Tag: Export

Which U.S. Industries Will Bear the Brunt of Trump’s China Tariffs?

This morning, as anticipated, the Trump administration broadened the scope of its punitive tariffs on imports from China. The list of products subject to 25 percent duties increased from 818 to 1,097 harmonized tariff schedule (HTS) subheadings. Last year, the value of these imports from China amounted to roughly $50 billion, so the tax incidence (ceteris paribus), for the sake of the argument, will be roughly $12.5 billion. 

As expected, Beijing retaliated in kind, assessing similar duties on a commensurate value of U.S. exports, which is certain to cause revenues to fall for U.S. producers of the industrial goods and agricultural products subject to those retaliatory tariffs. But let’s not forget the adverse impact of our own tariffs on our own manufacturers, farmers, construction firms, transportation providers, miners, wholesalers, retailers, and just about every other sector of the U.S. economy.

About half the value of U.S. imports consists of intermediate goods (raw materials, industrial inputs, machine parts, etc.) and capital equipment. These are the purchases of U.S. businesses, not households. The vast majority of the Chinese products on the tariff list fit this description. They are nearly all inputs to U.S. production. By hitting these products with tariffs at the border, the Trump administration is, in essence, imposing a tax on U.S. producers. Trump is raising the costs of production in the United States in sector after sector.

How significant is a roughly $12.5 billion tax in a $19 trillion economy? Well, not especially significant when put in that context. But that context masks the burdens directly imposed on the companies that rely on these inputs and indirectly imposed on their workers, vendors, suppliers, and downstream customers.

The Input-Output tables produced by the U.S. Bureau of Economic Analysis reveal—among other things—information about the relationships between industries in the United States. The “Use” tables map the output of all industries to their uses by other industries as inputs, as well as by end users.

The most recent “detailed” tables present the U.S. economy in 2007. The value of total commodity output at the time was $26.2 trillion, of which $14.5 trillion was consumed for end use and $11.7 trillion was consumed as intermediate inputs to further production. The $11.7 trillion dollar value of output from each of 389 industries (defined at the 6-digit NAICS level) is mapped to the input of each of the other 388 industries. In other words, $11.7 trillion of commodity output from 389 industries is simultaneously depicted as $11.7 trillion of intermediate inputs to 389 industries. Although the values of that industry-specific output and input certainly have changed over 10 years, it is not unreasonable to assume a roughly similar composition of input use on a percentage basis.  (Sure, production processes change and, consequently, the inputs demanded change too. But the 2007 table provides the best information available and it should produce some useful results.)

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Most U.S. Manufacturers Victimized by Ex-Im’s Hidden Costs

In an earlier post today, I described a reasonable methodology for estimating the hidden costs imposed on companies whose suppliers receive export subsidies from the Export-Import Bank. Ex-Im officials like to talk about how they “grow the economy” and create jobs by enticing foreign customers with low-rate financing to buy U.S. exports. As I described in that earlier post, when the cost to business of exporting is mitigated by subsidies, companies will likely export more. That may be good for them, but it’s not so good for their U.S. customers, whose foreign competition is now enjoying lower costs (courtesy of U.S. taxpayers). Delta Airlines’ complaint about subsidized Boeing sales to Air India having an adverse impact on Delta, who competes for passengers with Air India, is a fairly clear example of the problem.

As an approximation of the cost imposed on Downstream Industry A, (let’s call it the Delta Effect), I used the subsidies received by every industry whose output is used in Downstream Industry A’s production process, adjusted those subsidies by the importance of the input relative to the total of all intermediate goods inputs, and summed up the values.  I did this for every 6-digit NAICS manufacturing code and presented tables of results in descending order from biggest victim to biggest beneficiary.  There were 236 industries – perhaps too much information, particularly for a blog post.

So for greater clarity, this table compiles the data at the broader, 3-digit NAIC industry level.  

As you can see, most aggregated 3-digit industries are victims of Ex-Im subsidies.  And most of the 6-digit industries within each broader 3-digit industry are victims, too. U.S. manufacturers of electrical equipment, appliances, furniture, food products, non-metallic metals, chemicals, computers, plastics, rubber, paper, primary metals, and many other goods should give Delta a call and get really busy during Congress’s August recess.

