[00:00:00] Joe Selvaggi: This is Hubwonk. I’m Joe Selvaggi. Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. Earlier this month, the Biden administration announced new tariffs on 18 billion worth of Chinese imports, justifying the action as necessary to protect American industries from overcapacity created by Chinese subsidies.
[00:00:23] The legal and rhetorical justification for targeting China largely mirrors that of the earlier Trump administration. and increases tariffs on electric vehicles, solar cells, batteries, steel, and aluminum as defense against a predatory trade rival. While some critics see this action as the president’s effort to win votes in the swing states of the industrial heartland, others caution that raising tariffs on low cost EVs, solar cells, and batteries would raise their price.
[00:00:53] Thus hindering efforts to shift towards renewable energy and contributing to the persistent inflation complicating the president’s re-election prospects. How does the U. S. design and implement tariffs? What is the scope of this latest round of duties? Who stands to benefit from these protections? And who pays the price when Chinese products become more expensive?
[00:01:18] My guest today is Clark Packard, a research fellow at the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute. As an attorney and economist focusing on federal trade policy, his research examines the effects of tariffs on American industry and the economy. He will share with us the background on the incentives and justifications for implementing tariffs in the past, and discuss how the Biden administration’s recently announced tariffs will likely affect U.S. consumers, related industries, and the nation’s ability to move towards affordable, renewable energy. When I return, I’ll be joined by Clark Packard from the Cato Institute. Okay, we’re back. This is Hubwonk. I’m Joe Selvaggi, and I’m now pleased to be joined by research fellow at the Herbert A. Stiefel Center for Trade Policy Studies at Cato Institute, Clark Packard.
[00:02:08] Welcome to Hubwonk, Clark. Thanks for having me. I’m glad to be here. All right. Well, I’m thrilled to have you here to have a discussion about the recent raft of tariffs announced by the Biden administration. I’ve read, what the tariffs seem to entail, and some of the press releases. Also, some of the reactions to the, to the tariffs.
[00:02:27] So for the benefit of our listeners, I want to explore what the tariffs are, who they’re intended to help, whether you think they’re a fairly good idea and they’re going to achieve their intended purpose. But before we get into the nitty gritty of these particular tariffs, let’s take a step back and talk about tariffs in general for the benefit of listeners who maybe understand slightly a bit about what tariffs are.
[00:02:52] Let’s start at the beginning. What is a tariff? Who gets to impose tariffs? And, we’re going to talk about who ultimately pays those tariffs, but let’s start at the beginning. who decides what countries and what products we, we impose tariffs on?
[00:03:03] Clark Packard: Yeah, that’s a good question. I think to answer that question, It’s the U. S. government decides which countries to impose tariffs on, and there are a number of processes by which they do that. But generally speaking, a tariff is essentially just a tax on imports of any particular product or services even. and so essentially what it does is it’s meant to raise the cost of a foreign product entering the United States to make, to thereby make a domestic product, a similar product, more competitive.
[00:03:36] and, that’s how it works in theory, but there are a lot of questions and I think legitimate concerns about how they work in practice.
[00:03:45] Joe Selvaggi: All right, so we’re talking about products, you can just say products, we’re talking general things, everything from cars and semiconductors, which are, high value products, all the way to commodities such as steel, you could impose a tariff, and as you say, the value of this is to make the foreign product more expensive, therefore make the relative U.S. similar product more expensive, more competitive in theory to benefit U.S. jobs. But in general, let’s say, how do tariffs get sold to either the American public or the American worker or the American voter, if we’re really being precise? What’s the justification for tariffs in the public square?
[00:04:23] Clark Packard: Most of the time, they’re sold as a tool to counteract unfair product, unfairly traded products coming into the country. That is to say, if a foreign government subsidizes the production of a product, The U.S. can use a tariff to counteract that subsidy, that’s not always the case, though.
[00:04:43] There are times where tariffs are imposed for just rank protectionist purposes, that there isn’t an argument about, well, it was unfairly subsidized and then dumped into the U.S. market, which is to say sold below cost, but instead it’s just about protecting the domestic industry and bolstering the domestic industry.
