Citing Section 301 of the Trade Act of 1974, the Trump administration announced a move to impose new tariffs by accusing more than a dozen countries of having “structural excess capacity.” Although Section 301 doesn’t mention excess capacity, it does permit the U.S. Trade Representative to restrict imports from trading partners found to impose what the Congressional Research Service calls “unfair and inequitable” burdens on American trade.
Forget that the economic meaning of “unfair and inequitable” — like that of “excess capacity” — is so vague as to invite abuse. Instead, recognize that for a foreign government to artificially create excess capacity in any industry within its jurisdiction requires drawing workers and resources away from other industries within its jurisdiction. If some industries in, say, Japan, really do have excess capacity, then other industries in Japan must have inadequate capacity. This artificially created inadequate capacity not only self-inflicts economic harm on countries that have it; it also might cause some foreign industries to reduce their production, increasing Americans’ opportunities to export.
Protectionists, of course, never mention this flip side of the “excess capacity” argument for raising U.S. tariffs.
Donald J. Boudreaux, Fairfax
The writer is the Martha and Nelson Getchell chair for the study of free-market capitalism at George Mason University’s Mercatus Center.
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