Category Archives: Trade

Tit-for-Tat Tariffs Don’t Work: Boeing and Airbus Show Why

A 16 year-long aerospace subsidies dispute between the United States and the European Union began another round this week. The U.S. claims that the EU’s Airbus subsidies are unfair. The EU argues that America’s Boeing subsidies are unfair. Both sides are right. But neither wants to admit that the other side has a point, too. The result has been tit-for-tat tariff increases and no subsidy reforms.

Today, the World Trade Organization (WTO) ruled that the EU may impose tariffs on up to $3.99 billion of American goods, because Boeing’s favorable tax treatment violates WTO rules.

This follows a 2019 decision allowing the U.S. to impose tariffs on up to $7.5 billion of EU goods due to the EU’s Airbus subsidies.

Boeing called today’s decision “irrelevant.” Last year, Washington state repealed the tax provision at the center of this decision. However, the larger sticking point in the dispute remains. Yes, this one tax break is gone, but Boeing still receives massive subsidies. That means the EU will not stop pressing the matter. Nor has the EU reformed Airbus’ special treatment. That means the U.S. won’t stop, either.

In addition to being ineffective, the tariffs are causing collateral damage to other industries that have nothing to do with the dispute, from French wines to American motorcycles. This deadweight loss matters at a time when the world economy is already hurting due to COVID-19.

The lesson both sides need to learn is, don’t copy other people’s mistakes. Instead, set a better example. Subsidized companies grow soft and lose their competitive edge. There is a reason why so much aerospace innovation these days, from space travel to supersonic flight, is happening outside of Boeing and Airbus’ subsidized comfort.

The right thing to do is for governments to stop subsidizing private businesses—even if the other side doesn’t. Set the right example. Boeing would likely do just fine without subsidies. They would certainly have far more incentive to improve their products and address their safety concerns than they do now.

And if Boeing can’t survive without subsidies, there is no shortage of entrepreneurs capable of unleashing engineering and manufacturing talent.

Either way, consumers and taxpayers win. Europe and Airbus can then either follow America’s positive example or be content with subsidized mediocrity. Realistically, they will very likely choose the subsidies. But we cannot let Europe’s mistakes be our own. The U.S. has been doing that for at least 16 years now, and we know it doesn’t work.

A modest starting point on the U.S. side would be closing the Export-Import Bank, which often devotes half of its business to securing below-market financing rates for Boeing’s customers, many of whom are state-owned. Boeing set record profits while Ex-Im was mothballed from 2014-2019, so we already know the company will do just fine without that multi-billion-dollar program.

For more on that idea, see my most recent Ex-Im paper.

Trade News: China Tariffs Violate WTO Rules, Aluminum Tariffs Dropped, No Trade Deal with EU

Usually policy-related news slows down near elections; nobody wants to rock the boat. This has not been the case with trade policy. Three important stories have emerged in the last day or so.

First, the World Trade Organization (WTO) ruled that President Trump’s China tariffs violate the WTO’s Most-Favored Nation (MFN) rules. Those rules state that all countries with MFN status cannot be charged different tariff rates for the same goods. They must all be charged the same rate—and that rate has to be the lowest a country charges any country for a given good.

China has MFN status. So, under WTO rules, the U.S. cannot charge China higher tariffs than it does other countries for MFN-eligible goods. This is exactly what Trump has done with hundreds of billions of dollars’ worth of Chinese goods.

While this is a big headline, it likely means little in terms of policy changes. China retaliated in kind, and roughly in proportion to Trump’s increase, so the WTO will likely consider the matter settled, and thus will not endorse further action against the United States. And as my colleague Iain Murray has pointed out, Trump, ironically, is unable to appeal the decision because he has essentially dismantled the WTO’s dispute resolution system.

It is ultimately up to Congress to right President Trump’s wrongs on trade policy. And the administration needs to get through its head that tariffs are not going to convince Beijing to enact needed reforms on economic policy, human rights, and political repression. The data are in, and the tariff approach does not work. A better approach will use consistent, long-term multilateral diplomatic pressure.

In the short term, the China tariffs should be rescinded anyway, regardless of what the WTO says. Taxing needed goods is terrible policy during a pandemic and a recession.

Second, President Trump had announced in August that he would reinstate national security tariffs against Canadian aluminum—about a month after the United States-Mexico-Canada Agreement (USMCA) came into effect. Canada announced it would retaliate, as countries nearly always do when tariffs are raised against them. On Tuesday, Canadian officials were set to announce what the retaliations would be. Hours before the press conference was to begin, the U.S. announced it would drop the tariffs.

This is more damage control than an actual positive policy change—tariffs are not going down, they are merely not going up. But backing off represents at least a tacit admission that more tariffs will not help the economy during a pandemic and a recession. Even if tariffs would help the aluminum industry itself, which is a questionable assumption, higher prices would hurt aluminum-using industries ranging from autos to beer to construction, as well as consumers.