[00:05:06] From foreign competition, and that a lot in the steel industry in particular. There’s a long history of U. S. steel companies begging at the trough for protection from foreign competition. and so you when you go and look at what The price of steel sells on a world market for, it’s about twice as much for a ton of hot rolled band, in the US, as opposed to the rest of the world, because the United States has effectively walled itself off from foreign competition in the steel industry.
[00:05:38] Joe Selvaggi: So, again, we’re not going to point any fingers just yet, but the idea is we may want to punish foreign producers who we see are unfairly, subsidizing or creating an advantage, that a free market doesn’t enjoy. So, we want to, in a sense, punish unfair actors in otherwise free markets. Again, we’re not going to talk about these particular tariffs yet, but historically, who have we targeted? which countries? you mentioned steel as a product that we protect, here, but steel comes from everywhere, Canada even. What countries have been the target of tariffs in the past?
[00:06:10] Clark Packard: It’s, it tends to be China, a lot of the anti-dumping and countervailing duties, that is to say the tariffs that we use to counteract unfairly traded products, come from China. I would also say that the United States has a tendency to target low wage countries, developing countries but again, mostly these. The tariffs and trade remedies tend to target China. That’s not, again, not exclusively. There are plenty of trade remedies and tariffs on products that originate in the EU, for example. But again, it tends to be developing countries, in particular China.
[00:06:50] Joe Selvaggi: And you mentioned steel as one of the products that we tend to want to protect. But what about, what are some of the other industries besides steel that we’ve tried to, let’s say, use tariffs to either protect or punish unfair actors?
[00:07:02] Clark Packard: Yeah, there’s a long history of automobile tariffs, there’s a long history of, restricting the imports of sugar, through not necessarily a tariff, but a quota, the amount that we can import is capped, on foreign sugar entering the United States, which again has led to, essentially, sugar in the United States is twice as expensive as it is in most other parts of the world. Historically, it’s been those industries that were located in politically sensitive areas, the Midwest, for example, the steel and automotive industry is largely located in the Midwest. and so, I think you can draw, some conclusions from that, which is to say that we, again, a lot of this is driven by politics and those areas that are, Important to win for political purposes. and I think, again, that might be smart politics, but, raising the price of steel by twice, is maybe not the best thing if you’re trying to bolster domestic manufacturing in the United States. so, again, these things have a tendency to ripple throughout the economy, but again, I think a lot of its driven by politics.
[00:08:13] Joe Selvaggi: Indeed. And you mentioned steel and sugar. These are products, but of course they’re inputs for other products, which everything made from those products becomes more expensive. But I want to get even more fundamental and say, when we look at tariffs, as you mentioned, it makes foreign products more expensive.
[00:08:29] Effectively, the product here in the U.S., you mentioned steel twice as expensive, sugar twice as expensive. The notion, I think, for the average casual observer of tariffs, they imagine the Chinese or whomever produces cheap sugar paying these tariffs as if it’s a tax on the Chinese. Of course, what we’re doing is we’re taxing the product that an American buys. So, again, I don’t want to put more words in your mouth, but who pays a tariff if ultimately it makes a U. S. Consumer’s product more expensive, isn’t it the U.S. consumer that’s paying all tariffs?
[00:09:02] Clark Packard: Yeah, that’s exactly right. So, there are two, two questions, built into yours, which is, first of all, the legal, the question of who legally pays the tariff that is legally required to be paid by the importer, the importer of record, but the more fundamental economic question is what’s the incidence of the tariff?
[00:09:22] That is to say, who actually pays the tariff? Ultimately, and I think that it’s pretty clear that tariffs are borne by U. S. consumers. we had a grand experiment in this during the Trump administration. In the New York Federal Reserve and economists at Princeton, among other economists have studied the incidents of the Trump tariffs and found that it was almost 100 percent pass through.
[00:09:47] That is 100 percent of the cost of the tariff was borne by Either a consumer buying the product or sometimes the, the business that, that imported the input or whatever, basically swallowed the cost and accepted, smaller profit, profit margins or what have you, but ultimately the academic literature on this is pretty clear that the American public, in one way or another, paid the Trump tariffs. That’s not to say that it doesn’t hurt foreign producers, it does, but ultimately the cost is borne by Americans.
