Donald Trump’s plan for an increase in tariffs across the board will give rise to corporate welfare that will damage America’s long-term economic growth, warned billionaire hedge fund manager Ken Griffin.
Speaking on Thursday at the Economic Club of New York, the founder and CEO of Citadel said U.S. companies shielded from foreign competition will inevitably grow fat and complacent from the “sugar rush” of import duties.
Soon enough they will realize lobbying Capitol Hill is the easiest way to ensure their continued survival, rather than the hard path through innovation and productivity.
“I am gravely concerned that the rise of tariffs puts us on a slippery slope towards crony capitalism,” warned Griffin.
Removing competition eliminates the need to innovate
He’s not the only one. Walmart finance chief John David Rainey leveled with Americans on Thursday, telling Fox News that its U.S. customers would be the ones paying for any tariff-related cost increases the retail giant cannot absorb.
Citadel’s Griffin worries tariffs will have a lasting impact on American productivity, a key metric that fuels inflation-adjusted economic growth.
By impeding or even removing competitors from the playing field, market forces cannot correct or punish managerial decisions as efficiently as they otherwise might. Capitalism only works, however, if the reward for developing new products and services sufficiently exceeds the financial risks of launching a new endeavor.
Businesses shielded most from these forces over time risk ending up as corporate welfare recipients dependent on the state to survive at home.
Corporate lobbyists descend on Congress in ever greater numbers
“Once you’re in this world where companies know that their very existence is because of tariffs,” Griffin said, “now you’re going to find the halls of Washington really filled with the special interest groups and the lobbyists.”
Perhaps even worse, they will become less and less competitive in global markets over time as well.
A perfect example of that is the auto industry. More than 60 years ago the United States, in a trade spat with Germany, sought to punish Volkswagen for threatening domestic carmakers with its iconic VW bus.
It imposed a brutal 25% import duty on all commercial vehicles that resulted in the Big Three carving up the pickup-truck market among one another, and has survived to this day.
In part as a result, General Motors and Ford struggle to compete against Asia and Europe in passenger car segments like sedans and compact hatchbacks, and remain overwhelmingly dependent on the fat profits they earn from selling large trucks in North America.