Free Trade or Fair Trade: What Wilbur Ross Can Teach Us
Wilbur Ross, the Secretary of Commerce, has been seen by many on the populist right as a champion in the battle for ‘fair’ trade with foreign countries. His policies and ideas fall right in line with Trump’s hard stances on trade. Formally a banker and investor, Mr. Ross specialized in leveraged buyouts and flipping distressed businesses. Called “the King of Bankruptcy,” Mr. Ross has an uncanny ability to restructure and profit off of previously failing businesses. He has become one of the more important figures in the White House because of his aligned views on trade with President Trump.
While Trump focused heavily on trade during the campaign, the media has recently focused on healthcare and immigration policies during the President’s tenure and perhaps not enough light has been shown on the trade debate and the Commerce department’s involvement. So far, President Trump has withdrawn from the Trans-Pacific Partnership and has threatened to revisit trade policies with China and the North American Free Trade Agreement (NAFTA).
The White House has been in fervent debate about the difference between “free” and “fair” traders. Free market capitalists have argued against any support for protective tariffs. They believe that protective tariffs might momentarily aid the industries they try to protect, but in the long-run will cause damaging price inflation, loss of capital investment, and eventual failure of the companies. The conservative populist wing of the White House has praised protective tariffs. They believe the tariffs could promote job growth as well as defend against anti-competitive policies of countries such as China.
Populists look to the beginnings of our country and find that protective tariffs often aided the advancement of American industry. Arguably, we might not have been the economic superpower we are today without those measures in place. Protectionism was present in Alexander Hamilton’s Report on Manufacturers, which called for protective tariffs for manufacturers, the revenues of which went back to subsidize those same companies. Protectionism often gets a bad rap from the media and critics, but it’s been wielded by both progressives and conservatives such as Washington, Jackson, Lincoln and Teddy Roosevelt.
The last protective tariff of trade protectionism was used during Hoover’s presidency in 1932 with the Smoot-Hawley Bill. It was passed in the midst of the Great Depression in an attempt to protect already weakened American companies. Foreign countries responded to the protective tariffs by raising their own. The results were disastrous and ended up hurting the economy even more. Free trade was adopted at the end of World War II as a matter of economic and foreign policy. The United States needed Europe and Japan to become wealthy nations again so that they didn’t fall prey to communism and could become lucrative trading partners. For the most part, free trade has been the name of the game since.
How does Wilbur Ross fall into this debate? President Trump and Secretary Ross have known each other since the 1980s when Ross helped restructure Mr. Trump’s failing Atlantic City Casinos. At first look, the Democrat turned Republican billionaire investor does not appear like a typical conservative populist (but to be fair, neither did the billionaire real-estate mogul Trump). However, his ideas on trade policy are very popular within the conservative populist movement. That being said, we’re left to wonder what are his motivations for adopting this protectionist approach.
As previously mentioned, Mr. Ross made his billions by restructuring failing companies. One of his most lucrative and successes endeavors was the revival of the American steel industry. American steel companies have faced crushing competition from overseas competitors, especially in China. The Chinese steel companies face virtually no regulation and receive immense government subsidies, unlike their American counterparts. Upon buying distressed steel companies, Mr. Ross’ wealth relied incredibly on American trade policies. In 2002, President Bush announced a 30% protective tariff on imported, foreign steel. The tariff aided the American steel industry and made them far more competitive, domestically. Wilbur Ross’ companies recovered and he made millions.
The timing of Wilbur Ross’ acquisition of distressed steel companies and implementation of protective steel tariff was timely, to say the least. No one should conclude that Mr. Ross wielded any influence to push for these steel tariffs without any conclusive evidence. However, Mr. Ross’ history with the American steel industry should lead us to consider the consequences of trade protectionism beyond industry protection or job growth. Greater oversight and protective measures poses the risk to open more nooks and crannies for crony capitalists to seep through the cracks of the federal government (Crony capitalists use regulatory oversight, tariffs, and other government powers to benefit companies for their own financial gain). The motives and background of any politician seeking to reduce competition through the use of policy should be questioned even if it is under the guise of patriotism. Mr. Ross may not be a crony capitalist but he has definitely made his money the way a crony would.
“2002 United States Steel Tariff.” Wikipedia, August 4, 2017. https://en.wikipedia.org/w/index.php?title=2002_United_States_steel_tariff&oldid=793810124.
Ross, Wilbur. “Free-Trade Is a Two-Way Street.” Wall Street Journal, July 31, 2017, sec. Opinion. https://www.wsj.com/articles/free-trade-is-a-two-way-street-1501542569.
“Wilbur Ross.” Wikipedia, July 29, 2017. https://en.wikipedia.org/w/index.php?title=Wilbur_Ross&oldid=792943974.
“Wilbur Ross’ Extraordinary Timing – WNYC News – WNYC.” Accessed August 5, 2017. http://www.wnyc.org/story/wilbur-ross-extraordinary-timing/.