Making Things More Expensive Won’t Make America Great Again

Most every Republican remembers President Reagan’s line about how the nine most terrifying words in the English language are “I’m from the government and I’m here to help.”

Has President Trump forgotten?

The president — as everyone knows — has been hurling tariffs at just about anything that moves, which is causing them to stop moving altogether (e.g., Canadian-made Can-Am three-wheelers).

Tariffs, of course, are taxes — applied differently. The manufacturer of a thing gets socked with a levy that is folded into the price of the thing. The buyer of that thing then ends up paying the tariff but doesn’t realize he’s paid a tax. He just thinks “stuff has gotten more expensive.” It works a lot like inflation — and it’s just as destructive.

It’s exactly the kind of help the American people — and American businesses don’t need.

This includes the semiconductor industry.

Earlier this year, rumors began to percolate that the administration was considering much higher tariffs — perhaps as much as 100 percent — on imported semiconductors. That’s a monster increase over the existing 25 percent tariff/tax, and it could damage every chip-dependent industry, including the domestic car industry, because all modern cars are heavily chip-dependent.

This would have the opposite of the president’s stated goal of protecting domestic manufacturing and lowering the cost of things.

The administration proposes Section 232 tariffs that are aimed at encouraging domestic investment in the semiconductor production industry by punishing (via tariff/taxes) semiconductor manufacturing outside the United States.

That sounds like it would help domestic semiconductor manufacturing. The problem is there’s not much domestic semiconductor manufacturing happening right now.

Before the federal government got involved, the United States was a semiconductor juggernaut. It was Americans who created semiconductors to replace vacuum tubes — and it was Americans who built the factories that made chips and used them.

As recently as 1990, the U.S. produced more than a third of the chips used. By 2022, that had dropped to just 10 percent. That happened, in part, because we allowed other governments to dump semiconductors at low prices and gain market share.

This latter argument is the often-heard justification for using tariff/taxes to restore the balance, but it doesn’t address the fundamental problem that besets manufacturing anything — whether cars or chips — in this country. That problem is manufacturing costs, which are a function — to a great extent — of regulatory compliance costs. Rather than make imported semiconductors (or cars) that cost less to manufacture outside the United States more expensive to sell in the United States, it would help Americans more to make it cost less to manufacture these things in the United States.

Then they could be sold for less. Imagine that. They’d also be more cost-competitive with the imported stuff.

Whether cars or chips.

Of course, this won’t fix the problem overnight. It took about 30 years to offshore what was once American manufacturing, and it will take years, not days or months, to reshore it. Even though domestic production is on the rise, many U.S. manufacturers, including defense contractors, automakers, medical device manufacturers, and tech companies, will need to rely on imported legacy semiconductors and globally integrated supply chains until domestic manufacturing gets back on its feet.

This is a crucial point: Broad tariffs that are put into place before there is enough domestic capacity to supply civilian and defense needs will jack up prices and hurt domestic manufacturing, because the stuff being manufactured will be more expensive, and that will result in fewer sales of stuff people increasingly cannot afford to buy, such as new cars.

The problem transcends just chips; it is a problem that affects practically everything that’s made in the USA because practically everything is now dependent on chips. Tariff/taxes will make semiconductors more expensive, which will make everything more expensive.

A Chinese-style trade policy, where the government heavily subsidizes its native manufacturing base, is fundamentally at odds with the American idea of free enterprise.

It’s also not going to Make America Great Again to make everything more expensive again. American companies can compete — provided they are allowed to. Provided the government doesn’t “help” too much.

Making it cost less to make things in America is how you make America great again. Taking a scythe to federal regulations is a far more effective way to help Americans than to tariff-tax the things Americans need.

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