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Trump’s Huge Tariff Exemption Grift
The latest shakedown makes Tammany Hall and the Daley Machine look like the League of Women Voters.
by Jonathan Alter
There’s
an old saw: If you lay every economist end to end, they still won’t
reach a conclusion. Not true. Every economist except for ex-con Peter
Navarro, who was recently exposed as
having invented an imaginary expert to bolster his research, concluded
that President Trump’s now-paused tariff policy was not just wrong but
idiotic.
Trump’s embarrassing retreat last
week from both global tariffs and about a quarter of the tariffs on
Chinese goods (by letting “Tim Apple” and other makers of smart phones
and computers off the hook) was such big news that it obscured what is
likely coming next: A tariff exemption system that essentially puts a
“For Sale” sign on the U.S. Government.
Lifting
tariffs on iPhones and other tech imports wasn’t even the first major
exemption this year. While screwing most of the world with his original
“Liberation Day” tariffs, Trump quietly exempted metals and minerals
that Elon Musk and other manufacturers need. The tariffs were Swiss
cheese from the start, the perfect means for jaw-dropping corruption.
I
grew up in Chicago politics, where if you wanted anything done — a
pothole fixed, a city contract —you usually needed “clout,” a Windy City
word denoting political influence.
The
storied “machine” of Mayor Richard J. Daley lasted from 1955 until his
death in 1976 and was continued, in much less blatant form, by his son,
Mayor Richard M. Daley, from 1989 to 2011. The Daley Machine, like
Tammany Hall in New York and the federal spoils system that dominated
national politics through much of the 19th Century, ran on patronage,
which in turn was powered by loyalty and money. It “worked” only for
those who bent the knee.
To
this day, many state and local governments operate on an informal
spoils system called “Pay to Play.” If you want access to lucrative
government contracts, you have to pony up at election time.
And,
of course, Capitol Hill and state legislatures have been dominated for
generations by a system of legalized bribery. In the 1830s, Senator
Daniel Webster, lionized as one of our greatest statesmen, was literally
on the payroll of the Bank of the United States. Corruption eased some
in the 20th and 21st centuries, but we still see legislators working
with lobbyists (and their PACs) to fire unnoticed “rifle shots” into the
fine print of 2,000-page tax bills to benefit specific special
interests.
When reporting my book on Barack Obama’s tumultuous first year as
president, 2009, I remember Senator Dick Durbin fuming over the
rejection of a so-called “cram down” bill that would have forced banks
to renegotiate mortgages with millions of distressed homeowners, as they
did with distressed businesses. These were not speculators or
irresponsible borrowers but honest middle-class people victimized by the
subprime mortgages that helped cause the Great Recession. Had Durbin’s
bill passed, the country might have been spared the festering bitterness
that brought us Trump. “The banks own this place,” Durbin told me. The
following year, the Supreme Court’s infamous Citizens United decision turbo-charged congressional corruption by opening the door to hard-to-trace dark money.
But
for all of the corruption, the United States has mostly thrived through
its history in large part because our administrative state stayed
relatively clean. Ever since President Chester A. Arthur signed the Pendleton Civil Service Reform Act of 1883,
the executive branch of the federal government has been run
professionally, if not always efficiently. After the civil service was
established and strengthened, presidents could only place loyalists in a
small number of positions —mostly as postmasters — and the job security
granted to federal employees eliminated (or greatly lessened) the
opportunities for boodlers, grifters, and political hacks.
That’s
changed in the last three months. Instead of tapping the Government
Accountability Office's (GAO) expertise, which has identified hundreds
of billions of dollars in genuine savings, Trump and Elon Musk have
opted for smash-and-grab. Every day, we learn of new acts of vandalism
by Musk Rats more interested in installing Trump loyalists and
mindlessly screwing bureaucrats (and the cancer patients and starving
children in Africa their programs help) than in rooting out real waste,
fraud and abuse. The line between creative disruption in Silicon Valley
and mindless destruction in Washington, D.C., has been obliterated.