Third, the European Union apparently will not negotiate a trade deal with the U.S. anytime soon—even if Biden wins the 2020 election. At a conference, EU trade official Sabine Weyand said Europe would rather work with the U.S. on shared problems, such as China policy, in the WTO, where they can also build coalitions with other allies. Europe would also rather settle other issues in piecemeal fashion, such as the ongoing dispute over Airbus and Boeing subsidies, and various Trump tariffs.

An EU trade agreement is one of the “big three” that were expected to completed in the next few years, along with China and the Brexited UK. President Trump has been mulling further tariffs against European goods for some time. Hopefully this news does not spur him to raise tariffs in hopes of forcing the EU to the negotiating table. If the USMCA is any precedent, such an agreement would be filled with trade-unrelated provisions for labor, environment, regulation, intellectual property, and whatever else rent-seekers can cook up. It would also, as with the USMCA, likely do more to manage trade than to free it.

Since Democratic candidate Joe Biden’s trade protectionism is uncomfortably similar to Trump’s, it is just as well that there will likely be no U.S.-EU trade agreement anytime soon. This will give both sides time to fully digest the lessons of the Trump administration’s failed protectionist experiment, and to pursue smaller policies such as regulatory mutual recognition, and at least some lowering of tariffs and other trade barriers.

Trump Administration Backs Down on Tariffs on Canada Aluminum, But Long-Term Problems Unfixed

This is a press release originally posted at cei.org.

In another high stakes trade matter today, the Trump administration decided to back down from plans to impose tariffs on Canadian aluminum. Just before Canadian Prime Minister Justin Trudeau was set to announce retaliatory tariffs against the United States, U.S. Trade Representative Robert Lighthizer announced the U.S. would drop the tariffs. CEI Senior Fellow Ryan Young praised Lighthizer’s decision:

“United States Trade Representative Robert Lighthizer did the right thing by dropping the planned reinstatement of aluminum tariffs against Canada. The tariffs violated the spirit, if not the letter, of the just-enacted USMCA trade agreement. The agreement and its predecessor exist in large part to avoid the sort of brinksmanship between allies we just witnessed.

“The administration may finally be learning that other countries retaliate against tariffs. Just in case the lesson has not yet sunk in, Congress should pass legislation taking back the tariff-making powers it granted to the President under Section 232 of the Trade Expansion Act of 1962. Taxing power properly belongs with Congress, and this administration has proven it will not use its power responsibly.​”

WTO Rules Against Trump’s China Tariffs, but the Problem Remains the Tariffs Themselves

This is a press release orginally posted at cei.org.

The World Trade Organization ruled today that President Trump violated global trade rules by unilaterally imposing tariffs on over $350 billion worth of Chinese goods. CEI Senior Fellow Ryan Young says, while the WTO decision is not a surprise, the bigger problem remains the economic and personal toll of the tariffs themselves.

“It is no surprise the WTO found that President Trump’s China tariffs violate its rules. Ironically, the President cannot appeal this decision because he continued the Obama-era policy of crippling the WTO’s Appellate Board. 

“The China tariffs are still bad policy. The purpose of the tariffs was to force the Chinese government to reform its illiberal policies ranging from trade barriers to technology theft to its human rights record. Not a single reform has been credibly made.

“In the short term, the Trump tariffs are raising prices and limiting access to important goods during a pandemic and a recession. There are even tariffs on needed personal protective equipment such as face masks. There is no justification for such measures.

“In the long term, President Trump’s blatant disregard of a rules-based trading system means countries like China will be less likely to follow the rules themselves. His policies are contrary to the national interest and harm the pandemic response. President Trump should rescind the tariffs regardless of what the WTO says.”

In the News – Canadian Tariffs

Thomas Howell, Jr. from The Washington Times quotes me in a story about President Trump’s reinstatement of 10 percent aluminum tariffs against Canada:

“The timing is just terrible. The USMCA trade agreement is barely a month old, the economy is fresh off the worst quarter in American history, and here comes a tax increase on something everyone uses. It makes no sense politically, let alone economically,” said Ryan Young, a senior fellow at the Competitive Enterprise Institute.

Aluminum Tariff Increase is #NeverNeeded, Should Be Repealed Instead

This is a press statement originally posted at cei.org.

President Trump’s decision to re-impose 10 percent aluminum tariffs against Canada is misguided policy for four reasons, according to CEI senior fellow Ryan Young:

“One, other countries nearly always retaliate against tariffs. A Canadian official has already said Ottawa ‘will react very similarly to the last (time they imposed) tariffs,’ which was in 2018. Trump’s reinstated tariffs will cause double harm to consumers and businesses in both countries.

“Two, the timing is awful. The U.S. economy has just experienced its worst decline in recorded history, including the Great Depression. Unemployment is in double digits. President Trump should not make matters worse by increasing taxes on U.S. consumers and businesses, and raising tensions with America’s largest trading partner.

“Three, aluminum-using industries from beverages to autos to electronics will have higher costs. That means higher prices for consumers, who will then have less money to spend on other goods. Moreover, much of the aluminum industry itself does not want the tariffs, saying so less than two months ago in an open letter to U.S. Trade Representative Robert Lighthizer.

