Economy & Business

The House Should Go Big: Temporary Tariff Reform Creates More Problems Than It Solves

(Murat Besler/Dreamstime)

‘I mean [to] show what we would do, what our ideal policy would be.” That was newly elected House speaker Paul Ryan’s promise in December. For Americans who have been anxiously awaiting the type of “bold, pro-growth” policies Speaker Ryan had in mind, those were encouraging words. While Republican presidential candidates were putting forward proposals to cut marginal tax rates, we looked forward to the Ryan House moving major tax reform through the Ways and Means Committee and on to the House floor — but so far all we have seen is a bill to reform the miscellaneous-tariff-benefits process.

Most readers would be forgiven if they had never heard of a miscellaneous-tariff benefit, or MTB. Up until 2012, it was an obscure, congressionally driven process to lower selective tariffs on certain products that were not produced in the United States, so long as the revenue generated by those tariffs did not exceed $500,000 annually. Generally, only one or two companies — usually massive chemical conglomerates — would directly benefit from the tariff reductions, which expired every three years, prompting another round of lobbying.

In 2012, the process ground to a halt when congressional Republicans realized that moving forward with an MTB package would violate the hard-won ban on earmarks. In fact, Democratic and Republican appropriators secretly hoped that would be the case — they hoped it would lead to the end of the earmark ban altogether. Now, nearly four years later, House Ways and Means chairman Kevin Brady (R., Texas) and a bipartisan coalition of lawmakers believe they have found a way to revive the MTB process without running afoul of the earmark ban. In the words of Dave Reichert (R., Wash.), the chairman of the subcommittee on trade, the plan “is consistent with the rules of the House, and upholds our strong ban against earmarks.”

Going after MTBs certainly isn’t bold: Chairman Brady and Speaker Ryan can show real leadership by amending the new MTB proposal — the American Manufacturing Competitiveness Act of 2016 (H.R. 4923) — in one of three ways.

First, simply eliminate all tariffs that generate less than $500,000 per year in revenue for the federal government, which is the current threshold for MTB requests. This would be exactly the type of bold, pro-growth policy Speaker Ryan clamored for last year. It also has the benefit of being more straightforward than forcing companies to petition the International Trade Commission (ITC), the federal agency charged with refereeing the miscellaneous-tariff-benefit applications, and it would significantly reduce the number of lobbyists engaged in the debate.

House Republicans should use this opportunity to explain how tariffs hurt consumers, manufacturers, and America’s economy.

Second, make permanent any tariff relief enacted through the new process. Similar to the much-maligned annual tax-extenders process, temporary tariff reductions do not create certainty for American manufacturers. And they are similar to earmarks because the lobbyists and consultants who will advise businesses through the new process will inevitably be found lying in wait for billable hours — and Congress will turn around and fleece them for campaign contributions every three years. Permanency would reduce the influence of lobbying, create certainty for American manufacturers, and allow Congress to move different trade-related priorities forward instead of continually revisiting minor tariff relief.

Third, change the criteria by which the ITC evaluates proposals. The committee’s executive summary explains that the ITC will ensure “that there is no domestic production [of a particular product] – with suggested technical changes and adjustments in product scope to protect our domestic producers.” A tariff is a tax designed to shield some American companies from international competition. While that may be good for a specific company’s short-term outlook, over the long run it’s bad for the company, consumers, and the economy as a whole.

“Imports of manufactured goods are extremely important for the manufacturing sector,” explains the Federal Reserve Bank of St. Louis. “Specifically, imports of intermediate goods contribute significantly to the industry’s strong rate of productivity growth.” Applying that process to all small tariffs would open the process, driving down costs for domestic manufacturers and American consumers.

If House Republicans want to do more than adhere to the letter of the earmark ban, they should use this opportunity to explain how tariffs hurt consumers, manufacturers, and America’s economy. It cannot be said enough: Tariffs act as a tax on imported goods, increasing costs to consumers and making it more difficult for American firms to compete with foreign companies. Tariffs are not the antidote to our ailing economy, they are an accelerant that damages it even further.

The House should be bold — use MTB reform to start permanently eliminating tariffs altogether.


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