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June 26, 2018

Here Comes Trump's Steel Tariffs-Induced Crony Capitalism

 

As we predicted a year ago, U.S. companies are heading to Washington hoping to get an exemption from President Trump’s steel tariffs (i.e., taxes imposed on American businesses). It’s a government-induced version of “crony capitalism,” which Business Dictionary describes as, “An economy that is nominally free-market, but allows preferential regulation and other favorable government intervention based on personal relationships.”  

The New York Times reported last week: “The Trump administration granted seven companies the first set of exclusions from its metal tariffs this week and rejected requests from 11 other companies, as the Commerce Department began slowly responding to the 20,000 applications that companies have filed for individual products.” 

When businesses make these types of requests for exemptions, it is natural to think that a contribution to the PACs or reelection campaign of their elected representatives in Congress and the Senate will help open doors. And they just might.  

In addition, companies may look for someone who has access to important people in the administration, such as the U.S. Trade Representative’s office or the Commerce Department. Companies fork over big bucks if lobbyists will plead the company’s case for exemption to people who can make that decision. 

And with 20,000 applications pouring in so far, that’s a lot of companies looking for access—and money possibly changing hands. 

But the process isn’t limited to companies seeking exemptions. Other companies lobby the government against their competitors, hoping to gain a business advantage. The Times article points out: 

Nucor, an American steel company that has supported the tariffs, argued against Bekaert’s [a steel wire maker] request for an exclusion for wire rod that it uses to produce cord that goes in tires. Nucor said Bekaert had access to enough of the rod without requiring an exclusion. 

In fairness to the companies seeking an exemption, the government is the driving force behind this crony capitalism, as companies try to protect their business. This is Washington at its very worst, and in this case it is all government induced.


 

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