So American CEOs can just pound sand! The WSJ reports yesterday that CEOs are quietly trying to get into the Trump transition team to try and influence the new administration to not start a trade war, which will harm their businesses and raise prices. But as the headline says, “He isn’t budging.” I’ll have more to say about tariffs as we get more specifics of what he actually is going to do, but suffice it to say that if he actually did what he says he’s going to do (across the board tariffs, plus 25% on Mexico and Canada, plus an add’l 10% on China, plus 100% on BRICs countries), we’d have massive problems. Prices can help adjust where goods get produced, but they don’t do so instantly. We have integrated global supply chains, and much of the U.S. manufacturing depends on parts made in other countries (especially Mexico and Canada), and vice versa.

But today I just want to highlight one aspect of his proposed tax hikes on Americans. Conservatives always have fought to make any tax system be as broadly based as possible (pick no favorites) with as low a rate as required to yield the revenue needed. This is why a flat tax with no deductions would be the best system. Once you allow deductions, it allows all the special interests to come in and buy Washington politicians. Think about it. We’ve had high marginal tax rates of 91% (after WWII) and 28% (after Reagan’s ’86 cut) and everything in between, and pretty much you get about 17-18% of GDP as tax revenue, despite the wide dispersion in rates. So if you get the same revenue with lower rates and fewer deductions, why not go for tax simplification? The answer is that high tax rates and deductions increases the demand for politicians to be bought off. So they hire Washington lobbyists (often relatives or former members of Congress) to influence tax legislation. There is a reason why members of the House Ways and Means Committee and the Senate Finance Committee get the largest campaign donations (those committees write tax legislation) aside from appropriators (who actually give out money). And these proposed tariffs are just another tax, which will no doubt come with winners and losers. That means you should expect the special interests to be buying off anyone they can to get their favored outcome. And indeed, that is what the journal relates:

A day after Trump announced that he had chosen Navarro as a senior trade adviser, a Journal reporter received an email from H.O. Woltz III, the chief executive of Insteel Industries, with a request: How can he get in touch with Navarro to discuss Trump’s tariff policies? Woltz’s company is the country’s largest manufacturer of steel wire products used to reinforce concrete for construction projects. When Trump imposed tariffs on steel imports during his first term, the price of the raw material used to make the company’s products rose “to the highest level in the world,” Woltz wrote.

Companies are quietly hiring well-connected firms to make sure their perspectives are heard both in Congress and at Mar-a-Lago.  LG Electronics USA recently tapped Capitol Counsel, a government-relations firm, to lobby on trade and supply-chain issues, according to a new disclosure report. The semiconductor manufacturer GlobalFoundries hired the lobbying firm Cozen O’Connor Public Strategies to focus on similar issues, according to disclosure forms. Shortly after Trump announced that he is thinking about targeting imports from Mexico, Constellation Brands, a producer of wine, beer and other spirits, hired a Republican-aligned consulting firm. The aim is to emphasize to Trump the importance of cross-border business for Constellation’s U.S. workers, according to a person familiar with the agreement.  Constellation Brands has breweries in Mexico and imports beer, including Modelo and Corona, from Mexico to the U.S. In a statement, Constellation didn’t directly comment but said it would continue to work with the U.S. government, as it has during the administrations of both political parties.

Conservatives know “that government is not the solution to our problem, government is the problem.” Industrial policy is the biggest of government. Joe Biden shouldn’t be favoring one form of industry and Donald Trump shouldn’t be favoring another. How about letting the American people decide what kind of products they want to buy and where they want to buy from? How about freedom?