Tariff-exemption process raises serious cronyism concerns

The tit-for-tat trade war involving tariffs continues to grow between the U.S. and other countries, and as night follows day, where there are tariffs, there is the corrupt prize of tariff exemptions. A new, domestic trade war has emerged within the Commerce Department in an effort to secure and block tariff exemptions. 

Beginning in March, President Trump imposed a 10-percent tariff on aluminum and 25-percent tariff on steel imports, asserting the U.S. steel and aluminum industries were vital to national security.

Meanwhile, U.S. steel and aluminum companies championed the tariffs, stating they would benefit the U.S. economy by allowing the U.S. steel and aluminum industry to compete against low-cost imports (while hurting everyone else).

According to Dr. Jed Kolko, a Harvard trained economist, there are only 415,000 “metal producing” jobs in the U.S. By contrast, there are 4.6 million workers employed in the “metal consuming” sector.

In recognition of this employment imbalance, there exists an avenue of relief for those companies employing 4.6 million workers. Trade laws allow exemptions from tariffs in the interest of national security and a recognition that some products are not readily available from U.S manufacturers.

The exemption process works like this: Companies are responsible for a 10-percent or 25-percent tariff on imported aluminum and steel. However, a company can petition the U.S. Department of Commerce for a tariff exemption by demonstrating that the product is not available for purchase in the U.S., and/or for national security reasons.

Then, the Commerce Department allows any company (namely, U.S. steel and aluminum companies) to file an objection to an exemption request. Whole law departments in D.C. are devoted to filing such exemptions and objections. 

Therein lies the rub. Tariffs threaten a broader swath of the U.S. economy, but the exemption process has been hijacked and controlled by big steel. The New York Times reported that every objection filed by three of the nation’s largest steel producers was successful in blocking the exemption request.

While tariffs are popular in some quarters, the manipulation of the tariff-exemption process raises serious concerns of cronyism, protectionism and further manipulation of the free market that hinders the ability for job creators, innovators and entrepreneurs to flourish.

One economic analysis predicts the tariffs could result in a net loss of 470,000 U.S. jobs — more jobs than all U.S. steel- and aluminum-producing jobs.

This threat of cronyism and manipulation of the markets and exemption process prompted Cause of Action Institute, a government watchdog organization I lead, to launch an investigation. 

Last week, we filed three separate freedom of information requests, seeking detailed information about calendars, contacts and discussions by senior administration officials with any companies objecting to the tariff exemptions.

We hope the Department of Commerce and the Office of the United States Trade Representative move swiftly to satisfy our Freedom of Information requests and produce the documents.

The steel and aluminum tariffs already create a playing field designed to favor U.S. steel and aluminum companies on questionable national security grounds. Using the exemption process to hinder other U.S. companies and manufacturers who rely on imports allows the government to pick winners and losers among companies. It’s a situation tailor-made for corruption.

According to the latest news reporters, the government continues to side with U.S. steel and aluminum companies at the expense of smaller American manufacturing companies. In the aggregate, the smaller, metal-consuming companies employ far more Americans than the steel companies.

The tariffs force these companies to either re-source the imports they relied on or take the price offered by existing U.S. steel and aluminum companies — raising costs to every consumer of aluminum and steel, which, considering beer, soda and cars, means just about every American. 

The U.S. is the largest trading economy in the world. Punitive tariffs against even our allies are a bad idea. Allowing favored large companies to manipulate the ameliorative process to stifle and bully smaller, less-politically-connected companies is a disservice to all American consumers, businesses and the free market that promotes continuing improvements to supply, efficiency and choice.

John Vecchione is president and CEO of Cause of Action Institute, an organization that advocates on behalf of free markets and limited government.