Trump’s Not-So-Invisible Hand

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Would Adam Smith have approved of our President-Elect’s meddling with cross-the-border trade? This is the question posed in an article in today’s Wall Street Journal. (The original article has been abridged for convenience.)

By GERALD F. SEIB, Jan. 16, 2017

[Trump] was asked in an interview whether he was getting down in the weeds of other people’s companies by, for example, negotiating directly with defense contractors or publicly warning other firms not to move plants overseas.

“I’m not in the weeds,” he replied. “I’m setting a tone for hundreds of companies.”

He cited in particular his jawboning of Ford Motor Co. not to move a production line to Mexico.

“When I tell Ford that if you build that plant, you’re going to leave Michigan, you’re going to go to Mexico, you’re going to build a plant,” he said. “You’re going to fire all your workers in the United States. You’re going to hire new workers. And if you think you’re going to sell your cars across the border and you’re not going to pay a tax, you’re wrong.”

“The truth is there’s no tax because they’re not going to leave. There’s only a tax if they leave.”

Instead, he noted, Ford has scrapped plans to build a $1.6 billion assembly plant in Mexico and is going to invest $700 million in a Michigan facility that would build electric cars.

And, he noted, Fiat Chrysler Automobiles NV will invest $1 billion in two existing plants in the U. S., creating 2,000 jobs in the Midwest. . . .

The GOP is the party that is supposed to eschew the kind of government intervention in business decisions that Mr. Trump’s actions represent.

Ideological conservatives, in fact, look on with a mixture of shock and horror. A true conservative believes in economist Adam Smith’s concept that the strongest economy emerges not when a government has a hand in it, but rather when the invisible hand of a free market brings supply and demand into a natural balance that maximizes output and efficiency.

Republicans have traditionally deployed disparaging terms to describe government actions that interfere with freely made business decisions. “Industrial policy” is one; “picking winners and losers” is another.

Beyond ideological beefs, there are two practical risks in what Mr. Trump is doing. The first is that companies begin making questionable decisions about how to invest their money simply to avoid being the target of presidential ire, and in the process sap their long-term viability.

The second is that a company comes to the government seeking favors in order to comply with the presidential insistence that it not move, or shut down, an operation that doesn’t otherwise make economic sense. That dynamic was in play, at least in part, with Carrier, a unit of United Technologies Corp. It received state tax incentives to keep jobs in Indiana.

But the Trump view is that today’s globalized economy simply isn’t open or fair—and that other governments, specifically China and Mexico, already are messing with that invisible-hand idea.

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