By Tina Irgang
In a series of Tweets Dec. 4, president-elect Donald Trump threatened to impose tariffs of 35 percent on companies that ship jobs overseas and want to re-import their products to the U.S. for sale. But are tariffs an effective tool in keeping manufacturers in the U.S., and is the plan actually viable?
The recent Twitter announcement isn’t the first time Trump has endorsed tariffs on U.S. companies. They were a frequent talking point during the campaign, when Trump also endorsed double-digit tariffs on Chinese or Mexican imports, according to PolitiFact.
Trump’s nominee for commerce secretary, Wilbur Ross, has said tariffs would be used as a last resort, notes The Washington Post. However, Trump’s Twitter announcement came in the wake of a direct intervention with Indiana-based manufacturer Carrier, which agreed to retain 800 jobs that had been slated to move to Mexico after striking a deal with the incoming administration. The deal shows that Trump is in fact ready to take a hands-on approach in the corporate decisions of manufacturers, The Post goes on to say.
What are the potential risks and benefits of tariffs?
The most commonly cited benefit of threatening to impose tariffs is that it can impel foreign trade partners to lower barriers, notes PolitiFact. However, that benefit wouldn’t seem to apply if the tariffs are imposed on U.S. companies.
At the same time, there is the question of who would bear the costs of the tariffs. Some Congressional Republicans expressed concern that companies would pass the cost on to consumers. Sen. Ben Sasse, R-Neb., for example, tweeted: “Pres-Elect Trump means well. But won’t his 35 percent tariff idea raise prices on American families? How would it not be a new 35 percent tax on families?”
So what about the potential for job gains? The argument goes that even if prices rise on consumers, this will eventually be offset by gains in the economy as companies are incentivized to return their operations to the U.S. and create jobs. The problem is that this offset could be a long time coming: “It would take years for the U.S. industry to rebuild supply chains and make that kind of transition,” says Manufacturing.net, an industry news site.
There are also other ways in which tariffs could harm the economy, notes Fox News, citing an example from the George W. Bush administration: “Back in 2002, President George W. Bush imposed tariffs of up to 30 percent on imported steel. American steel producers took advantage of the tariffs to raise their own prices, thereby squeezing U.S. industrial companies that buy steel. The Consuming Industries Trade Action Coalition, representing steel buyers, has said the tariffs cost thousands of U.S. jobs.”
There is also an example from the Obama administration to illustrate the risks of tariffs, notes USA Today. “In 2009, President Obama raised tariffs on car tires made in China, charging that domestic competitors were hurt by imports. … Tire prices rose in the U.S. And with Americans paying more for tires, spending on other retail goods fell, ultimately costing the U.S. economy around 2,531 jobs.”
Is the tariff proposal realistic?
Risks and benefits aside, can the idea of a 35 percent tariff on specific companies be implemented?
One way Trump’s plan could happen is with Congressional approval, but he might have trouble getting it, notes CNN Money. House Majority Leader Kevin McCarthy and House Speaker Paul Ryan have both expressed reservations about tariffs. Ryan has also said he would prefer to incentivize companies to keep jobs by providing tax breaks, according to The New York Times.
There is another way Trump could implement his plan, but it involves a thorough Commerce Department review, notes USA Today: “Company-specific penalties are imposed only when the Commerce Department concludes that a foreign exporter is under-cutting prices in the U.S. or being unfairly subsidized, thus violating U.S. anti-dumping and countervailing duty laws.”
While Trump’s commerce pick, Wilbur Ross, might help him negotiate this hurdle, there is another step to the process that could be tougher to navigate, says CNN Money: “The U.S. International Trade Commission must determine that the dumping has caused harm on a U.S. industry like steel or autos. The trade commission is not an organization that gives in easily to arm twisting. It is always made up of six members with no more than three of them from one political party, Democrat or Republican.”
The article goes on to say that to date, the commission has never investigated a U.S. company for dumping products on the U.S. market.
Tina Irgang is SmartCEO’s managing editor. Contact her at email@example.com.