Let’s say you have a business that relies on imported parts — maybe from China, maybe from Mexico, maybe from somewhere else. What do you do?
In principle, the answer should depend on whether having to pay those tariffs imposes real hardship and threatens American jobs. In practice, you can safely guess that other criteria will play a role. How much money have you contributed to Republicans? When you hold business retreats, are they at Trump golf courses and resorts?
I’m not engaging in idle speculation here. Trump imposed significant tariffs during his first term, and many businesses applied for exemptions. Who got them? A recently published statistical analysis found that companies with Republican ties, as measured by their 2016 campaign contributions, were significantly more likely (and those with Democratic ties less likely) to have their applications approved.
But that was only a small-scale rehearsal for what could be coming. While we don’t have specifics yet, the tariff proposals Trump floated during the campaign were far wider in scope and, in the case of China, far higher than anything we saw the first time around; the potential for political favoritism will be an order of magnitude greater.
As I understand it, the term “crony capitalism” was invented to describe how things worked in the Philippines under the dictatorship of Ferdinand Marcos, who ruled from 1965 to 1986. It describes an economy in which business success depends less on good management than on having the right connections — often purchased by doing political or financial favors for those in power. (...)
Now it’s very likely that crony capitalism is coming to America.
There have been many analyses of the probable macroeconomic impact of Trump’s tariffs, which will, if they are anywhere near as big as he has suggested, be seriously inflationary. Arguably, however, their corrupting influence will, in the long run, be an even bigger story.
Why do tariffs create more potential for cronyism than other taxes? Because the way they operate under our laws offers so much room for discretionary enforcement. The Treasury secretary can’t simply exempt his friends from income taxes (although Andrew Mellon handed out highly questionable rebates in the 1920s). The president can, however, exempt allies from tariffs. And does anyone really believe that the Trump administration will be too ethical to do so? Trump himself has bragged about his ability to game the system; he has bragged that not paying his fair share of taxes makes him “smart.”
Will tariffs be the only major potential engine of crony capitalism under the incoming administration? It’s doubtful. If you think about it, Trump’s deportation plans will also offer many opportunities for favoritism.
Some of Trump’s advisers, notably Stephen Miller, seem to imagine that they can quickly purge America of undocumented immigrants, rounding up millions of people and putting them in “vast holding facilities.” Even if you set aside legal issues, however, this is probably logistically impossible. What we’re much more likely to see are years of scattershot enforcement attempts, with raids on various businesses suspected of employing undocumented immigrants.
But what criteria will decide which businesses become priority targets for such raids and which will be left alone, effectively exempted, for years? What do you think?
And there’s more, of course. For example, Trump has suggested a willingness to take away the licenses of TV networks that provide, in his view, unfavorable coverage.
If crony capitalism is coming, what will it do to America? Obviously it will be bad for democracy, both by helping to lock in a large Republican financial advantage and by guaranteeing vocal business support for Trump, no matter how much damage his policies do. It will also enrich Trump and those around him.
by Paul Krugman, NY Times | Read more:
Image: Philotheus Nisch for The New York Times
[ed. Of all the predictions about Trump's second term (and I try to read as few as possible) this'll probably be the most accurate. We've seen this show before. Beyond personally enriching himself and any number of people associated with or supportive of his administration, the distortions in Trump's crony capitalist system promise to create a permanently dysfunctional government (competitively, socially, economically, politically). Which, I guess is what his supporters think they want. Good luck ever getting help if you haven't kissed the Don's ring first. Here's what to expect if tarrifs try to steer industry production and purchases to US companies: Jones Act's Grip on Shipping (HCB).]
[ed. Of all the predictions about Trump's second term (and I try to read as few as possible) this'll probably be the most accurate. We've seen this show before. Beyond personally enriching himself and any number of people associated with or supportive of his administration, the distortions in Trump's crony capitalist system promise to create a permanently dysfunctional government (competitively, socially, economically, politically). Which, I guess is what his supporters think they want. Good luck ever getting help if you haven't kissed the Don's ring first. Here's what to expect if tarrifs try to steer industry production and purchases to US companies: Jones Act's Grip on Shipping (HCB).]
