Category Archives: Trade

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Aluminum Tariff Increase is #NeverNeeded, Should Be Repealed Instead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.

Managed Trade: USMCA Comes into Effect Today

The United States-Mexico-Canada Agreement (USMCA) comes into effect today. It replaces the North American Free Trade Agreement (NAFTA) of 1994. USMCA’s policy changes are modest, and its economic impact will be small. But it sets a negative precedent for future trade agreements that could have far larger long-term impacts than USMCA itself. Most of its changes also attempt to manage trade, rather than free it. These factors led CEI to oppose USMCA in December 2019.

Some USMCA policy changes are positive, such as a partial liberalization of Canada’s dairy markets. More than half of USMCA’s text is drawn verbatim from the Trans-Pacific Partnership (TPP) that the Trump administration unwisely withdrew from early in its term. My colleague Patrick Hedger wrote about Section 230-style language that will benefit free speech while making all three member countries’ tech industries more competitive.

Other changes are negative. The U.S. essentially dictated to Mexico what some of its labor policies shall be. Not only is this disrespectful to Mexico’s sovereignty, but it is essentially a gift to U.S. labor union interests, and will make autos more expensive for consumers. Auto parts makers’ supply networks, which have built up over decades, will have to be reconfigured to meet USMCA’s requirements for what percentage of parts must come from which countries. But those are smaller potatoes. There are larger ones.

USMCA’s name does not contain the words “free” or “trade.” This is symbolism, but also important. President Trump is a longstanding critic of free trade, and hired his policy advisers accordingly. Their removal of the F from NAFTA accurately reflects their policy goals. They would rather manage trade than free it.

Nor is their planners’ ethos confined to USMCA. The China Phase One deal goes so far as to outline minimum dollar amounts for how much agricultural exports U.S. farmers are to send to China, for example. Of course, the administration’s economic planners could not foresee the COVID crisis. Their quotas are now unlikely to be met even in a best-case scenario, which is causing avoidable diplomatic tensions; the best-laid plans and all that. Some USMCA plans have similarly been thrown off by the pandemic. Supply networks were already rushing to meet USMCA’s country-of-origin requirements. The last few months of lockdown have made the adjustments even more difficult.

USMCA’s missing T, which in NAFTA stood for Trade, is also significant. It belies mission creep. Trade agreements should stick to trade. USMCA emphatically does not.  USMCA’s trade-unrelated provisions include environmental policies, labor policies, intellectual property rules, currency policy, pharmaceutical regulations, and more. Trade-unrelated provisions inflate page counts, create unnecessary areas of contention, prolong negotiations, distract from the matter at hand, and create new rent-seeking opportunities.

The original NAFTA was the first major trade agreement to contain significant trade-unrelated provisions, and deserves criticism on that front. But at least they were shunted off into a side agreement. USMCA bakes its trade-unrelated provisions into the main agreement. The U.S., Canada, and Mexico already enjoy a near-zero tariff relationship, and relatively low non-tariff barriers. Without much left for USMCA to accomplish on trade, non-trade issues are no longer a sideshow. They are the show.

While USMCA is comparatively low stakes and will have minimum economic impact, it sets a negative precedent for upcoming agreements with the, European Union, and China. Relations with the EU have been tense for some time, especially over Boeing and Airbus subsidies. Any further China agreements will be delicate, both because of the COVID lockdown affecting Phase One compliance and President Trump’s reelection concerns apparently influencing his negotiations.

Haggling over non-core trade issues could potentially torpedo those agreements, or dilute liberalization victories for tariffs and other trade barriers. USMCA itself is not particularly harmful. But the precedent it sets might be.

For a more constructive approach to trade policy, see Iain Murray’s and my paper “Traders of the Lost Ark.” For a better approach to trade agreements, see “The Ideal U.S.-U.K Free Trade Agreement,” put together by consortium of groups in the U.S. and U.K., headed by the Cato Institute’s Dan Ikenson and Simon Lester, and the Initiative for Free Trade’s Daniel Hannan.

Supreme Court Declines to Hear Steel Tariff Case: Time for Congress to Act

President Trump’s steel tariffs were intended to boost U.S. manufacturing. They backfired to the point where a group of steel-using industries sued to stop the tariffs. The case wound its way up to the Supreme Court, which this week announced it would not hear it. The tariffs will remain in place.

Although the Court will not act, Congress has the power to rescind the tariffs at any time. However, as the Cato Institute’s Dan Ikenson told Politico’s Morning Trade newsletter, “Congress is quite content with its abdication of trade authority, frankly.” President Trump is getting all of the blame for the trade war’s failures. This is fine with much of Congress—even many Republicans, who mostly did not favor Trump-style trade protectionism until changing their minds around January of 2017.

Sen. Chuck Grassley (R-IA) has proposed reclaiming some of Congress’ abdicated tariff authority, but his proposal’s political prospects are dim.

The Supreme Court case on the steel tariffs would have hinged in part on the separation of powers. Only Congress has the power to tax. Tariffs are taxes. That means only Congress, not the president, can enact tariffs. But there is a wrinkle. Back in the 1960s and 1970s, Congress delegated away some of its tariff-making power to the president. The steel tariffs were enacted under Section 232 of the Trade Expansion Act of 1962, which empowers the president to impose tariffs without congressional consent, provided they are imposed on national security grounds.

