While US President Donald Trump differs starkly in most ways from former President Barack Obama, both chief executives took office with obsessions that made them too willing to gamble with American prosperity. Obama made mitigation of climate change a costly priority of policy-making, especially about energy. Trump abandoned that preoccupation but treats the trade balance with no less fervor than Obama did the climate and seems equally willing to render economic sacrifice to it.
Both approaches are misguided. While climate change and unfair trade practices merit national concern, neither issue justifies myopic recklessness with the economy.
Doubly expensive
Obama preached “all of the above” with energy but practiced “except hydrocarbons.” With mixed success, his administration regulated oil and gas punishingly and tried, near its end, to foreclose exploration on most of the Outer Continental Shelf. His agenda, if he had succeeded in implementing it, would have been doubly expensive. It would have displaced affordable energy with costlier alternatives. And it would have limited wealth creation from resource development.
Americans doubting these effects should look northward. Canada is constricting its economy, especially the important part of it based on oil and gas, with climate precaution. Carbon taxation has begun in some provinces and will spread and mostly toughen as federal requirements take effect. Energy consumers won’t like the consequences. More immediately, capital is emigrating as large and important energy projects meet unyielding environmental opposition. With aggressive climate policies, lately compromised by Liberal Prime Minister Justin Trudeau’s desperate nationalization of the Trans Mountain oil pipeline and expansion project, Canada tells foreign investors it’s closed for business.
To his credit, Trump rescued the US economy from the Canada-like course onto which Obama had steered it with his squeamish handling of fossil energy. By letting resource development proceed, encouraging tax reform, and easing regulation of the oil and gas and other businesses, Trump has been contrastingly good for the American economy.
Now, however, he threatens to wreck it. Aggressive protectionism will, in fact, wreck economies—especially protectionism incongruously imposed against allies under authority related to national security.
Asserting the US trade balance as a basic metric of economic performance, Trump has imposed tariffs on imports of solar panels, washing machines, and—selectively, at first—steel and aluminum. His administration is considering tariffs on a broad range of industrial supplies from China. More recently, citing national-security provisions of a 1962 trade law, he extended steel and aluminum tariffs to Canada, Mexico, and the European Union and opened consideration of tariffs on automobiles and auto parts.
Scant economic benefit can come from this. Trade partners already plan retaliation. Consumer and business costs will rise. And insistence that their products threaten US security will alienate friends.
At the core of Trump’s mischief is fixation on the trade balance. A trade deficit is neither the problem Trump makes it out to be nor the result, as he so frequently argues, of bad deal-making in the past. It reflects not only imported and exported goods but also national savings and investment, which have many influences. The trade balance must be assessed in broad context and is not, by itself, a useful measure of economic performance. Yet Trump cites the trade balance to declare whether the US is “winning” or “losing.” As economic theory, this is frivolous. As a basis for national policy-making, it’s dangerous.
Executive authority
Beyond their contorted views of economics, Obama and Trump share another troubling affinity. Both see the US presidency as a throne from which to dictate, among other things, energy choices. Obama tried to accelerate movement away from coal-burning for power generation. Trump, again asserting security interests not under threat, wants to require purchases of coal and nuclear energy by utilities with contrary preferences.
Obama and Trump thus are more alike than their political orientations suggest. They share assumptions about Executive Branch authority that should make Americans worry about freedom and lawmakers eager to provide clarification.