-old “Buy American” maritime law that has decimated the U.S. shipbuilding industry. response to four rounds of tariffs plus an attempted Phase One agreement. The Biden Administration has left the tariffs in place and is expanding them to pursue progressive policy goals.

The first order of business for a new Administration that is focused on American workers and consumers is to repeal all tariffs enacted under Section 232 of the Trade Expansion Act of 196251 and Sections 201 and 301 of the Trade Act of 1974.52 The President can do this unilaterally, and Congress can do it through legislation. The second order of business requires Congress to pass legislation repealing Sections 232, 201, and 301. The U.S. Constitution places all taxing authority with Congress53 and none with the President. Congress used those provisions of law to delegate some of its taxing authority to the President because it was having trouble passing “clean” tariff legislation in the 1960s and 1970s. Unless and until this constitutional question about delegation is addressed, important reforms are available to the next Congress and the next President.

Congress faced a problem of collective action in the 1960s and 1970s. As a whole, Members generally wanted to lower tariffs, but few individual Members were will- ing to remove tariffs that benefited special interests in their districts. Trade bills were invariably watered down through amendments and logrolling. The thinking was that the President, whose constituency is the entire nation, would be less prone to special-interest pleading than Members of Congress would be, so Congress del- egated some of its tariff-making authority to the President in 1962 and 1974 trade legislation.

Delegating tariff-making might have worked in the short run, but in the long run, it was both constitutionally dubious and ripe for abuse. That came to pass in 2018. The Section 232 steel and aluminum tariffs, invoked in 2018 against Canada, Europe, and other allies on national security grounds, raised car prices by an aver- age of $250 per vehicle and gave America the world’s highest steel prices. They also harmed the construction, canned food and beverage, and other metal-using industries.

While this may have benefited the steel industry itself, each steel job saved cost an average of $650,000 per year that had been taken from elsewhere in the econo- my.54 That is no way to strengthen American manufacturing. The New York Federal Reserve estimated in 2019 that the Section 301 China tariffs cost the average house- hold $831 per year,55 a figure that has likely increased with inflation. The new tariffs have a clear record of failure—as conservative economists almost unanimously warned would be the case. Job number one for the next Administration is to return to sensible trade policies and eliminate the destruc- tive Trump–Biden tariffs.

Strengthening American Manufacturing. The decline of American manu- facturing is a common political trope in both parties, typically invoked before a call for more government intervention. This narrative has several problems.

One is that American manufacturing output is currently at an all-time high. The record was not set during World War II and not during the 1950s boom. Output did not peak when manufacturing employment peaked in 1979 or during the Reagan economic revival in the 1980s. It is actually higher now than it has ever been. American manufacturing is buoyant because each manufacturing worker’s pro- ductivity is also at an all-time high. The key to prosperity is doing more with less. The next President should ignore special interests and populist ideologues who want government to do the opposite through industrial policy, trade protectionism, and other failed progressive policies.

It takes surprisingly few people to achieve America’s record-high manufac- turing output—currently about 13 million people out of a workforce of more than 160 million, compared to the 1979 peak of 19.5 million people out of a workforce of 104 million.56 Productivity growth has freed the time and talents of millions of people for other, additional uses.

The belief that manufacturing has to shrink for services to grow is the zero- sum fallacy against which sensible economists often warn. It is anathema to the optimism, hope, and confidence that are the natural birthright of conservatives. Growing productivity enables more output of both manufacturing and services. That is why America continues to have sustained booms and record-setting real GDP despite the long-run decline in manufacturing employment.

Economists distinguish between two types of growth: extensive and intensive. Extensive growth is the Soviet and Chinese model for manufacturing: If you have more people use more resources, they will create more output. Extensive growth is doing more with more; intensive growth is doing more with less. That is where America’s superpower lies. The story of American manufacturing is one of intensive growth dating back to our agricultural origins. Conservative leaders should draw on this history to position America for continued success. With intensive growth, it is not manufacturing or services; it is manufacturing and services.

Retaliatory Tariffs. Raising tariffs on another country almost always invites retaliatory tariffs against the U.S. The latter tend to be directed at politically sen- sitive American exports. Retaliatory tariffs by both China and American allies in response to the 2018 steel tariffs were targeted primarily at American agriculture. According to the U.S. Department of Agriculture, those tariffs cost farmers $27 billion with losses concentrated particularly in heartland states.57 Retaliatory tariffs also targeted U.S. industries that were not protected by tar- iffs. Many imports become inputs into U.S. manufacturing. The motorcycle maker Harley-Davidson was already facing higher production costs as domestic steel producers raised their prices to accommodate the new steel tariff. A retaliatory tariff on its motorcycles imposed by the European Union further raised its prices and hurt its export business. Harm to such innocent bystanders was another unin- tended (though foreseen) consequence.

CHART 2

Total U.S. Industrial Production INDEX 2017=100 120 100 80 60 40  20 0 1920 1930 1940 1950 1960 1970 1980 1990 SOURCE: Federal Reserve Bank of St. Louis, “Industrial Production: Total Index,” https://fred.stlouisfed.org/series/INDPRO (accessed March 2, 2023). 2000 2010 2020

Federal Reserve research shows that the tariffs have cost about 75,000 manufac- turing jobs while creating only about 1,000 jobs in the steel industry—not including the effects of the retaliatory tariffs described above.58 Higher steel prices added an average of $250 to the price of new cars, and larger trucks—the vehicle of choice in rural America—were hit even more dramatically.59

Trade is generally a win-win for both participants. Tariffs are a lose-lose-lose game, with the tariff raiser losing affordable goods, the tariff target losing exports, and the tariff raiser losing again from retaliatory tariffs. Tariffs also have an addi- tional overlooked hidden cost: Companies redirect resources to dodge tariffs by redesigning products, switching to more expensive suppliers, using lower-qual- ity materials, and lobbying. This might be good for lawyers, but it is bad for the economy. These resources could have been used instead to make a better product more cheaply.

Conservatives warned against retaliation from the beginning: It was exactly what happened after the 1930 Smoot–Hawley tariffs that worsened the Great Depression.60

Undoing the Normalization of Protectionism. Inertia is one of the strongest forces in politics. Radical new policies can become the new normal very quickly and are extremely difficult to unwind if they backfire. This happened with the Trump Administration’s progressive turn on protectionism. The Biden Administration quickly undid the Trump Administration’s conservative regulatory reforms but left its progressive, self-defeating trade policies in place—in many cases even strengthening them.

Two presidential Administrations is a long time in politics, and the next conser- vative Administration will have a tough time getting tariff relief past a bureaucracy that dislikes change and special interests that will fight hard to preserve their special privileges. But given the stakes for future American prosperity, it will be worth it.