[00:10:25] Joe Selvaggi: And I also, again, to beat this to death here, if I buy a Chinese product that has a tariff on it, I ultimately pay the tariff because it’s been made more expensive by the tax, which has been passed to me.
[00:10:35] But if the alternative American product that it’s competing with is also more expensive, whether I buy the Chinese product or the U. S. product, I’m paying the tariff. For the tariff, meaning if the, I would imagine if I tax the heck out of my competition from China and force consumers to buy U.S. products, those U. S. products, because they’re not facing true competition, but rather contrived competition, those U.S. products are more expensive. Now, maybe you might say, oh, I’m okay spending more for a U.S. product, but ultimately, I pay the tariff whether I buy the Chinese or the American product. Am I going on a limb here?
[00:11:06] Clark Packard: No, I think that’s exactly right. And this gets into what we, in the economics world, talk about, which is stated preference versus revealed preference. People talk about, well, I’m willing to pay extra to buy an American product and support local producers. but then, the data’s pretty clear that people may say that, but they don’t actually do that in reality.
[00:11:29] I think people are cost conscious, especially in a time with relatively high inflation. and so, I think that it’s pretty clear that people are willing to pay maybe a little bit more to have something domestically made, but not exorbitantly more, for a product that’s domestically made. And so, Yeah, I think there are legitimate questions about how effective tariffs tend to be.
[00:11:54] Joe Selvaggi: Now, again, we’re talking about the fact that these tariffs make, of course, foreign products more expensive here. It makes the American product less; I say more expensive because it doesn’t face true competition.
[00:12:05] But ultimately, we live in a big world. I like to remind people on this podcast, 24 out of every 25 people on earth are not American. It’s a big wide world out there, 8 billion people, all buying products. If our products are both, produced with, steel that’s, inflated in price, therefore our American made products are more expensive, both to us, but to anybody we sell it to, it could be to the sugar too. American Twinkies are going to be more expensive out abroad because the sugar made. Used to make those Twinkies is more expensive. If ultimately, again, we’re getting off track here, but if we want to be competitive, meaning we want our trade deficit to be competitive, we want everybody to buy U.S. products, aren’t tariffs ultimately like shooting yourself in the foot by making U.S. products fundamentally more expensive?
[00:12:47] In the global trade universe, again, we’re a little far afield, I’m going to bring it back, but go with me there.
[00:12:53] Clark Packard: Yeah, I think that’s exactly right. if you look at, it’s something between 50 and 60 percent of all imports into the United States are either capital goods or raw materials, intermediate inputs that American firms use to make products here and then export them abroad and also serve the U.S. domestic market. a tariff might have worked in a less globalized world, but given how interconnected everything is these days, and how supply chains in particular are globalized all around the world and they’re very efficient, you make yourself less globally competitive by imposing tariffs on capital goods and intermediate inputs, the stuff that you use, American citizens. Producers use to make the stuff that they’re making and sell, both again, both domestically and abroad.
[00:13:46] Joe Selvaggi: Yeah. again, I, so that we don’t appear to be somehow partisan, we’re going to be talking about the Biden administration’s recent tariffs, but of course this, the rhetoric of, let’s say the Trump administration, the whole, I characterize it, the big category of China is eating our lunch by imposing tariffs on products coming from China, which are many, in many cases, inputs and ultimately the effect is to make U.S. Products more expensive and less competitive. Ultimately, by imposing tariffs on China to combat them eating our lunch, is effectively eating our own lunch. Which is to say, we’ve shot ourselves in the foot by making products, in general with tariffs for U.S. more expensive abroad. And then we’ll move on, but I just want to put a fine underline in there.
[00:14:29] Clark Packard: Yeah, I think that’s exactly right. that, but to be clear, I do think the Trump administration correctly diagnosed a lot of the problems. Like, I’m not here to defend certain Chinese industrial policy practices and heavy intervention, I just have very serious concerns about the sort of remedies that, that, President Trump, as well as now President Biden, have imposed to deal with the unfair trade practices coming from China and again, I’m happy to get into all of that as we discuss the EB tariffs and all that.
