A mere fortnight after becoming President-elect, Donald Trump’s tariff threat gained a tactical victory in the battle to keep American jobs at home.
Trump announced via Twitter that Ford Motor Company intentions to transfer SUV production south of the border were shelved. Chairman Bill Ford “advised me that he will be keeping the Lincoln plant in Kentucky — no Mexico,” Trump tweeted last Thursday.
“During his campaign, Trump was relentless in his criticism of Ford for planning to move all its North American small-car production to Mexico,” Bloomberg reported, “where wages are 80 percent lower than in the U.S.” Critics argued that Ford had intended to relocate only the Lincoln MKC but, in response to the tweet, “the company acknowledged for the first time it had been considering moving production of the MKC to Mexico” following the expiration of the union contract, albeit to allow Ford to focus on its Escape model which outsells Lincoln, 12-to-1.
Nevertheless, Trump supporters, Kentucky politicians, and union members rejoice at the news. But this is only the beginning. The company issued a statement that the future of Ford production in America was contingent on the belief that “President-elect Trump and the new Congress will pursue policies that will improve U.S. competitiveness.” And therein lies the rub, for producers and consumers alike.
Enumerating the multifarious threads that make up a successful economy speaks to the “pretense of knowledge,” of understanding the motives and desires of the multiple millions who constitute the global economy. This was the subject of Austrian economist F.A. Hayek’s Nobel Prize acceptance speech, how “spontaneous ordering forces” are the mainspring of a market economy, so that it “turns out to be a more efficient mechanism for digesting dispersed information than any that man has deliberately designed.”
The incoming Trump administration is fortunate its economic advisers are versed in the Hayekian limits of state planning, and it has signalled with taxing and regulatory rationalization that limiting government intervention is a priority.
No one was more acutely aware of “government failure” than economic journalist, Henry Hazlitt. Called by the the mid-20th century’s “most radical of the pro-freedom columnists,” Hazlitt well-knew the dangers of state subvention, epitomized by the 1930s New Deal and justified by the pro-planning polemics of English economist John Maynard Keynes.
Hazlitt published his famous primer Economics in One Lesson as an everyman’s guide, explaining how to avoid ever-rampant fallacies. Its chapters dealing with the slippery slope of union wage demands and protectionist policy make for topical reading.
If the answer to economic growth lies with innovation and entrepreneurial skill, Hazlitt knew what dead-end subsidy the policy experts would recommend instead. “Taxing” imports on behalf of faltering industries penalizes the development potential of fledgling enterprises offering more prospective benefits. These tariffs therefore “change the structure of American production,” Hazlitt wrote. “It makes the industries in which we are comparatively inefficient larger, and the industries in which we are comparatively efficient smaller.”
Life support is administered when reality counsels pulling the plug. Worse still, misplaced government funding starves nascent industries of scarce investment opportunities for capital accumulation.
Full economic benefits will accrue to U.S. consumers if Ford automobiles can be manufactured state-side at costs comparable to those rolled out of Mexican assembly lines or other foreign factories. This can only be achieved if American production costs are lowered: manufacturing expenditures comprising raw resources, energy, and capital depreciation; management and employee wages; and state and federal regulatory burdens, including social welfare obligations.
Right-to-work states that empower employees in relation to union rules are one positive step forward. Reviewing EPA standards to increase coal and petroleum exploration and extraction, another. As is ending the Federal Reserve’s loose money policy and returning to a stable currency that encourages necessary investment in capital-intensive industries. Corporate tax rates of 35 percent, nearly double that of Western competitors, is especially galling; combined with punitive taxes on foreign profits, it is a contributing factor why $2 trillion remains untapped overseas and American competitiveness languishes.
Otherwise, consumers are subsidizing an automotive industry that, for reasons of corporate waste or state coercion, is inefficient and whose product can be manufactured more cheaply elsewhere. (Mr. Trump has suggested relocating to a more business-friendly state as one alternative.) And as it goes for automobiles, so it goes for the majority of items sold in the United States.
“What’s good for Ford Motor Company is good for America,” to paraphrase a popular adage. When free enterprise succeeds, the whole community benefits. President-elect Trump scored a tactical victory when Ford rescinded plans to move manufacturing to Mexico from Kentucky. Yet more than tariff threats is needed to secure the strategic goal of economic growth and prosperity. Only structural reforms to the economy, encouraging entrepreneurial innovation and competitive markets, will truly make America great again.
Stephen MacLean maintains the weblog The Organic Tory.
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