It has been over three years since Congress failed to renew the oldest U.S. trade preference program, the Generalized System of Preferences (GSP). This has proven extraordinarily costly to many Americans. But that may be about to change.
GSP eliminates tariffs on more than 5,000 products from 119 developing countries. Before Congress allowed it to lapse in December 2020, U.S. businesses and citizens were saving $1 billion in import duties annually.
When U.S. consumers, farmers, and manufacturers purchased GSP intermediate goods, they created tens of thousands of jobs in the U.S. GSP also boosted American competitiveness by reducing costs of imported inputs used to manufacture goods inside the U.S., in turn permitting U.S. businesses to produce more competitive products, and in turn saving American families money. GSP is vital to small business, which depends on the program’s tariff savings to compete.
At a recent Senate Finance Committee hearing, Sen. Mike Crapo (R-Idaho) stated the painful truth about the failure to renew GSP: “Because of this lapse, Americans paid an extra $3 billion in tariffs and companies are moving production from developing countries to China.” Indeed, the empirical data reinforces the numerous published examples of American firms sourcing intermediate goods away from GSP countries to China.
The anti-trade behavior behind the failure to renew GSP not only increases our trade deficit with China, but has lost markets for us in GSP countries to China as well.
Protectionists in both parties have failed to provide evidence to support the end of GSP, aside from the usual antitrade bromides. This is particularly the case when the Coalition for a Prosperous America alleges that GSP renewal will lead to a “new wave of offshoring by U.S. multinationals.” There is no evidence to support this. In fact, quite the opposite has happened since GSP lapsed.
Crapo is working to introduce Senate legislation to renew GSP. Already, the House Ways and Means Committee approved the “Generalized System of Preferences Reform Act” on Apr. 17, 2024, which would renew GSP until 2030.
Some have asked why we cannot source these products domestically in the U.S. The answer is that this goes hand-in-hand with living in a wealthy and advanced economy. Most American workers do not want low-skilled factory jobs making low-value products for minimum wage (or possibly less). The unrealistic dream that the U.S. could become self-sufficient — even to the extent that we produce even such items as rope — would require importation of unskilled migrant workers, just like in the agriculture sector.
Protectionists have an unrealistic expectation that the U.S. could sustain and prosper without recourse to international trade. Yet importing lower-value imports allows U.S. manufacturers to create higher-value products more cost-effectively, which allows American workers and businesses to occupy a more profitable and higher income place in the global supply chain.
Another factor that has impeded GSP renewal has been the left’s preoccupation with Environmental, Social, and Governance and Diversity, Equity, and Inclusion policies at the expense of traditional trade policy. The Biden administration injects into every trade discussion “inclusive trade” policies and speaks of trade as part of a new “social contract.”
Democrats in Congress have echoed this by calling for new GSP eligibility criteria that would impose gender equality, labor, and environmental obligations on GSP countries, which would make this trade preference program too costly for many to comply.
Importantly, the U.S. does not impose such obligations on its trade with China, which is building two new coal fire power plants a week and using some of the dirtiest coal available. The U.S. should neither outsource its carbon emissions to China nor put pressure on other countries to do the same. That only enriches China without helping the environment.
Further obstacles are being raised by Senators such as Sheldon Whitehouse (D-R.I.), Elizabeth Warren (D-Mass.) and Sherrod Brown (D-Ohio), who want to tie GSP renewal to the reauthorization of the Trade Adjustment Assistance for Workers Program. This program provides assistance and benefits to workers who have suffered job losses attributed to international trade. Yet it is the failure to renew GSP, not GSP itself, that has led to the loss of American jobs.
Again, the lapse of GSP has removed a source of low-cost inputs that American businesses rely on to produce higher-value products. The Trade Adjustment Assistance program has never been used for trade preference programs before, because it is only authorized to accompany requests from the executive for Trade Promotion Authority from Congress to negotiate free trade agreements, which the Biden administration has ruled out doing.
The failure to renew GSP has made alternatives to China less competitive, which has impeded and even reversed efforts at decoupling from China. GSP opponents have suggested that voting for the aforementioned legislation is an admission that legislators do not believe in reshoring manufacturing. But quite the opposite is true. By supporting renewal, Congress will bolster the efforts to reshore trade efforts from China to friendlier partners, even while bolstering the U.S. manufacturing sector.
Andrew Hale is the Jay Van Andel Senior Trade Policy Analyst at the Heritage Foundation.