And
now, there’s a new arena for unfathomable levels of corruption,
road-tested in Trump’s first term. It’s the tariff exemption process run
out of the Commerce Department and Office of the U.S. Trade
Representative, a process that a 2020 Wall Street Journal editorial called “a black box.”
According to an exhaustive academic study published in the Journal of Financial and Quantitative Analysis (which
I read so you don’t have to), the new Chinese tariff exemption grant
process of 2018 to 2020 employed “quid pro quos” and “was not subject to
effective legislative or regulatory oversight.” Worse, lobbyists could
apply for exemptions or tariff waivers to help individual companies and
products, not just industries. Within weeks of the new tariffs, members
of Congress from both parties lobbied USTR on behalf of businesses in
their districts and states.
The
study of 7,015 applications for exemptions from the steel and aluminum
tariffs imposed on China in Trump’s first term found that 14.6 percent
were approved and that “a supposedly arm’s length government
adjudication process has been at least partly co-opted to reward
supporters [and] punish…the opposition.”
The
results were predictable: “Our findings indicate that political
connections, in the form of campaign contributions and lobbying
expenditures, have an impact on the likelihood of firms being approved
for trade-tariff exemptions.”
Using data from OpenSecrets.org,
the report concluded in dry but deadly fashion that “contributions to
Republican politicians are positively related to the probability of
exemption approval. In contrast, contributions to Democrat [sic]
politicians are negatively related to the probability of exemption
approval.”
Buried
in the data was a shocking detail. Of those products made by companies
that had contributed to Democrats, 94 were granted exemptions from
tariffs that affected their imports from China. With the political
factors stripped out and the applications measured just on their merits,
the number would have gone to 928. Punishment indeed. Even what the
article called “political hedging” — giving to both parties — offered no
assurances of approval on the merits. That was five years ago. With
MAGA retaliation ramped up under the new regime, it’s hard to
imagine any companies (or their law firms) that favor Democrats winning
tariff waivers.
The
non-China tariff exemptions evaluated by the Commerce Department in
Trump's first term were also problematic. In 2019, Carol Rice, the
Assistant Inspector General for Audit and Evaluation, wrote a memo to
then-Commerce Secretary Wilbur Ross laying out how the system had been
compromised. She wrote that “Evidence of an unofficial appeals process
exists” and “Off-record discussions between interested parties and
Department officials are not documented.” In other words, the Commerce
Department had become a safe space for influence-peddling and extortion.
And
of course it’s worse now. Recall what Trump did just days after the
Inauguration. He illegally fired inspectors general throughout the
government, failing even to give them the 30-days notice required by a
2008 law. This lawlessness makes it clear that he wants the “black hole”
on tariff exemptions (and other key decisions) to be as dark as
possible as soon as possible.
Trump’s
90-day pause on implementing his “Liberation Day” tariffs was done on
the spur of the moment. But that period of time seems perfect for
negotiating not just tariff deals with scores of nations but clout deals
with thousands of U.S. companies. These firms will soon join Tim Cook,
Mark Zuckerberg, and Elon Musk in circuitously directing, in the
aggregate, hundreds of millions of dark dollars into Republican super
PACs and the pockets of Trump’s family and friends.
This shakedown scheme will make Trump’s outrageous meme coin corruption look
penny ante by comparison. Fighting it begins with drawing a bright line
between tariffs on products (ripe for scandal) and whole industries
(necessary sometimes for national security), and with a commitment by
Democrats and the press to review the thousands of applications for
exemptions.
And
if that fails? We become Hungary. We sink into crony capitalism, which
hurts everyone except the strongman and his circle. And we maim the
mightiest economy the world has ever seen.
Click here to read this article on washingtonmonthly.com
Jonathan Alter is a contributing editor of the Washington Monthly. |