[00:15:02] Joe Selvaggi: And for the benefit of the listeners, I am not taking the position that China is a free trader and, a good actor here. I might argue that free trade works even when the other guy’s a bad actor, but that’s perhaps worthy of an entirely, different, podcast.
[00:15:16] So let’s do this. Let’s shift our conversation from tariffs in general to these particular tariffs that were just announced earlier this month by the Biden administration. First questions first, how is it that the man in the Oval Office is imposing tariffs? I thought this would be something that, our, yeah, for Article 1, people would be doing. Congress would be deciding, this is a very complex issue. Wouldn’t we want Congress to decide which tariffs to impose on which countries?
[00:15:39] Clark Packard: Yeah, that’s a good question. for most of American history, It would have been handled through Congress from basically the founding of the country to the mid-1930s.
[00:15:50] Congress set individual tariff rates. But beginning in the 1930s, Congress began delegating that authority to the executive branch on the assumption that the executive branch would be less powerful. So, I hope that was, I hope it was parochial and more open to global trade, and better able to balance competing interests, as opposed to the traditional log rolling, that you saw in Congress that led to the famous, I guess infamous, Smoot Hawley tariffs in the early 1930s.
[00:16:20] Those tariffs, for history, economic history buffs like me, were pretty clearly detrimental and helped prolong the Great Depression and deepen the Great Depression. And so, so, yeah, I think that it’s an excellent question because you’re exactly right. Article 1, Section 8 of the United States Constitution gives to Congress the authority to regulate commerce with international or with foreign nations.
[00:16:45] But again, though, I think, maybe a series of good faith, arguably mistakes, Congress has delegated that authority to the, to Congress. Executive branch, and that’s where we are now.
[00:16:59] Joe Selvaggi: So, the basis again, as I’ve read it, is they use section 301, which is a particular section of the, of, power, for, to impose tariffs based on unfair actions, from competing nations. So, we’re by virtue of the fact we’re using the section, we’re saying we’re doing it for the sole purpose or to combat unfair actions. I think this was a sort of a dusty old way of doing things, asserting that there are unfair actions. I think we have since come up with better ways of combating unfair practices.
[00:17:30] But this is something both now, of course, Biden has done it, but he’s really using it as something that Trump had done, maybe five, six years ago, using the same justification. Share with our listeners, what is this 301 and why did we dust it off, take it off the shelf and dust it off for this new raft of tariffs?
[00:17:45] Clark Packard: Yeah, it’s an excellent question. So, you’re right. The Biden administration is using Section 301 of the Trade Act of 1974, which allows the U.S. government to investigate and attempt to remedy quote unquote unfair actions and policies taken by foreign governments that violate U. S. trade agreements or unreasonably violations Burden U.S. Commerce.
[00:18:08] The statute is designed to create leverage to pry open foreign markets, by forcing the targeted governments to remove the offending measures. So, if you go back, the Biden administration is using the same investigation that the Trump administration used. which revolved around Chinese abuse of intellectual property and again, I thought that was a fairly compelling argument that the Trump administration made. I think it’s pretty clear that China does engage in the abuse of intellectual property to the detriment of American producers and ultimately American workers. and so as the review of those tariffs, statutorily mandated review, the Biden administration took those.
[00:18:51] That investigation and said, okay, now we’re going to extend these tariffs. And dramatically raised the rate to, let’s say, on electric vehicles, for example, they quadrupled the rate of the tariff from 25%, which was already very high, to 100%.and, I, ultimately the Biden administration is justifying this on national security grounds, but that’s a very different argument than, China engages in the abuse of intellectual property.
[00:19:23] I think both, you could make a case for both, but that’s, it’s incongruent the way, on one hand, they’re using a statute designed to combat intellectual property abuse.to now say, well, the importation of electric vehicles from China poses a national security risk to the United States. And I’m a lawyer, and so I have very serious statutory concerns, and I’ve said this publicly that if you want to go down this road, there was a right way to do this.