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The Export-Import Bank and Its Victims: Which Industries Bear the Brunt

The Export-Import Bank of the United States is a government-run export credit agency, which provides access to favorable financing for the foreign customers of some U.S. companies.  For several months, Washington has been embroiled in a debate over whether to reauthorize the Bank’s charter, which will otherwise expire on September 30.  While Republican House leadership remains publicly committed to shutting down the Bank, a bipartisan group of eight senators introduced reauthorization legislation last night, setting the stage for a post-August recess showdown.

Reauthorization buffs contend that Ex-Im fills a void left by private sector lenders unwilling to provide financing for certain transactions and, by doing so, contributes importantly to U.S. export and job growth.  Rather than burdening taxpayers, the Bank generates profits for the U.S. Treasury, helps small businesses succeed abroad, encourages exports of green goods, contributes to development in sub-Saharan Africa, and helps “level the playing field” for U.S. companies competing in export markets with foreign companies benefitting from their own governments’ generous export financing programs.  Accordingly, failure to reauthorize the Bank’s charter would be akin to unilateral disarmament.

But those justifications – two rationalizations, really, and a few token appeals to liberal sensibilities intended to create the illusion of a bipartisan imperative for reauthorization – are unpersuasive or non-responsive to Ex-Im’s critics.  By effectively superseding the risk-based decision-making processes of legions of private-sector, profit-maximizing financial firms with the choices of a handful of bureaucrats using non-market benchmarks and pursuing often opaque, political objectives, Ex-Im risks taxpayer dollars.  That Ex-Im is currently self-sustaining and generating revenues is entirely beside the point and is no more reassuring than a drunk driver rationalizing that he made it home safely last night so there’s no danger in drunk driving tonight.

Will Republicans Make a Principled Stand Against Ex-Im Reauthorization in 2014?

Jobs are good. Exports create jobs. We create exports. Renew our charter.

Such is the essence of the marketing pitch of the U.S. Export-Import Bank, whose officials have begun ramping up their lobbying efforts ahead of a 2014 vote concerning reauthorization of the Bank’s charter, which expires in September.  Last go around, in 2012, Ex-Im ran into some unexpected turbulence when free-market think tanks, government watchdog groups, and limited government Republicans in Congress raised some compelling – but ultimately ignored – objections to reauthorization.

The ostensible purpose of the Ex-Im Bank is to assist in financing the export of U.S. goods and services to international markets. Even if that were a legitimate role of government, the public must keep a watchful eye on how much and to whom loans are made – especially given the current administration’s tendency to bet big on particular industries and specific firms, and in light of its commitment to seeing U.S. exports reach $3.14 trillion in 2014.

From the U.S. Export-Import Bank’s 2013 Annual Report:

The Ex-Im Bank’s mission is to support American jobs by facilitating the export of U.S. goods and services. The Bank provides competitive export financing and ensures a level playing field for U.S. exporters competing for sales in the global marketplace. Ex-Im Bank does not compete with private-sector lenders but provides export financing that fill gaps in trade financing. The Bank assumes credit and country risks that the private sector is unable or unwilling to accept. It also helps to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters. The Bank’s charter requires that the transactions it authorizes demonstrate reasonable assurance of repayment.

The defensive tone of this mission statement anticipates Ex-Im critics’ objections, but it certainly doesn’t answer them. The objectives of filling gaps in trade financing passed over by the private sector and expecting a reasonable assurance of repayment are mutually exclusive – unless the threshold for “reasonable assurance” is more risk-permissive than the private-sector’s most risk-permissive financing entities.  Therefore, Ex-Im is either putting taxpayer resources at risk or it is competing directly with private-sector lenders for customers in need of finance. And if the latter, then as it seeks to create the proverbial “level playing field” for the U.S. companies whose customers it finances, Ex-Im is un-leveling the playing field for the finance industry, as well as for the U.S. firms in industries that compete globally with these U.S-taxpayer financed foreign companies.