The COVID-19 pandemic has brought many parts of the U.S. economy to a standstill. The Congressional Budget Office predicts GDP will decline by over 7% for the second quarter of 2020, and it is all but certain that the country will enter into a recession. With the Department of Labor announcing 4.4 million new Americans filed for jobless benefits last week, the total number out of work has reached 26 million, over 15% of the U.S. labor force.
Congress and the president must now do everything in their power to help companies survive and Americans keep their jobs, so that the economy can slowly begin to turn around. One way to do this, while also providing immediate relief for U.S. consumers and businesses, is by suspending, or ideally permanently repealing, all existing tariffs.
The administration has already taken action by releasing an executive order delaying payment of some tariffs for 90 days. While this is a positive development, it is a temporary measure as tariffs will eventually be owed, and the executive order does not include billions of dollars in recently enacted tariffs.
Suspending or permanently repealing these tariffs will help small and large companies that are struggling to survive by removing costly taxes on imports and barriers to trade. It will also help families afford the products they need by reducing costs for consumers at a time when household budgets are stretched thin.
And it will be a boon to the U.S. economy. According to research by Trade Partnership Worldwide, suspension of the current tariffs, those imposed under Section 301 of the 1974 Trade Act and Section 232 of the Trade Expansion Act, will increase the U.S. economy by more than $75 billion, or 0.4% of U.S. GDP.
Tariffs were causing irreparable harm to businesses long before the COVID-19 outbreak.
In the last two years, tariffs were imposed on almost $400 billion in imports, which reduced average household income by $1,200, according to the Congressional Budget Office.
Among U.S. businesses, manufacturers have been hit particularly hard as they depend on complex global supply chains to source raw materials and components not available in the United States and rely on access to foreign markets to drive growth. Section 301 tariffs imposed on raw materials and components from China have been particularly damaging to this sector.
In fact, manufacturing contracted by 1.3% in 2019, and over 16,000 manufacturing jobs were lost in the politically important states of Pennsylvania, Michigan, Ohio, and Wisconsin.
Now, these same manufacturers are facing the full effects of the COVID-19 pandemic, including plummeting demand, supply chain bottlenecks, spending slowdowns, and jitters over the credit markets. For many, it’s been a devastating one-two punch.
Congress and the Trump administration should be applauded for the steps they have already taken to help businesses and workers weather the impact of the COVID-19 pandemic on the U.S. economy and on communities across the country. The Paycheck Protection Program, created by the CARES Act, provides much-needed forgivable loans to help small businesses cover payroll costs and most mortgage interest, rent, and utility costs. And the recently announced Main Street Business Lending Program offers liquidity lifelines to mid-sized businesses.
However, there is a clear and urgent need to do more, including pulling back all existing tariffs. As we have stated before, tariffs are taxes or duties that must be paid on goods being imported into the U.S., and they cause significant, if not irreparable, economic damage to U.S. companies, workers, farmers, and consumers.
This is particularly damaging to manufacturers that face the choice of either paying higher tariffs on critical raw materials and components or shutting down production due to a lack of domestic alternatives. Reorganizing their supply chain is often not an option as it is a complex and costly process that can take years, a challenge that is especially acute for smaller businesses.
While supporters of protectionist trade policies have argued that tariffs allow U.S. manufacturers to compete on a level playing field against foreign businesses, studies have repeatedly found that any advantage provided to domestic businesses is more often than not wiped out by the higher costs of inputs and retaliatory tariffs.
Even before the current crisis, manufacturers were facing tough times as a result of the protracted U.S.-China trade war and the deteriorating trade relationship with Europe. What started with delayed capital expenditures, hiring plans, and product launches, rapidly turned into layoffs and shuttered manufacturing plants.
The COVID-19 pandemic has managed to turn an already dire situation worse, with many manufacturers facing an existential threat not seen since the Great Depression.
As Congress and the White House work to mitigate the significant economic damage caused by the COVID-19 pandemic, they should act now to suspend or eliminate tariffs. This will not only help the U.S. economy recover more quickly, but it will also ensure manufacturers have the case they need to survive for the next few months and eventually recover from the unprecedented economic damage caused by the COVID-19 pandemic.
Kip Eideberg is senior vice president of government and industry relations at the Association of Equipment Manufacturers, which represents manufacturers and parts and service providers for the agriculture, construction, forestry, mining, and utility equipment industries. Alex Hendrie is director of tax policy at the nonprofit group Americans for Tax Reform.
