President Trump is resurrecting his tariffs after a Supreme Court ruling struck down many of those he levied during his first year back in office. This means higher costs for American consumers and businesses and more economic uncertainty.
What’s worse, these new tariffs will enable more preference-peddling on the part of Trump and his administration, tilting the economic playing field toward large and well-connected businesses. Trump still has plenty of tariff-setting authorities to exercise, and he has shown that he will play favourites when given the chance.
To some extent, businesses always seek to curry favour with legislators and government officials. But ideally, they would spend little time and money doing so. Pouring resources into lobbying, or potentially even bribery, diverts resources away from productive investments and toward supplication, which can hurt the economy — and change the nature of competition itself. When companies’ profits depend on political connections, smaller firms lose out, and the market can’t adequately reward risk-taking, entrepreneurship and innovation. The overall result is weaker economic growth.
To fight favouritism, Congress has imposed guardrails, such as empowering independent civil servants to make decisions on regulations; some executive branch decisions are also subject to judicial review. In some areas, though, Congress has delegated flexible authorities to the president, and tariff setting is one of them.
Lobbying increased dramatically when Trump levied his previous battery of tariffs. Politically connected firms received exemptions, and the dollar amount of tariff exemptions skyrocketed. Before Trump’s second term, hardly any US imports were exempted from tariffs. By December, 51 per cent of imports were exempt. There is now even a tariff “inclusion” process through which firms can lobby for new tariffs on their competitors abroad; the Commerce Department has approved a slew of petitions.
In its recent ruling, the Supreme Court considered only one of the tariff-setting authorities Trump has claimed. Others give the president wide discretion, too. Tariff laws known as Section 232 of the Trade Expansion Act of 1962 and Section 301 of the Trade Act of 1974 require the administration to build a formal case before the president can impose any new tariffs. Senior presidential appointees make these reports. They will almost certainly greenlight the tariffs Trump wants, and exemption-seeking will continue apace. A study of Section 301 exemptions shows that firms connected to the administration or the Republican Party were more likely to be granted exemptions.
Other laws grant sole discretion to the president, such as Section 122 of the Trade Act of 1974, the basis for the tariff Trump announced after the court’s decision. This is the first use of Section 122 authority, so it is unclear how courts will respond, and the tariffs may last only 150 days unless Congress extends them. But the statute still appears to give the president leeway. Since Trump retains the final say on who is exempted, businesses still have reason to seek the president’s favour.
Norms against lobbying and corruption have surely eroded after nearly a year of tariffs and, more broadly, of the pay-to-play dynamics visible across Trump’s administration. In return for export licenses, the administration has extracted fees from Nvidia in the form of a profit-sharing agreement. The administration waived restrictions on exports to the UAE just as an Emirati company made a large investment in a cryptocurrency firm owned by the families of Trump and Steve Witkoff. Both sides have denied any quid pro quo, but the timing raises questions.
The administration has struck agreements giving the government ownership stakes in businesses. Trump has called for the removal of chief executives and corporate board members and made extortionary demands of law firms, universities, and state governments. Some administration officials appear to be profiting from their public positions. Combined with the evisceration of white-collar criminal enforcement, the message is clear: Businesses that pay for influence might be rewarded.
Many factors contribute to the longstanding success of the American economy. An essential one is the institutions’ resistance to corruption. Trump’s erosion of the distinction between public power and private gain imperils the foundation of both American prosperity and liberty. Until Congress reasserts its constitutional authority over tariffs, the institutional decline and corruption enabled by Trump’s agenda will continue.
The New York Times