[00:19:54] There is a statute that gives the executive branch the authority to restrict imports in the name of national security. That’s the route you should have gone down, not trying to pigeonhole this into an argument about intellectual property and IP abuse.
[00:20:09] Joe Selvaggi: So, there’s no new allegations that China has suddenly, again we’re going to talk about the products that we’re imposing, you mentioned EVs, there’s no sort of allegation that suddenly China has taken U.S. EV, electronic, electric vehicle technology and stolen it and used that stolen technology to make cheaper vehicles. There’s no such allegation that Biden has not justified any of these with that particular 301 clause. style, accusation. There’s nothing new has come to light.
[00:20:39] Clark Packard: Yeah, that’s basically right. Again, the New York Times quoted senior administration officials saying, we firmly believe this is a national security risk. We’re concerned about data, from being transferred from, an American consumer driving around a Chinese EV. you and transmitting that data back to the Chinese Communist Party in Beijing.
[00:20:59] And again, if the U.S. wants to make that argument, I would look at that in good faith and, judge it on the merits. But at this point, that’s not what they’re arguing. I think what they’re doing is they’re doing this for political expediency. That is to say, we have this, uh, statutory, statutorily mandated review of the Trump tariffs.
[00:21:18] Thank you very much. We’re required to do it. We can adjust tariffs, under that authority, so we think it gives us carte blanche, to do this, and I’m skeptical because I think that erodes the rule of law, ultimately, which is one of the things that, that makes the United States such a, compelling country.
[00:21:35] The other place to invest for foreigners is that there’s very strong protection for the rule of law. We have a way of ensuring that the processes are taken care of according to the books, and it’s not just rank politics like you see in China, where might makes right and whatever the Chinese Communist Party wants. Ultimately is what happens. and so, yeah, I have a concern that it does erode the rule of law.
[00:22:01] Joe Selvaggi: Yeah, indeed. It reminds me that using the HEROES Act to forgive student debt, it, it just, it doesn’t pass the laugh test. So, let’s get into this, the tariffs on the cars. I will forgive our listeners if they will say that despite the fact that China makes more, Electric vehicles in any other country on earth.
[00:22:17] We don’t see too many of them because I don’t think we have any. I think my last is less than 1%.so we’re importing about 1 percent of the, Chinese electric vehicles. And yet we’ve decided to target them going from 25%, which You know, I don’t know the numbers, but makes it prohibitively expensive, 25%, going to 100%, which makes it, no, no producer could have 100 percent tax on their product and sell. So, what’s the logic of targeting a product that we don’t even use yet anyway? Is there any?
[00:22:46] Clark Packard: Yeah, their argument is, if we don’t get ahead of the curve, we face a massive shock of imports flooding the U. S. market, because that’s what Europe is seeing right now. Europe has experienced a deluge of Chinese EVs into various EU countries.
[00:23:06] And it’s a shock to the system, and producers in the EU are struggling to adjust. So, so the Biden administration is saying, we need to get ahead of this thing, and so we’re going to just basically wall off the United States from Chinese EVs. I think, like you mentioned, that very few EVs from China end up in the United States.
[00:23:26] It’s, like you said, it’s 1 percent of the U.S. EV market. But ultimately, I think this is mostly driven by politics. if you think about it, right, Donald Trump is promising a 60 percent across the board tariff on all products. Coming from China and a 10 percent tariff on all products coming from countries that are not China, so every other country in the world and so the Biden administration is trying to appeal, to a pretty narrow slice of voters in the Midwest, particularly, unionized auto workers. And say, saying, okay, we’re going to, do something pretty serious and severe to restrict foreign competition, and specifically target the Chinese, and so we’re going to announce 100 percent tariff.
[00:24:16] Shortly after they were announced, Donald Trump came out and said, well, I would impose a 200 percent tariff on imports of electric vehicles from China. At that point, it’s just silly. It doesn’t really matter if it’s 100 percent or 150 percent or 200%. None of those cars are entering the United States either way.
[00:24:33] Joe Selvaggi: I’m curious, though, again, this is a little sidetrack, if we take the sort of the rhetoric of the Biden administration wanting us all to be in electric vehicles, and given that the market is such that, sure, there are electric vehicles here, so like Tesla’s and actually Mercedes Benz and the, expensive, very expensive electric cars, very few inexpensive electric cars, so even if a person of modest means wants an electric car, they can’t afford it.
