Trump Is Playing Political Games with EthanolTags Bureaucracy and RegulationTaxes and Spending
On October 9, President Donald Trump announced that he was lifting the EPA’s ban on summertime sales of E15—a motor fuel blend consisting of 15% ethanol instead of the usual 10%. Trump’s announcement is telling. It teaches much about politics, trade policy, and the sorry state of the environmentalist movement.
That Trump’s announcement was politically motivated is obvious. The proposed new policy was announced during a campaign visit to Iowa. A crucial biennial election looms, and Trump unveiled his plan there to give a boost to the electoral prospects of Republicans in the Corn Belt.
Such a move was politically necessary after Trump’s tariffs on Chinese imports triggered retaliatory tariffs that reduced American food exports to China and cut American farmers’ incomes. The president needed to demonstrate to farmers that he is looking out for their interests. The call for greater use of E15—which would increase the demand for corn—was music to the ears of many voters in the Farm Belt.
This sequence of events—economically disruptive tariffs followed by a policy designed to mitigate or offset those disruptions—illustrates a profound truth about political economy. The great Austrian economist Ludwig von Mises elucidated this truth in his essay, “Middle-of-the-Road Policy Leads to Socialism.” [Stay calm; I am NOT suggesting that Trump wants socialism!]
Mises’ point was that government intervention into markets, however well intentioned, inevitably impacts prices and patterns of production. Intervention helps some and hurts others. Those who now have a government-induced problem, like American farmers after the imposition of tariffs, expect the government to solve that problem. But whatever government does in the attempt to offset the damage its policies caused will further distort markets. This will stimulate cries for further intervention. Thus, the tendency of intervention is to breed further intervention.
Trump’s trade policy is developing as a “two steps forward, one step back” process. (Let’s hope it doesn’t end up being one step forward for every two steps back!) Clearly, the proposal for increased usage of E15 is a government subsidy to corn growers and the ethanol industry. It moves us even farther away from Trump’s professed goal of dropping all tariffs, trade barriers, and subsidies. Realistically, given our current political alignment, zero subsidies for American agriculture is inconceivable for the foreseeable future.
I have written before about the negative economic effects of using corn-based ethanol as a motor fuel. The negative environmental impacts are significant, too. Although some green groups, such as the Sierra Club, have warned about the environmental consequences of corn-based ethanol in the past , they have remained strangely silent about Trump’s plan to increase its usage. Apparently, they are too busy trying to use the climate change issue to scare Americans into embracing socialism to challenge a policy that truly is environmentally harmful. This underscores my long-held belief that preserving a healthy environment is not the primary goal of environmentalists.
40% of the American corn crop already gets burned up in our vehicles’ engines. That represents millions of acres of land that are converted from wildlife habitat to tillage. It causes the use of who-knows-how-many tons of fertilizers that unnecessarily contaminates water (e.g., red tide in Florida).
Worst of all, any government policy that hastens the pace of water consumption in the Midwest, where aquifers already are dangerously depleted, is environmentally shortsighted. If environmentalists really cared about the environment more than they want to increase government control of the economy, they would oppose corn-based fuel more vigorously than they oppose fracking. Fracking does not jeopardize our precious water supply; corn-based ethanol does.
The good news is that Trump may not have the legal authority to revise existing limits on E15. If not, then his Oct. 9 announcement could be a stroke of political genius: It could help Trump’s party retain control of Congress at no cost to the environment.