Why do both Trump and Biden want to risk inflation by abandoning free trade?

The notion of expanding free trade even among comparably developed nations has died in the United States, by the consent of both political parties. But though it’s one thing to call a halt to new free-trade agreements, it’s quite another to erect new obstacles to further impede the flow of goods and services between nations. Yet that’s where we are.

The death knell for expanding untrammeled trade was probably the revolt against the Trans-Pacific Partnership, a would-be 12-nation arrangement that Barack Obama’s team helped negotiate. In 2016, Hillary Clinton, who eventually secured the Democratic presidential nomination, and Bernie Sanders, the favorite of the progressives, both came out against the pact, which would have lowered or eliminated tariffs, liberalized and regularized regulation, strengthened labor standards, and set investment and e-commerce rules. Congress never voted to approve the agreement, and after Donald Trump became president, the Republican formally withdrew this country.

American politics is now moving in the opposite direction. After a scattershot approach to tariffs in his first term, Trump, an out-and-out protectionist, is proposing a 10 percent tariff on all imports as he runs again for the White House. He’s also talked of imposing a tariff of 60 percent or more on imports from China.

President Biden, a pro-labor Democrat, has embraced protectionism from another direction, requiring that a wide range of federally funded infrastructure and energy projects use US-produced steel and other materials and using tax credits to tilt the playing filed aggressively toward American companies when it comes to green-energy projects and electric vehicles.

Neither is friendly to the consumers who ultimately pay the bill — but Trump’s is much costlier.

Trump pretends that tariffs are a burden on only the exporter or exporting country. In fact, tariffs are paid to the federal government by whatever business is importing the foreign products. A tariff is best understood as a tax on a product imposed at the point of import rather than at the time of sale, explains economist Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office. The importing company then passes that cost along to the consumer.

“The purchaser of the product pays the tax, and that’s that,” he said.

Further, because other countries usually retaliate with tariffs of their own, Trump’s proposal would make it harder to sell US products abroad.

Still, President Biden has kept Trump-imposed tariffs on Chinese goods, even while adding his own anti-freetrade hurdles. Those come principally in the form of “buy American” regulations and the tax credits for American companies in his so-called Inflation Reduction Act.

As Foreign Policy magazine reports, “Through two pieces of legislation, the CHIPS and Science Act and the Inflation Reduction Act (IRA), the federal government is providing direct tax subsidies, favorable loan terms, and protection through domestic content requirements to companies seen as central to the energy transition and to building resilience in sensitive sectors, including semiconductors.”

One can make a strong case for doing that with strategic sectors such as microchips, but the Biden approach is much broader than that. All the steel and iron used structurally in a wide range of government-funded projects must be produced in the United States absent a waiver. At least 40 percent of cost of the materials used in clean energy projects must be US-made to qualify for tax credits, a percentage that will rise to 55 percent over the next few years.

It is no surprise, then, that our trading partners have protested those policies. But because the World Trade Organization’s dispute-resolution process has fallen apart,

Imposing tariffs, and thereby making foreign imports more expensive, increases costs for American consumers (and might well trigger a trade war).

there’s little it can do.

So why should Americans care?

Simple: The tariffs Trump imposed with little rhyme or reason during his presidency hurt the economy and increased the costs of goods to American consumers. If enacted, Trump’s 10 percent tariffs would have a much more significant price impact. According to the nonpartisan Tax Foundation, it would be the equivalent of a $300 billion tax increase. Trump’s plan would also cost

500,000 jobs and reduce the size of our domestic economy by about three-quarters of a percent.

Biden’s policies will also have an economic and inflationary effect, though because they are largely policy works in progress, estimates of those impacts are harder to come by.

That said, of the two approaches, Biden’s is the less objectionable because its reach is more constrained.

“The Trump across-the-board tariff on every import is by far worse,” said Holtz-Eakin, who stresses that that shouldn’t be construed as praise for the Biden approach.

At a time when Americans are still feeling the effects of inflation, they should connect the current and future dots. Imposing tariffs, and thereby making foreign imports more expensive, increases costs for American consumers (and might well trigger a trade war).

So do laws and regulations that impose domestic-content requirements or that effectively prevent foreign companies from bidding on government-financed projects.

As Trump and Biden ballyhoo their rival approaches, it’s important to understand that no matter what form it takes, protectionism spells higher prices and economic distortion. Despite their political appeal, both parties’ approaches are dubious policy.