[00:24:56] So, essentially, this is making it very difficult for the U.S. to embrace the universal acceptance of electronic vehicles. We’re essentially, the policy seems in tension with itself. You can’t have everyone buy electric cars and then say, point them to the Tesla dealer. It’s just not possible.
[00:25:13] We’re, this tariff effectively, by banning, inexpensive, Electric vehicles from China, you’re essentially saying to the 90 percent of the car market, sorry, stick with your internal combustion engine car, right?
[00:25:24] Clark Packard: Yeah, that’s exactly right. I think that this is another example where when they’re, the Biden administration’s goals to If you take those three at a time, the folks who.
[00:25:33] Stand up a boost domestic manufacturing conflict with its stated goals on. Climate change, and like you said, embracing a transition. to a cleaner, functioning automobile. they’re always siding with. Domestic producers at the expense of their stated climate goals, because like you said, the tariffs will stump the deployment of EVs, and like maintaining solar tariffs, anytime, again, anytime a climate goal conflicts with a domestic manufacturing goal, the administration seems to side with manufacturing, and that’s not just the U.S. government. The Biden administration, the Trump administration did the same thing, although they didn’t have the same sort of stated climate goals, that the Biden administration has, but ultimately the last two administrations have bent over backwards to quote unquote protect a very narrow slice of the climate agenda.
[00:26:31] Manufacturing, domestic manufacturing industry. but yeah, I think it ultimately hurts the environment, again, much like a solar tariff. I’m of the opinion that it doesn’t really matter where a solar panel is made. If you firmly believe that climate change is, poses a systemic risk to the future of the world, then we should embrace very cheap, very rapidly deployable, technologies like Cheap solar panels from Indonesia and Vietnam and China.
[00:27:04] Joe Selvaggi: Right, it seems, either disingenuous or, if you believe what you say, as you say, if climate is the threat that most many say it is, We should not care where it comes from. I want to also talk about steel. It seems interesting to me, the justification for renewed steel tariffs is we want to use American clean steel.
[00:27:24] This is a new phenomenon. I wasn’t aware that we’re that much cleaner when we produce our steel. But again, the same logic obtains if we put a tax on Chinese steel that’s dirty, and only use American steel that’s clean, but that steel is more expensive and is an input to all U. S. products, cars, you name it. That makes those products more expensive, less sellable to the world. Again, it’s a big world. that means Chinese products become more competitive because plenty of places are happy to buy dirty steel from China and dirty steel products from China. Don’t we essentially make the world much dirtier by trying to, tax our way away from dirty Chinese steel?
[00:28:05] Clark Packard: Yeah, that’s right. And I’ve always said, I think it is pretty clear that the United States produces cleaner steel than China, but there are parts of Germany, for example, that produce cleaner steel than the United States. So should we be subsidizing the United States? The importation of steel from Germany, right?
[00:28:22] Like you can play these rhetorical games. but yeah, ultimately, I think you’re right. You tend to shoot yourself in the foot when you try to, play chess master, and dictate where global markets are going. I think demand would ultimately, be such that, there would be, Again, demand for cleaner steel, but the U.S. government sort of putting its thumb on the scale, I don’t think it has the best history of kind of picking and choosing, that. and again, I do think it ultimately undermines stated climate goals.
[00:28:52] Joe Selvaggi: And again, just double back to the solar panels. I think batteries, battery components, all kinds of things that go into electric products that are alternative to, let’s say, combustion engines, by making those more expensive, we make sure that we virtually guarantee that the uptake will be slower. People will have fewer solar panels, fewer electric cars with batteries, fewer electrified things if it’s more expensive. So effectively, we’re making the world dirtier with these tariffs, perhaps for good intentions, but perhaps misguided intentions. How about this weird thing about ship to shore cranes? I don’t understand this, so this doesn’t fall into any bucket. I’m curious what your view, as someone who studies this topic deeply, what is the logic of tariffs on ship to shore cranes?
