Import Tax a Bad Deal for Americans

Economic protectionism has been a big part of President Donald Trump’s success, but rather than “winning,” it would be a losing proposition for most Americans.

House Speaker Paul Ryan, R-Wis., and Rep. Kevin Brady, R-Texas, chairman of the House Ways and Means Committee, have proposed a continuation of this theme in the form of a “border adjustment tax,” otherwise known as a tariff, of 20 percent on imported goods. It is being pushed as part of a larger tax reform package, which would likely include a significant reduction to the corporate tax rate as well. It seems that Ryan has recently been reconsidering the measure, however, after many fellow Republican members of Congress have bristled over the imposition of a tax estimated to cost $1 trillion over 10 years.

Ryan would be wise to withdraw the tax — for both political and economic reasons.

Target CEO Brian Cornell made the consequences of such a tax clear at a House Ways and Means Committee hearing last month. “Under the new border adjustment tax, American families — your constituents — would pay more so many multinational corporations can pay even less,” Cornell testified. “Eighty-five percent of Americans shop at Target every year. We believe this new tax would hit those families hard, raising prices on everyday essentials by up to 20 percent.”

It is true that protectionist measures can preserve some domestic jobs, but at what cost? American Enterprise Institute economist Mark Perry sought to answer that question earlier this year. Drawing upon and updating data from a 1986 Institute for International Economics study that examined 31 cases studies of U.S. trade protection — most of which concerned products from the manufacturing sector — Perry found that the average annual consumer losses experienced were more than $516,000 for every domestic job “saved” by protectionism. Moreover, Perry noted, the vast majority of jobs lost in U.S. manufacturing have come from automation and increased worker productivity, not trade or outsourcing.

But an American factory where some jobs were saved, or at least prolonged, by protectionist measures makes for a better photo op, and there is no equivalent highly organized lobby to represent the interests of U.S. consumers.

Then there are the additional negative consequences that result if and when other nations retaliate in kind. When asked about the Trump administration’s consideration of a cut to steel imports for dubious “national security” reasons, European Trade Commissioner Cecilia Malmstrom warned that doing so would open a “Pandora’s box.”

“Many other countries would maybe also refer to security and, because of that, do a lot of protectionist measures,” she told Bloomberg News on Monday. “We will retaliate, of course,” she added.

The us-versus-them rhetoric is certainly nothing new in politics, but the economics are pretty clear: Free trade leads to greater consumer choice, lower prices and a higher standard of living, while protectionism stifles growth. To truly “Make America great again,” and more prosperous, Trump and other Republicans tempted by the gilded populism of economic protectionism should realize that free markets and free trade are the best way to improve the fortunes of the vast majority of people, both within and outside American borders.