Congressional Republicans who support free trade are beginning to grapple with the political reality that President Trump and many of their own constituents who put Trump in the White House don’t agree.
Some GOP lawmakers have started to become more vocal in their defense of free trade. Others are looking for ways to satiate the demand for more protectionist policies without really breaking with the Republican free trade consensus that dates back to Ronald Reagan’s presidency.
But presidents frequently redefine political parties, and Trump seems to be reshaping how to think about trade among Republicans. Trump is already moving to re-negotiate the North American Free Trade Agreement, which passed originally passed with the support of 66 percent of Republicans in the House and 80 percent of Republicans in the Senate.
And on Thursday, Trump’s White House spokesman muddied the water for Republicans once again by suggesting the administration supports an arcane tax policy change to fund a proposed wall along the U.S.-Mexican border.
“When you look at the plan that’s taking shape now, using comprehensive tax reform, as a means to tax imports from countries that we have a trade deficit from, like Mexico,” said press secretary Sean Spicer, according to the pool report. “If you tax that $50 billion at 20 percent of imports — which is by the way a practice that 160 other countries do — right now our country’s policy is to tax exports but let imports flow freely in, which is ridiculous. By doing it that way, we can do $10 billion a year and easily pay for the wall just through that mechanism alone.”
“If you think about what a border tax on imports from countries like Mexico that we have a huge trade deficit does, that’s really going to provide the funding,” Spicer added.
It was initially reported that Trump, through Spicer, was proposing a 20 percent tariff on all goods imported from Mexico in order to pay for the wall. The president has routinely called for imposing tariffs on countries he deemed as engaging in unfair trade and penalizing companies that ship American jobs overseas. World Trade Organization rules would likely allow countries to retaliate for that kind of move.
But Spicer’s comments instead appeared to be a reference to a House Republican proposal to border-adjust the corporate income tax. That’s an entirely different proposal that could be WTO consistent if done correctly, and a top Republican booster of this plan chose to interpret Spicer’s remarks at the GOP retreat in Philadelphia as support for tax reform.
“This is very encouraging news that the White House is looking at bold reforms, just as Republicans are,” House Ways and Means Committee Chairman Kevin Brady, R-Texas, told reporters.
Border adjustment means that corporate income would be taxed based on earnings from purchases inside the United States. This would in effect tax imports rather than exports and in theory discourage businesses from moving operations to foreign countries.
Trump has complained in the past that border adjustment is “too complicated.” House Republicans had planned to use the revenues it would raise to offset tax cuts, not pay for a border wall.
Still, many congressional Republicans believe that border adjustment would achieve some of the goals of Trump’s tariffs — keeping jobs in the U.S. and creating a tax code friendlier to exports than imports — without negatives like higher consumer prices (because currencies would move in response to the tax) or trade wars.
“This is protection from protectionism,” said a Republican congressional aide.
“A border adjustment is not a tariff, nor would it give the U.S. a trade advantage,” states a Tax Foundation explainer.
Others worry that border adjustment would raise consumer prices just like tariffs. “I think the end result is the same,” said Brian Wise, president of the U.S. Consumer Coalition. “Paul Ryan is an incredibly intelligent man. I’ve supported most of this policies over the years. I have the utmost respect for Chairman Brady.”
But, Wise added, he believed their position on border adjustment would be “horrendous for consumers.”
As Trump gained in popularity among rank-and-file Republican voters, so did the view that free trade pacts are often bad deals for American workers.
A September Politico/Harvard poll found that 85 percent of Republicans believed free trade has cost the U.S. more jobs than it has created. Fifty-four percent of Democrats said the same. Forty-seven percent of Republicans said trade deals hurt their communities while only 18 percent said they helped. Among Democrats 33 percent said trade helped, 24 percent said it hurt.
Half of Pennsylvania Republican primary voters told exit pollsters that trade with other countries hurts jobs. So did 52 percent of Republicans in Ohio, a state where Trump did not even win the primary. But he won both states in November.
Some of the shift was due to partisanship — a Democratic president was negotiating trade deals while a Republican presidential candidate was criticizing them. When a 2006 Pew poll found Democrats more opposed to free trade than Republicans, a GOP president was pursuing trade deals while many Democratic candidates were campaigning against them.
Partisanship doesn’t explain everything, however. The runner-up in four out of the last five competitive Republican presidential contests prior to 2016 was at least to some extent critical of free trade. GOP voters and legislators are often supportive of “buy American” campaigns. Even free traders have often tried to triangulate on trade deals by emphasizing national sovereignty concerns raised by international entities like the WTO.
“It is unbelievable how many taxpayer funded projects are constructed using foreign-made products,” said Rep. Walter Jones, R-N.C., in a statement provided to the Washington Examiner. “It is time we support our own industries and return these opportunities to American workers.”
Trump won in November by carrying Rust Belt states that hadn’t voted Republican at the presidential level since the 1980s, in part due to his trade stance.
But GOP free traders realize they are on the defensive and are beginning to push back.
“It’s clear that those of us who believe trade is good for American families have done a terrible job defending trade’s historic successes and celebrating its future potential,” said Sen. Ben Sasse, R-Neb., in a statement responding to Trump’s withdrawal from the Trans-Pacific Partnership. “We have to make the arguments and we have to start now.”
Sen. Lindsey Graham, R-S.C., took to Twitter Thursday to argue that tariffs on foreign-made goods would hurt American consumers by raising prices. “Simply put, any policy proposal which drives up costs of Corona, tequila, or margaritas is a big-time bad idea,” he said.
Rep. Justin Amash, R-Mich., made a similar argument. “This would be a tax on Americans to pay for the wall,” he tweeted. “When and how will Mexico reimburse?”
