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North Carolina thrives on trade, not tariffs

john hood

John Hood

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Monday, March 12, 2018

Tariffs are taxes. They have always been. So when President Donald Trump announced plans to impose costly tariffs on imports of steel and aluminum into the United States, he was threatening to raise taxes on most American consumers and businesses in order to boost the incomes of special interests.

Trade protectionism has been and will always be about a few using their political connections to steal resources from the many. The pioneer of economic analysis, Adam Smith, warned in 1776 against cabals of self-interested businessmen scheming against the public. His warning is just as valid today. North Carolinians, in particular, have good reason to take it seriously and to encourage their elected representatives to block Trump’s proposed tax hike.

Our state’s economy thrives on international trade. During 2017, business operations in North Carolina exported nearly $33 billion worth of goods and services to consumers in other countries, of which about a third went to Canada and Mexico. This total understates the significance of worldwide commerce to North Carolina’s economy, since interstate and international flows of inputs and outputs within supply chains are so complicated that they are hard to disentangle and measure separately.

Even taking the official numbers at face value, however, we are talking about exports from North Carolina of, for example, $2 billion worth of aircraft and parts, $1 billion worth of motor vehicles and parts, and $732 million worth of other mechanical and machine parts.

As should be obvious, I didn’t pick random examples. These industries are all significant buyers of steel. Levying tariffs to jack up steel prices will hurt these firms, which employ vastly more North Carolinians (and other Americans) than the steel companies do.

The New York Times recently reported on one such company: Insteel Industries, based in Mount Airy. Its plants in North Carolina and other states produce the rods and wires that reinforce concrete for construction projects. Insteel chairman H.O. Woltz III observed that he employs a thousand people, most of whom earn good money ($20 an hour) in jobs not requiring a college education.

If steel tariffs go up by as much as the president wants and Woltz keeps his prices the same, his company will soon be out of business. If he raises Insteel’s prices to compensate, he’ll lose sales. “If the customers have the option of purchasing from Malaysians or Colombians, who don’t have to pay that extra cost, that’s what they are going to do,” he told the Times.

The damage to North Carolina’s economy won’t end there. Raising the cost of construction will adversely affect business and governmental budgets. And as has happened during previous attempts to protect America’s steel industry, other countries are likely to retaliate against U.S. imports. North Carolina enterprises export billions of dollars’ worth of pharmaceuticals, chemicals, tobacco products, swine, poultry, fabrics, fibers, and cables. Hundreds of thousands of North Carolinians work in these industries, or in logistics, finance, insurance, maintenance, or other vendors serving them.

In defense of Trump’s scheme, administration officials and fellow travelers argued that raising business costs and consumer prices would be a small price to pay for protecting America’s steel and aluminum sectors. Ironically, they were making the same kind of argument that Democrats and progressives made only a few weeks before against the federal tax cuts enacted by Congress and signed by the president: that if you divide the total savings — or total costs, in this case — by the entire population, the per-person effect isn’t gigantic.

Conservatives are usually adept at spotting the flaw in such arguments. Even if it costs only a few dollars per person to fund a government grant or subsidy to a few well-connected beneficiaries, we reject the idea as unfair and economically counterproductive.

Trade policy is no different. No company has the right to force consumers to buy its product at inflated prices. No president or legislator should apply such force on the company’s behalf. And no conservative should fail to condemn any politician who does.

John Hood (@JohnHoodNC) is chairman of the John Locke Foundation and appears on “NC SPIN,” broadcast statewide Fridays at 7:30p and Sundays at 12:30p on UNC-TV.

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