[00:29:38] Clark Packard: I frankly, I don’t understand it. I think it’s that, that, the U.S. ports are pretty in dire shape, I would say. and there, there’s a concern that, oh, these products are being unfairly traded in the United States. But again, if you are serious about making sure we have the most competitive ports, and they’re dredged appropriately, and for deep enough purposes so that cargo ships can come in and out, it makes little sense to target it.
[00:30:07] Again, an input that, that we use to facilitate commerce. It’s, what kind of ship to shore crane production manufacturing is taking place in the United States? Is it that large of a constituency that, that we really need to protect that? I don’t know. but I, my, my assumption would be no.
[00:30:28] Joe Selvaggi: So, if there’s any argument for, whatever we want to call this. And the last thing we’re talking about, I’ll call it protectionism or tariffs or hostility towards foreign products. If there’s any justification that persuades me, it’s national security. And I think that was carted in, we mentioned in EV somehow, a Chinese electric vehicle is going to be like a moving TikTok account that’s going to transmit where you are going to the grocery store and that’s going to be some sort of strategic advantage China might have.
[00:30:54] As absurd as that is, I can’t imagine legitimate concerns about things like semiconductors or medical products that, God forbid, another pandemic or, armed conflict with China. We don’t want all our semiconductors to be coming from a place that. We’re in global competition. I don’t know if it winds up being confrontation, isn’t it just a national security issue to ensure we have the medicine and the chips that we need, God forbid, if there’s a conflict in the future?
[00:31:21] Clark Packard: Yeah, I think that’s right, right? I’m an adamant free trader. I’m a Cato, crazy Catoite, as they say, but even I would acknowledge Milton Friedman, one of my heroes, Adam Smith, all recognize that there is a national security exception, but I tend to think that national, the national security exception Has a history of swallowing, the rule, and basically becoming a protectionist cudgel, right?
[00:31:45] So, so the Trump administration in 2018, 2017, 2018, imposed national security tariffs on imported steel, including from countries like NATO allies, Israel, Canada, under no sort of rational argument is Canadian rebar a national security threat to the United States. So, again, I’m very skeptical about how this plays out.
[00:32:12] takes place in reality. but again, I, my hope is that ultimately Congress would more tightly define what it, what national security means such that we could ferret out, bogus claims about Canadian steel being a national security risk and focus on, again, I think there are compelling arguments, on semiconductors in particular.
[00:32:35] I’ve written, multiple times that I think some trade with China needs to decline. but I think that the overwhelming majority is doesn’t impose or impose any national security risk or doesn’t. Result in sort of one sided dependencies, but the semiconductor example is exactly right.
[00:32:53] I think that there are ways we need to be more circumspect about Chinese chips in the United States, and we need to be more circumspect about exporting chips to China. but ultimately, the administration’s export controls, I think, were way too broad. I think you can make a compelling case to, to restrict the sales of tip top upper echelon chips coming from the United States to China.
[00:33:16] That maybe makes perfect sense that, hey, this could be used in a weapon that could ultimately be turned around on us. but ultimately, I think a lot of this is just rank protectionism, and my hope is over the Again, we can get a tighter definition. of national security so that we can ferret out legitimate claims and separate out legitimate claims from more bogus claims.
[00:33:38] Joe Selvaggi: Well, you had, I appreciate you making the self-deprecating, Maketo nut. One of the reasons I love to have Maketo guests on the podcast is because you don’t have, one doesn’t have a party allegiance, one, one can still be wrong, but not for, party loyalty, as a reason. But now we’re facing in November an election, and we’ve made very clear in our conversation that both candidates seem to be very tied to out tariffing each other, if I’ve invented a new word.
[00:34:06] Nobody seems to advocate for what I believe the benefits of free trade, which are benefits for everyone. All of us are consumers. We all would like less expensive products. We all should invite competition from the world, because Well, it’s still easier and better to make things here, we, our manufacturing, we still produce 26 percent of everything made in the world, even though we’re 4 percent of the world’s population, we’re doing just fine, but let’s play this out. If both candidates are pro protection, pro tariff, where will the free trade advocates come from? Are there any out there in the wilderness? or is the battle lost to this, these rhetorical flourishes of, People before profits or whatever the slogan is today.
