Part II: Jobs, Taxes, Trade, and Trump

In Part I of this series, I showed that there has been a long-run decline of manufacturing employment in the United States, but pointed out that it is silly to blame this drop on trade agreements such as NAFTA or the WTO.

What’s really happened is that there have been significant improvements in manufacturing productivity, so fewer workers are needed. Indeed, that column shows that America’s manufacturing output, measured as a share of GDP, has not declined.

That probably isn’t much solace for people who lost jobs in various industries, but this is why it’s so important to push pro-market policies so that there is a steady stream of new jobs being created to offset the ones that have disappeared.

Unfortunately, Donald Trump is clueless on trade. He wants to impose trade taxes, regardless of how much damage is caused for consumers, workers, exporters, farmers, manufacturers, and other groups.

To make matters worse, thanks to laws such as IEEPA, he has vast unilateral powers to impose those tax increases.

But maybe there’s a way of protecting Americans from Trump’s unilateral tax hikes. In a column for the Los Angeles Times, Kyle Pomerleau of the American Enterprise Institute explains that there should not be any tax increases without congressional approval.

Now that Donald Trump will be headed to the White House, it is all but certain that he will pursue significant new taxes on imported goods. Although a widely criticized policy, there is little stopping him from doing this due to trade powers that Congress has given the executive branch over the years. Before President Biden leaves office, his administration and the current Congress should consider scaling back the president’s power to unilaterally enact tariffs. This restraint would protect households from large tax increases, prevent economic harm… Contrary to what Trump and many of his supporters claim, these taxes would end up placing a significant burden on American households. Just a 10% across-the-board tariff plus a 60% tariff on Chinese imports could raise more than $2.8 trillion over a decade for an average tax increase of $1,820 per household… The current Congress and Biden should step in and enact legislation that ensures that Trump is unable to impose such significant trade measures without congressional approval. They could do this much the same way Congress stepped in to block tariffs proposed by President Carter in 1980. …Congress is currently required to debate and pass legislation to make even small changes to income or payroll taxes. This should be true for tariffs as well.

Senator Rand Paul has legislation that would require congressional approval for any tax hikes on trade. And he introduced that legislation several months ago, so he wanted better rules regardless of who won in November.

For what it’s worth, representatives of several pro-free enterprise groups sent a letter to Congress in favor of reforms that would restore a proper balance between Congress and the White House on trade taxes.

I was happy to lend my name to the effort. Here’s some of what we wrote.

We, the undersigned organizations, representing millions of American taxpayers and consumers, urge you to reclaim congressional authority over import taxes. As supporters of free markets, we recognize that, all else being equal, the laws of economics that make free exchange within the U.S. an engine of prosperity also make international free trade an economic boon to Americans. Global trade is not a zero-sum activity. Both countries become richer from the exchange. The Constitution clearly vests tariff powers in Congress — not the president. Therefore, we urge Congress to restore its control over tariff policy by passing legislation during the lame duck session. … the supposed benefits of protectionism are overstated and generally do not surpass the harms done. A fundamental lesson of economics is that government interventions often do not work as planned, instead introducing unforeseen distortions and costs, which leave businesses and consumers worse off. Tariffs provide a case study in such unintended consequences. …There’s a larger constitutional issue at play here. The president’s immense powers to set tariff rates fly in the face of the Constitution’s clear vesting of such powers in Congress. This is a clear violation of numerous foundational principles upon which our system is based, including the notion that the legislature – the people’s branch – ought to control taxing and spending. …To restore constitutional balance, we urge Congress to enact laws enshrining these principles

I’m not optimistic that this change will be made, so I fear “Tariff Man” will impose a lot more trade taxes next year.

Which confirms my view that almost all issues involving government do not have happy endings (though there is at least one exception).