American companies have until June 25th to file for Section 301 tariff exemptions to bolster their response to the COVID-19 pandemic. Section 301 tariffs are placed on certain Chinese imports in an attempt to curb China’s unfair trading practices. U.S. companies that need to import items to address COVID-19 have been afforded an opportunity to file exclusion requests from March 25th until June 25th.
With that deadline fast approaching, the Trump administration should consider the tradeoffs of attempting to shield segments of American industry from global competition during a pandemic. Tariffs are effective at providing benefits to a minority in which they shield from competition, yet harm consumers by making them pay more for the products they desire. In return for protecting some American companies from global competition, all American consumers are being forced to pay more for vital resources in the midst of a pandemic. These points are frequently made by the parties requesting COVID-19 tariff relief. Below are a few excerpts among the 562 comments awaiting review by the Office of the U.S. Trade Representative (USTR).
“RB manufactures Lysol Disinfecting Wipes at a facility in St. Peters, Missouri. Despite running the facility at maximum capacity since the U.S. outbreak of the coronavirus, domestic demand for Lysol Disinfecting Wipes continues to outstrip supply. RB explored several nonChina options for meeting U.S. demand, but none could meet RB standards, meet EPA standards, and ensure delivery in time to address the current outbreak.”
“On an annual basis, the Section 301 tariffs levied on Microtek’s Medical Device and Surgical Room Technologies amount to a direct cost in excess of $3,000,000. This has dramatically impacted the company’s operating budget. Perhaps most importantly, these tariffs are jeopardizing the Microtek’s ability to participate in the fight against the COVID-19 pandemic”
“TTI requests an exclusion from the Section 301 tariffs placed on the subject CONNECTOR FLEX ASSEMBLY TR-300 component classified under 8536.69 4040. If the tariff is eliminated, 3M will be able to produce PAPR devices in support of the COVID-19 mitigation effort at US facilities in accordance with its stated goals and at a reasonable price so that it may contribute to the general public health and safety.” (Note: PAPR devices are respiration devices used in high-risk aerosol-generating procedures where N95 masks are insufficient.)
“On behalf of MedSource Labs (“MedSource”), I write to request that you expeditiously exclude from Section 301 tariffs certain infrared non-contact thermometers (“IR Thermometers”) that are vital to responding to the COVID-19 outbreak in the United States.”
Frédéric Bastiat once wrote, “Trade protection accumulates upon a single point the good which it effects, while the evil inflicted is infused throughout the mass. The one strikes the eye at a first glance, while the other becomes perceptible only to close investigation.” This is generally true, but in this case, the good resulting from reducing tariffs on goods to help Americans respond to the COVID-19 pandemic should be clear.
The current administration’s affinity for protectionist trade policies is backed by those that have vested interests. Milliken and Co. provide a superb example in the excerpts below.
On May 11, Milliken & Company asked for exclusions for tariffs on imported protective garments from China be denied: “Milliken & Company objects to the request to exclude protective garments from China that are made of textiles that are impregnated, coated, covered, or laminated with rubber or plastic.”
Then on June 5, just weeks after asking the government to maintain tariffs on protective garments and reusable face masks, Milliken & Company requested tariff exclusions on imported goods used as inputs for their finished products: “To mention a few, the items in this request for duty exemption are used, for example, in medical tape (Polypropylene Nonwoven Fabric, 5603.11.0090), clarified polypropylene face shields (Ally Chloride, 2903.29.0000), foam for N-95 masks (Ethyl Cyano Acetate and Butyl Cyanoacetate, 2926.90.5050), ventilators (Solvent Violet 13, 3204.19.2090), COVID-19 testing kits, (Solvent Orange 60, 3204.19.2540), medical gowns (VAT Dyes, 3204.15), and critical pharmaceutical coatings (Vinylidene Chloride 2903.29.0000).”
It seems hypocritical for a company to request tariffs on products made by its competitors while seeking exemptions from tariffs on products it uses. But that is what happens when the government is granted the power to pick winners and losers in the marketplace. USTR should reduce tariffs on finished goods, like face masks, that are needed to respond to the pandemic, and it should also reduce tariffs on inputs used by U.S. companies.
The Trump administration has a choice to make. It can continue in the pursuit of its long-term goal of enhancing personal protective equipment (PPE) supply chains domestically via tariffs and “Buy America” mandates, or it can liberate American entrepreneurs in their fight against COVID-19.
Ambassador Lighthizer recently suggested that “we’re better off keeping the tariffs in place and incentivizing U.S. companies to make [PPE].” That doesn’t change the fact that tariffs continue to harm our response to the pandemic, as Sen. Hassan pointed out, “all that tariffs do right now is [make] personal protective equipment more expensive.”
The exclusion process can provide some relief, but there is no guarantee that a company's request will be granted. The process leaves it up to bureaucrats to carve out special privileges to U.S. firms deemed deserving. The Trump administration should provide blanket relief from burdens placed on the back of both entrepreneurs and consumers by Section 301 tariffs during this time of crisis.