[00:34:48] Clark Packard: Yeah, it’s an excellent question. Trade is the one issue that is almost unanimous among economists. If you look at the University of Chicago, they do these polls of economists. Do you think this tariff makes sense? Yes, or no? And why? And explain your rationale and what’s your intensity level on a one to 10 basis. and basically, it’s like 95 percent of all professional economists believe that And I think this is something that economists argue in favor of free trade.
[00:35:16] Again, you can find economists that support higher taxes and lower taxes and more regulation, less regulation. But when it comes to trade truly is the one issue that sort of unites economists. But that’s an interesting point. It’s a sort of predicament where it’s like, okay, the professionals who study this all the time are isolated, and detached from the policymaking world.
[00:35:39] I ultimately think that there are enough folks who get it in Congress and the administration. I think, the Biden administration is pretty well split between, more protectionist folks. And then, people like. Janet Yellen, the Treasury Secretary. She knows deep down that a lot of these tariffs are ill conceived, but ultimately has to give way to political, factors, overriding the economics.
[00:36:03] So, I’m pessimistic in the short run, but my hope is that we can get back and maybe the protectionist fever will break, and we can get back to this, for about 75 years, there was a bipartisan consensus in favor of open trade, in the United States. And again, that was Republicans and Democrats for 75 years, up until 2016 with President, Trump.
[00:36:26] And then now, continuing into the Biden administration. So, my again, my hope is over the long term, we can get back to that. That preexisting bipartisan consensus in favor of relatively open trade. That’s not to say we’ll ever get into a position like Cato would prefer where the United States just unilaterally drops all of its tariffs, irrespective of what foreign countries do. Ultimately, that’s right on the economics, but not really practical. So, I think, the United States getting back in the business of negotiating more free trade agreements, I think, would be good. but my hope is maybe in the medium run, maybe in the next five years, maybe the, hopefully the fever will break.
[00:37:04] Joe Selvaggi: Yeah, one hopes. I like that. You’re planning for the long term. I thought the participants of the digital science know that in the long run, we’re all dead. All right. Well, I appreciate you coming on the show and sharing your wisdom with us. I appreciate your reading and writing your research. where can our listeners, read more of your work, at Cato and elsewhere where you’re doing your research and putting out some, I think, very persuasive pieces on the merits and virtue of free trade.
[00:37:32] Clark Packard: Thanks. Yeah, Cato.org. And then, I’m on Twitter. It’s, at Clark underscore Packard, P A C K A R D. and I tend to tweet most of the things I write. So, yeah, those are both good places to, to see it. See if I’m, what I’m arguing makes sense.
[00:37:48] Joe Selvaggi: Right, well, again, if someone’s hardcore protectionist, I’m not sure a half hour with a conversation is enough to persuade them, but perhaps some more in-depth reading will, will get them going. So, if we’ve piqued their interest, we’ve done something here. So, thank you very much for joining me today, Clark. You’ve been a great guest and I really appreciate you taking the time with us. Thank you. Well, thanks again, and thanks for the invite. This has been another episode of Hubwonk. If you enjoyed today’s show, there are several ways to support Hubwonk and Pioneer Institute.
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Joe Selvaggi talks with international tax and trade expert Clark Packard about the tension between the economic and political calculus behind the Biden administration’s recently announced tariffs on Chinese products, including EVs, batteries, and steel.
Guest:
Clark Packard is a research fellow in the Herbert A. Stiefel Center for Trade Policy Studies. Prior to joining the Cato Institute, Packard was a resident fellow at the R Street Institute, focusing on international trade policy. He previously worked at the National Taxpayers Union doing the same. Prior to those roles, he served as an attorney and policy adviser to two South Carolina governors. Earlier in his career, he spent three years in private legal practice. Packard is a contributor to Foreign Policy and has written for National Review, Lawfare, The Bulwark, Business Insider, The National Interest and other publications. He has appeared on a number of television and radio programs to discuss international trade policy. He is a graduate of the University of South Carolina School of Law.