It is hard to tell which way the Court would have decided that question, since separation of powers arguments cut both ways. While the president does not have taxing power, Congress did delegate Section 232 powers to him. But how far does that delegation authority extend? How far do the powers reach? These questions will remain unanswered for now.

While frustrating, this may be for the better. The Supreme Court, whose members are presidentially appointed and Senate-approved, in part for that reason, tends to be permissive of executive power, and deferential to Congress.

The merits of the case are less ambiguous, though that is often of less importance in legal matters. The Section 232 steel tariffs, which originally targeted allies such as Canada and Mexico, do not pass any reasonable national security test. In a phone call with Canadian Prime Minister Justin Trudeau, for example, President Trump claimed that the tariffs were justified because Canada burned down the White House during the War of 1812.

This claim, while weak, is also inaccurate. The White House was burned by British soldiers. Those soldiers were stationed in Canada, but since Canada’s government did not gain independence until 1867, it can hardly be blamed. This also leaves aside Canada being one of America’s strongest allies through multiple wars and other national security threats, as well its largest trading partner.

#NeverNeeded steel tariffs are harming not just the steel industry, but steel-using industries such as construction and automobiles. In all, just the tariffs that President Trump alone has enacted are costing the economy roughly a half percentage point of economic growth, according to the Congressional Budget Office. While the country might have been able to afford such ideological luxury goods during a boom, it simply cannot during the COVID-19 recovery.

In CEI’s most recent Agenda for Congress, we argued that Congress should repeal not just Section 232 tariff authority, but also Sections 201 and 301 of the Trade Act of 1974, which allow presidential tariff-making to address foreign competition and treaty violations. Iain Murray and I also outlined a larger positive agenda for trade policy in our paper “Traders of the Lost Ark.”

The Trump tariffs have to go. Since the Court will not step up, Congress must act.

Trump Defers Tariff Payments for Struggling Businesses: A Good Start, More Needed

President Trump has deferred selected tariff payments for companies experiencing coronavirus-related hardship. U.S. Customs issued a press release here and the temporary final rule appeared in the April 22 Federal Register. It came after more than two weeks of starts, stops, denials, reversals, and at least one accusation of “fake news” from the president. This indicates that trade policy is still an area of uncertainty and not something rebuilding businesses can plan around—potentially endangering post-virus economic recovery.

The deferrals are better than nothing. But it is important not to oversell them. Here is a bit of context on the impact they are likely to have:

  • They are deferrals, not exemptions. U.S. producers will still pay all affected tariff duties, just 90 days later. Because of this, companies have no reason to reduce prices for consumers.
  • The deferrals are only for imports made in March and April—precisely when imports significantly slowed. That limits their usefulness in buying time for cash-strapped businesses.
  • None of the Trump tariffs from 2017 onwards are eligible for deferrals. Since Trump has roughly doubled tariffs, this means about half of all tariffs are not eligible for deferred payment. That includes the steel and aluminum tariffs, the China tariffs, and other recent measures against the European Union, Turkey, and India.
  • Antidumping and countervailing duties are also ineligible for deferred payments. These are the most common type of trade barrier, further limiting the deferrals’ impact.
  • Companies must be experiencing “significant financial hardship” to be eligible This means a company must have lost at least 60 percent of its sales since this time in 2019.

The Cato Institute’s Dan Ikenson estimates the deferrals will total about $6 billion. That is certainly enough to buy some time for some struggling businesses. For context, total customs duties in 2019 were $85 billion. Total U.S. imports were $3.43 trillion (in chained 2012 dollars; $3.77 trillion in 2019 dollars). The most newsworthy part of these deferrals might be how newsworthy they aren’t.

The administration and Congress could do much better. A more wide-ranging trade relief measure ewould include Trump’s newly enacted tariffs. It could even do away with them entirely.

Considering the hemming, hawing, and uncertainty that surrounded even this small deferral, Congress should give businesses some stability to plan around by taking back the tariff-making authority it delegated away to the president in the 1960s and 1970s. This would prevent further increases while insuring against ad hoc multibillion-dollar policy changes with little or no notice.

While better than nothing, this deferral is far less than what needs to be done to allow businesses to rebuild, save consumers money, and for supply networks to get medical equipment where it is most needed.

That said, the deferral has a subtle hidden benefit. It marks at least the second time the Trump administration has tacitly admitted that Americans, not foreign exporters, pay tariffs. The first admission happened last August when adviser Peter Navarro called a delay in upcoming new China tariffs “President Trump’s Christmas present to the nation.” More such presents would help protect public health right now while helping with economic rebuilding when the pandemic passes.

On the Radio: Tariffs and #NeverNeeded

This morning I was on the David Webb Show on SiriusXM’s Patriot channel to talk about possible tariff suspensions and how they would stimulate the economy. We also discussed the #NeverNeeded movement and how it would assist the coronavirus response while strengthening long-term economic fundamentals.

I’ll update this post with audio if I find a link.