High U.S. tariffs on consumer goods, industrial supplies and medical products threaten to stifle the economic recovery and hinder the fight against the COVID-19 pandemic. Once the election season is behind us, the next administration and Congress must work together for the national interest to unilaterally eliminate self-damaging tariffs, independent of the path other nations choose to follow.
In a new Mercatus Center study, George Mason University professor Donald J. Boudreaux and I propose that Congress establish a Tariff Reform Commission. Drawing on the successful examples of the Base Realignment and Closure (BRAC) commissions and the Miscellaneous Tariff Bill process, the commission would be designed to facilitate the permanent, aggressive and unilateral elimination of all self-damaging tariffs that have been imposed either administratively or through the U.S. Harmonized Tariff Schedule.
Specifically, the commission would create a list of tariffs for elimination based on input from the public and members of Congress. After vetting by the administration and the U.S. International Trade Commission, the list would be submitted to Congress, which would have a certain number of days to pass a resolution of disapproval and for the president to sign the resolution. If Congress or the president do not object or the resolution fails, the tariffs would be eliminated according to a fixed timetable.
A broad reduction in tariffs made possible by the Tariff Reform Commission would deliver immediate benefits to millions of American households, invigorate the nation’s productive capacity, and increase the supply of goods critical to the fight against the novel coronavirus. As has been the case with military base closures, a commission would help Congress overcome the special interest pressure that keeps tariffs in place despite their negative impact on the overall economy and the national interest.
Since the beginning of 2018, the United States has conducted a real-world experiment in sharply raising tariffs. The Trump administration had imposed new tariffs on solar panels, washing machines, steel, aluminum and more than $370 billion in goods imported from China. As we calculate in the paper, the result has been a doubling of the average effective U.S. tariff rate, from 1.4 percent in 2017 to 2.9 percent in 2020.
Existing and recently imposed tariffs have not only damaged the economy in the manner many economists have predicted, but also complicated the fight against the novel coronavirus. Studies by the National Bureau of Economic Research, the Federal Reserve Bank of New York and the Congressional Budget Office all found that the spate of tariff hikes in 2018–2019 have reduced the output of the U.S. economy, reduced average wages and incomes for Americans, and increased prices for U.S. importers and consumers. Moreover, in a June 2020 report, the U.S. International Trade Commission documented that many of those tariffs fall on medical supplies and personal protective equipment, aggravating the scarcity of such critical supplies as our nation has tried to contain the pandemic.
A unilateral reduction in tariffs would have a tonic effect on the beleaguered U.S. economy. It would boost the take-home pay of most American workers by lowering prices for daily consumer goods, reduce the cost of production for the many U.S. companies that depend on imported materials and components, promote U.S. exports by pumping more dollars into global markets (thus reducing the U.S. dollar’s real exchange rate), attract more foreign investment to the American economy and sidestep the need to negotiate complex and incomplete trade agreements with other nations.
This is not a pie-in-the-sky dream of free-market economists, but a time-tested policy option that other nations have successfully implemented. According to the World Bank, two-thirds of trade liberalization in developing countries in the 1980s and 1990s was unilateral. Nations as diverse as China, Mexico, India, Australia, New Zealand and Canada have improved their economic performance and the welfare of their workers through ambitious, unilateral trade liberalization, as we survey in the paper.
By establishing a Tariff Reform Commission to eliminate the most damaging import taxes, the next Congress and administration can deliver a shot to the economy and strengthen the fight against the stubborn Covid-19 pandemic. Implementing such a policy would not be an experiment based on theory alone, but the Americanization of a policy approach that has been practiced successfully by other nations for decades. It would be an agreement with ourselves to act in our sovereign national interest regardless of the trade policies pursued by other nations.
Daniel Griswold is a senior research fellow with the Mercatus Center at George Mason University and co-director of its Trade and Immigration Project. He is coauthor (with Donald J. Boudreaux) of the new research paper “Time for U.S. Unilateral Trade Liberalization.”