“Four, the point of the new USMCA trade agreement, which came into effect on July 1, was to reduce trade barriers. It succeeded for barely a month. CEI’s decision to oppose the agreement is so far being vindicated, though we would rather be proven wrong.

“It is time for Congress to reclaim the tariff-making authority it delegated to the President. He is clearly incapable of using them responsibly—even during the COVID-19 pandemic. Rather than raising taxes and tensions at the worst possible time, the administration should lower trade barriers and continue to pursue regulatory relief.”

Resources

CEI’s #NeverNeeded website, neverneeded.cei.org.

Ryan Young, “Repeal #NeverNeeded Trade Barriers: Tariff Relief Would Aid Virus Response, Economic Recovery, and Long-Term Resiliency

Iain Murray and Ryan Young, “Traders of the Lost Ark: Rediscovering a Moral and Economic Case for Free Trade

In the News: Lowering Tariffs

Bloomberg’s Ana Monteiro was kind enough to quote from my tariff relief paper in a recent piece:

While some duties have been relaxed to help with importing inputs needed for the coronavirus response, repealing tariffs related to health care altogether is something that Ryan Young, a senior fellow at the Competitive Enterprise Institute, in a July 8 paper said would have the immediate benefit of lowering costs for equipment and medical treatments. He argued that removing all duties imposed since 2017 would “aid economic recovery by reducing businesses’ supply costs,” and provide them some regulatory certainty.

The CEI’s Young also called for tariff-making authority to be moved back to Congress. That would mean repealing:

  • Section 232 of the 1962 Trade Expansion Act, which allows for tariffs without a vote by Congress if imports are deemed a national-security threat;

  • Sections 201 of the 1974 Trade Act, which gives the president authority to impose trade restrictions;

  • Section 301 of the 1974 Trade Act, which President Donald Trump has used to impose tariffs on French and Chinese goods.

Read the whole article here. The paper is here.

In the News: Tariff Reform in the CBC

It’s not often that phrases such as “institution-level reforms” and “never needed” appear in state-run media at all, let alone favorably. I am pleased this happened in a recent article on trade policy in Canada’s CBC:

In a report issued Wednesday, the U.S.-based Competitive Enterprise Institute, a conservative think tank, urged the Trump administration to get rid of all tariffs.

“Tariff reform should have been a priority before the coronavirus hit, but now it’s even more urgent to lift trade barriers, in particular for health care supplies and treatments,” said Ryan Young, CEI senior fellow and author of the report, in a statement.

“Tariffs were never needed in the first place, and they are causing harm during a potentially Depression-level economy. The time to act is now.”

Among other things, the report calls on Congress to “make big-picture, institution-level reforms to U.S. trade policy” — including the repeal of Section 232 of the Trade Expansion Act of 1962 and Sections 201 and 301 of the Trade Act of 1974 — to “restore tax authority to the legislature and make trade policy less subject to presidential whim.”

CEI is misidentified as conservative rather than liberal, in the correct sense of the word. But there are bigger battles to fight. The full article is here; my recent paper on tariff relief is here.

In the News: Tariff Relief

Reason‘s Eric Boehm was kind enough to draw on my recent paper on tariff reform in a piece urging the inclusion of tariff relief in the next coronavirus stimulus bill. The article is here; the paper is here.

New #NeverNeeded Paper: Remove or Reduce Tariffs

Trade barriers are an obvious #NeverNeeded candidate for removal during a pandemic and a recession. They make medical supplies scarcer and more expensive. They raise consumer prices at a time when millions of people are losing their jobs and wondering how to make ends meet. And because other countries retaliate every time President Trump raises a tariff, U.S. businesses find shrunken markets for their goods through no fault of their own. Tariffs are a self-harming policy. They must go.

In a new paper for CEI’s #NeverNeeded series, I lay out a plan for making that happen. But simply getting rid of the Trump-era tariffs is not enough. Reformers need to make sure they do not come back. That means, as with so many areas, that institution-level reform is necessary. In this case, that reform involves the separation of powers.

The backstory is that Congress originally delegated away some of its tariff-making power in the 1960s and 1970s to the president because it found itself incapable of reducing tariffs the way it wanted to in the early postwar era. Vote-trading and favor exchanges that are a common part of congressional operating procedure weakened trade liberalization attempts. The thinking was that the president, with a national constituency, would be less prone to giving narrow favors to a single congressional district at the expense of the whole country.

This worked until an ideologically protectionist White House more than doubled U.S. tariff rates in just three years. Those tariffs and the retaliations they inspired are costing roughly a half percentage point of growth. The country might be able afford this kind of ideological luxury good during a boom, but not during COVID.

The tariffs must go, and Congress must reclaim its authority. Fortunately, the reform is pretty simple. Congress can repeal three sections from two different trade bills to reclaim its proper taxing authority from an executive branch that will not use it responsibly.

Those sections are Section 232 of the Trade Expansion Act of 1962 and Sections 201 and 301 of the Trade Act of 1974.

The whole paper is here.

A brader agenda for reducing trade barriers is in Iain Murray’s and my paper Traders of the Lost Ark.

CEI’s #NeverNeeded website is here.