In 2018 the Trump administration imposed billions of dollars in taxes on imports, allegedly in an effort to reduce foreign trade barriers. The tariffs failed to open markets, and led to a wave of retaliatory barriers on U.S. exports. Instead of pursuing more results-oriented trade policies, according to a recent report the administration plans to ask Congress for even more authority to interfere with trade.
This terrible idea appears to be based on last year’s widely ridiculed Fair and Reciprocal Trade Act (FART Act), legislation that was described in one report as “insane.” Indeed, a draft bill currently making the rounds in the House of Representatives copies much of the FART Act’s language verbatim, including giving the president increased authority to restrict trade without congressional approval.
There are several problems with the proposed Reciprocal Trade Act that should make it anathema to free-market proponents.
First, a policy based on reciprocity is the opposite of an America-first trade policy. It outsources U.S. tariffs to other countries by having us foolishly copy their bad policies, instead of enacting policies designed to boost America. It’s a bad idea for the same reason a reciprocal tax act that required the United States to copy the tax policies of France and other high-tax countries would be a bad idea. Ultimately, it would punish American consumers and businesses, who would pay a higher tax burden as a result of the bad policies of other nations.
Second, it gives the president unilateral authority to increase taxes on imports, a power that the U.S. Constitution gives to Congress. Congress has already provided the executive branch with ample authority to negotiate trade deals under Trade Promotion Authority. Further empowering the executive branch and weakening the legislative branch would run counter to the balance of powers established by our Founding Fathers.
Third, it would undermine the post-World War II trading system that has successfully lowered barriers to U.S. exports and facilitated peaceful commerce and economic growth. This system produced what at the time was the largest tax cut in world history when the Uruguay Round Trade Agreement took effect in 1995, and has led to unprecedented levels of prosperity in the United States and abroad.
The “findings” listed in an unreleased draft of the Reciprocal Trade Act - similar to a “findings” section in the FART Act - are questionable and incomplete.
The Act argues that the United States has relatively low tariffs. This is true on average, but it glosses over the fact that we have very high tariffs or restrictions on certain product categories. For instance, there is the 25 percent U.S. tax on imported pickup trucks, an average 13.7 percent tax on imported clothing, a ban on the use of foreign-built ships in domestic commerce, and restrictions on imported sugar that make Americans pay twice the world price. The goal of trade policy should be to reduce these barriers, not add to them.
The Act asserts that a number of U.S. trading partners have been unwilling to reduce tariff and nontariff barriers, ignoring the fact that our largest industrialized trading partners all have average tariff rates that are about equal to those in the United States - and that tariff barriers have been falling for decades. For example, Canada, the United States, and countries in the European Union all had average tariffs that were lower than 2 percent in 2016, before the Trump administration’s tariff policy was implemented. Since World War II, world trade barriers have fallen dramatically. Just since 1990, the average world tariff fell by 65.8 percent, and U.S exports of goods are $696 billion higher now than they were in 1990. Expect that export growth to reverse if the Reciprocal Trade Act becomes law.
The bill additionally reports that the United States is the world’s largest importer. This is no surprise, since we are the world’s largest economy. When measured as a percent of GDP as opposed to dollars, the United States is actually one of the world’s smallest importers. According to the World Bank, only Nigeria, Brazil, Sudan and Argentina import less than the United States by this measure as of 2016.
The Act further calls the trade deficit a drag on economic growth, a statement that flies in the face of economics and history. The last big decrease in the U.S. trade deficit coincided with big increases in unemployment during the Great Recession. The goal should be to reduce foreign and U.S. barriers, not to micromanage trade and investment flows from the White House.
Regardless of the dubious rationale for the legislation, the biggest problem with the Reciprocal Trade Act is that it would not solve any problems, and instead would make American trade policy worse. From the end of World War II to 2016, foreign trade barriers to U.S. exports steadily declined. The Trump administration’s misguided trade actions in 2018 temporarily reversed that trend, to the detriment of Americans. The proposed Reciprocal Trade Act would destroy the rules-based trading system that Americans benefit from, replacing it with a strategy that President Reagan aptly described:
“A foreign government raises an unfair barrier; the United States Government is forced to respond. The pattern is exactly the one you see in those pie fights in the old Hollywood comedies: The difference here is that it's not funny. It's tragic."
Many in Congress understand this. Senate Finance Chairman Chuck Grassley (R-IA) quickly and forcefully pushed back on the idea: “Oh, we aren’t going to give him any greater authority, we’ve already delegated too much.” His fellow Finance Committee Member Pat Toomey (R-PA) added, “Congress should be reasserting its constitutional responsibility on trade, not yielding even more power to the executive branch.” On the House side, Rep. Ron Kind (D-WI) tweeted “In what world would this be a good idea?”
The Reciprocal Trade Act is not a pro-trade bill. It is a reactionary policy that would fail to accomplish its stated goals.