Taxing individual companies is counterproductive
To many Americans, Presi- dent-elect Donald Trump’s tough talk on trade and his badgering of U.S. corporations are sweet music.
The USA has lost more than 5 million manufacturing jobs in the past two decades, partly because of automation and partly because of corporations shipping jobs to lower-wage places such as Mexico, India, Pakistan and China.
But Trump’s behavior — particularly his singling out individual companies — is likely to backfire. In recent days, he has threatened to impose a 35% tariff on products re-imported by companies such as valve-maker Rexnord Corp., which plans to move about 300 jobs abroad. He also demanded the cancellation of a Boeing contract minutes after the publication of an article in which its CEO made an appeal for trade. (Trump denies any connection between the article and the demand.)
There are good reasons why presidents typically don’t single out individual companies for punishment. Such behavior violates basic principles of democracy and free enterprise by having politicians pick winners and losers. It also substitutes presidential whim for the consistent rules and laws that have made America such a good place to do business.
It is also counterproductive. Even if Americans are fed up with jobs going abroad, consider the implications of retaliating against an individual company such as Rexnord.
A tariff would certainly hurt the company. But it would be a boon to its foreign competitors that import into the USA, as well as to fellow American companies that have already moved plants overseas.
Trump’s approach has other problems.
Any tariff is a tax on American consumers. And while presidents have wide latitude to impose tariffs, imposing them on single companies would be, at the very least, a novel reading of the law.
Tariffs, whether they are imposed on a single company or on an entire industry or country, could be an ugly spectacle. Countries such as China have made it abundantly clear that they would retaliate against unilaterally imposed tariffs. That could set off destructive trade wars.
Companies move abroad for a variety of reasons. In some cases, it is principally to save money and boost returns for its shareholders, which include retirement funds that Americans rely on.
Often, it is to produce closer to the companies’ overseas customers, which is the same reason many Japanese automakers and other companies have built plants in the USA.
Boeing, a leading U.S. exporter, is under immense pressure from foreign buyers to locate production facilities in their countries. It is also an iconic American brand that would be one of the first to face retaliatory measures should Trump start a trade war. It is only natural that Boeing would be vociferously pro-trade.
Commerce creates winners and losers, and more needs to be done to aid displaced workers. But when Trump swoops in company-by-company to speak his mind and make threats, his efforts will probably do more harm than good.