Industrial policy and tariffs: At last agreement among the left and right

Industrial policy and tariffs: At last agreement among the left and right

In a recent op ed piece, one of the most liberal democrats in congress compared his industrial policy views to that of JD Vance. It was a matter of degree. Both favor increased tariffs and industrial policy. However, the democrat is for more immigration while Vance opposes all immigration – even legal immigration. Curious because Vance’s wife is Indian-American. Another difference is Democrats love the Green New Deal and subsidies flowing to their big business bros. Vance says that the Green New Deal will be shut down on Day 1. Both think the FTC’s Lina Kahn is doing a great job trying to rein in what they consider anti-trust violators – even though Kahn keeps losing in court. There is considerable evidence that Kahn’s efforts are making industries less competitive and driving up prices to consumers. But never mind the consequences. Its the appearances that count.

Again, the politicians seeking to reduce prices to consumers often end up limiting consumer choice. Consider that the pharmaceuticals now have to “negotiate” certain drug prices with the government for Medicare inclusion. The result will be fewer new drugs on the market as the companies will not be able fund research with proceeds from profitable drugs. The government pooh-poohs this finding noting that only about 13 new drugs won’t come to the market under the price negotiation mandate. However, those who suffer from the ailments that would have been addressed are ignored. It is no secret that in economies with price controls on drugs, that fewer drugs are available in those countries. But what are a few thousand sufferers when millions can save a few bucks on their drugs?

Speaking of industrial policy, why are there so many Chinese EV companies? One can look to China as evidence of industrial policy in action. The EV industry is a case in point with enormous subsidies from the Chinese government. Currently there are at least 46 EV manufacturers in China. However, every year more and more fail, endangering the viability of the suppliers that service the manufacturers. It seems to me that Xi should have concentrated his subsidies on only a few manufacturers such as BYD rather than wasting billions of all comers. Chinese industrial policy is a drain on their economy and has restricted China’s economic growth and had a negative effect on its people’s well being.

Of course, Trump wants to impose a 100% tariff on Chinese EVs and on this Biden agreed. The question is why do politicians want to do this. Supposedly it is because American manufacturers cannot compete with the Chinese. If the Chinese were allowed into the US market they would push the American manufacturers out of the market. Does this make sense to anyone other than Trump, Vance, Biden, and Harris? Consider that the manufacturers in the US market sell high priced EVs. If the greenie weenies want widespread adoption of EVs then why should they favor pricing the lower priced Chinese EVs out of the market? I guess they want EVs only for the rich and let the great unwashed be forced to ride mass transit. The main impact of keeping the Chinese out of the US market is to limit the incentive of car companies in the US market to produce better, cheaper, more efficient EVs. Moreover, economists will tell you that Chinese subsidies constitute a wealth transfer from the Chinese to the rest of the world. The Chinese bear the cost of the subsidies while the rest of the world gets an underpriced product. If the Chinese are fools enough to engage in such an economic policy we are bigger fools not to let them.

There is growing evidence that Trump’s tariffs are harming American workers. Instead of protecting jobs, there is a loss of jobs. There are studies showing that a result of imposing tariffs hurts American suppliers who then lay off workers. Recently John Deere has announced the closing of American factories and opening ones in Mexico. Harley-Davison is laying off workers and shifting production to Thailand. Why? First as a result of Trump’s tariffs on steel and aluminum, the EU retaliated imposing an increased 31% tariff on Harleys. The average price of a Harley increased $2,200 forcing Harley to move production of its bikes slated for sale outside the states to Thailand. Harley’s market value fell by over $1.5 billion. Harley’s increased costs to its US customers has helped fuel a 20% drop in US sales. With the Asian market increasing in importance Harley has announced it is moving even more production to Thailand and laying off US workers. What has the Biden Administration done? Instead of getting rid of the tariffs, it has instead given Harley a $89 million grant to its union worker plant in Pennsylvania that manufactures the Livewire, Harley’s electric motorcycle.  Never mind that Harley loses over $177,000 on every electric bike it sells. Not surprisingly, Pennsylvania senator Bob Casey now wants a $7,500 subsidy on electric motorcycles. I can’t be the only one who sees the sheer stupidity in this Rube Goldberg machine. But hey, blame the Chinese for problems caused by US politicians and then waste taxpayers money by incurring more debt.

Speaking of which, have you noticed that neither Trump nor Harris is talking about the national debt? In fact, both of their policy agendas will significantly raise the debt. But what’s another $2 trillion a year?