On December 12, the United States Trade Representative announced plans to hike the tariffs on imports of certain European products as a result of the seemingly endless Boeing/Airbus dispute. Capitol Hill was immediately inundated with the usual panoply of hyperbolic claims that tariffs spell doom for {fill in the blank} industry on the target list.
The Hyperbole Over Tariffs
This is just the latest example of our inability to have a rational conversation about what tariffs do, and don’t do. Lobbyists argued, for example, that proposed new tariffs on French wine would lead to loan defaults and job loss for “drivers, servers, and hotel staff” – along with potentially doubling the price of a nice dinner out.
Loan defaults and job losses are indeed problematic. But are those claims realistic? European wine imports are already subject to a 25% tariff based on the last round of Boeing/Airbus sanctions, and it’s understandable that the industry doesn’t want those tariffs to go up still further. But if loan defaults and job losses are a believable consequence of increased tariffs, then the best way to show it is to explain how the existing tariff has harmed working people. Based on the documents floating around, they don’t seem to have done that. It contributes to the perception that these doomsday scenarios are rhetorical, and not necessarily real.
To be fair, we must at least credit them refraining from arguing that these tariffs would be regressive. They did, however, argue that while they support free and fair trade, tariffs aren’t the way to get there.
If Tariffs Are So Bad, Why Did the WTO Authorize Them?
According to the wine lobbyists, the Chamber of Commerce agrees that tariffs aren’t the way to get to free and fair trade. The argument is ironic because the tariffs here are actually authorized by the WTO. That critical point has been lost in the general confusion over which tool is being used to impose which tariff. (301, 232, 201….)
But trade experts should know better. The tariffs the wine lobby complained about are pursuant to a WTO decision giving the thumbs-up to retaliation against the EU for failing to comply with prior a dispute settlement decision. The WTO itself, then – and the Members who created it – concluded that tariffs are in fact the best way to deal with non-compliance.
Notably, amidst all the angst over the need to save the dispute settlement system from the strangling mitts of the Trump Administration, none of the reform proposals includes removing tariffs as a remedy for non-compliance. If tariffs were per se as bad as everyone’s PR apparatus suggests, then wouldn’t getting rid of them at the WTO be a high priority?
If Shooting Your Own Feet Is So Bad, Why Are You Shooting Your Own Feet?
Indeed, the Europeans like tariffs so much as a compliance tool that they’re giving themselves new authority to deploy them. They are perfectly within their rights to do so. But it does highlight the depth of the hypocrisy when you recall the contempt the highest levels of the European trade bureaucracy have (publicly) expressed for tariffs. As the former Trade Commissioner commented:
Tariffs are not the answer to a transforming global economy – they are rarely the answer to anything – they are the equivalent of shooting yourself in the foot to hurt the shoe salesman.
Why, then, is Europe is going to the trouble of acquiring the very weapons with which to shoot its own feet? Something doesn’t add up. (The other avid defenders of the Appellate Body, our friends up North, have no need to add such a tool to their arsenal, because they already have it. It’s what they used to – you guessed it – retaliate against the United States for the Section 232 tariffs. You fool! You shot your own feet! Now I’m shooting mine!)
Much of the reflexive antipathy toward tariffs – which, as the foregoing shows, is not as universal as it would seem — stems from a misunderstanding of what happened in the 1930s. No, Smoot Hawley did not cause the Great Depression. No, Smoot Hawley did not cause the beggar-thy-neighbor tariff wars of the 1930s. That doesn’t mean Smoot Hawley was a good idea. But our misunderstanding of history prevents us from having a rational conversation about it.
It’s curious that we spend so much time mocking Smoot Hawley and praising the WTO. Smoot Hawley’s average tariff rate was a shade under 60%. India’s bound WTO rate is over 50%. If Smoot Hawley was so bad, and the WTO is so good, how on earth was India allowed in with a bound rate of 50%? Sure, India’s applied rate is much lower. But India can jack up its duties whenever it likes. Which is exactly what it’s been doing.
The Trump Administration is threatening to renegotiate the U.S. rates at the WTO. Just to put things in context about the WTO, tariffs, and the notion that everyone is a free trader except the U.S.: the U.S. bound rate is 3.4%; the EU’s is 5.1%: Canada’s is 6.5%; Singapore’s is 9.5%; and China’s is 10.0%. From this perspective, the WTO looks like a bit of a shooting range for feet.
It’s time for an honest conversation, without hyperbole or hypocrisy, about what we really mean by “free and fair trade.”
The Real Issue Isn’t Tariffs
USTR ended up not jacking up the duties on wine. But they didn’t remove them, either.
That leads us to the real question we need to be asking. It isn’t whether tariffs are good or bad. It’s about whose interests trade policy is meant to serve. The U.S. government has devoted a significant amount of resources to Boeing, a large multinational corporation. We’ve discussed before the critical decisions made in 1974 to shift influence over trade policy to multinationals, which are, ultimately, stateless entities. With this round of tariffs, the government is continuing to advocate for a huge multinational – at the expense of the small American businesses that distribute and sell not just wine, but other products on the list, like cheese.
Are these tariffs likely to work? Probably not. The EU has a great track record of absorbing tariffs in lieu of complying with WTO decisions.
Which means these tariffs aren’t likely to bring relief to the stateless corporation they’re meant to help – but they will hurt much smaller American businesses, even if the claims of how much are exaggerated.
