krueger21_trumpamericamediocre

Making America Mediocre

America owes its economic strength to its private sector, which has long benefited from an absence of undue influence by politicians and the state. But under US President Donald Trump's administration, discretionary decisions by policymakers are increasingly giving some companies advantages over others.

WASHINGTON, DC – The private sector performs well when firms can compete on a level playing field. But if the state is willing to influence market outcomes for individual firms, politically connected parties can gain an advantage over their more efficient competitors.

The US economy has long been among the most productive in the world precisely because it has maintained a relatively level playing field, where firms’ costs are determined by how efficiently they respond to market signals. Likewise, the US approach to international trade has long been based on predominantly economic considerations. Because parties to the World Trade Organization had agreed that tariffs could not rise above negotiated levels except in specified circumstances (on national-security grounds, for example), governments could not use such measures to reward or threaten particular firms or industries.

Yet under US President Donald Trump, this is no longer the case. In March 2018, Trump invoked “national security” to justify new import tariffs of 25% on steel (and 10% on aluminum). While that rationale could be valid in some cases, this was not one of them: the US steel industry was operating at around 73% capacity, with just 3% of steel and aluminum production needed for defense.

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