Donald J. Boudreaux: Cronyism on the Potomac
March 1 was a sad day for America: President Trump announced proudly on live TV that he's granting steel and aluminum companies' requests to punitively tax Americans who buy imported steel and aluminum.
Many Americans cheered. On radio shortly after Trump's announcement, I heard someone declare: “The president is looking out for American workers!” But he's doing no such thing. He's looking out only for a handful of American workers. His coddling of them and their bosses comes at the expense of many other American workers — and at the expense of all U.S. consumers.
Don't believe me? Consider that, while America has 140,000 workers in steel-producing companies and 28,000 in aluminum-producing companies, it has 5.4 million in companies that use steel or aluminum as inputs — companies such as John Deere, Ford and Coca-Cola. They must cover their higher costs for steel and aluminum by raising prices. These higher prices will in turn cause buyers to buy fewer of these companies' outputs.
Fewer new American cars, motorcycles and pieces of farm machinery will be bought, as will less aluminum foil. Many workers who produce these and thousands of other products made with steel and aluminum will therefore lose jobs or suffer wage cuts. Government infrastructure projects will cost more, meaning heavier tax burdens. Paying more in taxes, Americans will have less to spend and invest.
And what happens to American steel and aluminum producers' incentives to innovate? These coddled companies' executives want you to think tariffs that protect them from competition will prod them to become more innovative and cost-conscious. But who in his or her right mind believes such a claim? Would your favorite local restaurant work harder to improve its menu and keep its prices low if government prevented you and its other customers from dining at competing restaurants across the street?
Protected from competition, steel and aluminum makers have more room to be lazy and less attentive to customers. And how will less innovative, less efficient steel and aluminum companies improve America's national defense?
Perhaps the worst result of Trump granting special privileges to steel and aluminum makers is that it opens the door much wider to a pernicious form of competition — for government-granted privileges. Businesses unable or too lazy to succeed in the market are now more likely to trek to Washington — with hordes of lobbyists — to plead for political favors. More energy and resources will be diverted from producing goods and services that please consumers (who spend their own money) to producing political cover and electoral support that please elected officials and bureaucrats (who spend other people's money).
Ultimately, only political operatives on the Potomac will be permanently enriched by the cronyism the White House now practices openly. Their power will be greater, and their purses more fully stuffed, while the rest of us will be less free and less prosperous.
Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. His column appears twice monthly.