President Trump has consistently promised he will take action to ensure American businesses and workers have fairer trade deals with foreign competitors.
While Trump is right to fight for more favorable trade, his proposed solution of tariffs as a negotiating tactic risks harming the economy and undermining the gains made from last year’s tax reform.
The administration formally proposed $50 billion in tariffs on China, while broad tariffs on imported steel and aluminum went into effect. This follows tariffs imposed on imported dishwashers in January.
Tariffs are little more than taxes on trade, so increasing tariffs is no different than increasing taxes. Higher tariffs will increase the cost of products and hurt American workers, consumers, and families.
This self-destructive behavior is akin to starting a civil war within the U.S. economy by picking winners and losers among American workers and businesses.
Although some domestic industries may be better off thanks to tariffs, there will be far more losers. Numerous industries rely on global trade, and they will see higher prices for products they rely on to do business, which will lead to lower wages and fewer jobs. According to a study by Trade Partnership, imposing global tariffs on steel and aluminum would create 33,464 jobs in domestic production, but cost 179,334 jobs through negative economic effects.
The federal government has tried tariffs before, and the effort was a failure. In 2002, President George W. Bush increased tariffs on steel, a move which cost as many as 200,000 American jobs. This decision led to a trade war, with the European Union targeting the Florida orange industry in retaliation.
Similar retaliation is now occurring in response to Trump’s tariffs, with China announcing on Monday tariffs on $3 billion worth of U.S. goods.
If the administration is insistent on tariffs, they should ensure they are tailored as narrowly as possible. Trump has already taken steps toward a more targeted approach that has included exemptions for trading partners such as Mexico, Canada, and the EU.
While the effects have not been fully felt yet, the Trump administration has already taken a giant step forward toward making America globally competitive. The tax reform bill that passed in December created a competitive territorial system of taxation and lowered the corporate tax rate to 21 percent.
Before tax reform, we had the highest corporate tax rate in the developed world and were one of six countries in the 35-member OECD with a worldwide system. This encouraged investment outside the U.S., suppressed the creation of new jobs and American manufacturing, and lowered wages.
The old system caused more than $1.7 trillion in business assets to flow outside the country between 2004 and 2016, according to one study. The Trump administration’s implementation of a globally competitive tax system will reverse these trends. But we must not allow these gains to be undermined by tariffs.
Not only did tax reform reverse these trends, it also gave American families bonuses and pay increases. Due to tax reform, small business confidence is at a record high, unemployment is at a 17-year low, and more than 300,000 jobs were created in February.
Tax reform has resulted in 90 percent of taxpayers receiving larger paychecks, and at least 4 million Americans have received bonuses.
These benefits are being felt by companies large and small. For instance, AT&T has given its 200,000 employees $1,000 bonuses, while Anfinson Farm Store, a family owned business in Cushing, Iowa, (population 223) has given its employees a $1,000 bonus and raised wages by 5 percent.
Companies have also responded by investing in their workers through workforce development programs, expanded maternity and parental leave, and increasing employee retirement benefits.
Leading into the 2018 midterm elections, the administration should be focused on highlighting the sweeping tax reduction passed late last year and championing free-market policies that complement this win.
While Trump’s goal of better trade deals that benefit American businesses and workers is the right goal, imposing tariffs is the wrong way to achieve this goal. Tariffs will result in far more losers than winners and will undercut the benefits of the Trump tax reform effort.
Alexander Hendrie is a contributor to the Washington Examiner’s Beltway Confidential blog. He is tax policy director at Americans for Tax Reform.
