January 25, 2019 9:17AM

The “Reciprocal Trade Act” Is Obviously Not About Free Trade But It’s Also Not About Reciprocal Trade

Congressman Sean Duffy has introduced a piece of legislation in the House entited "United States Reciprocal Trade Act." Based on the title alone, you can guess that the legislation will not involve free trade, and there's a lot to dislike about it. Dan Griswold of Mercatus has a good paper on the general topic of tariff reciprocity here; Clark Packard of the R Street Institute has a good op-ed on this particular legislation here; and Cato adjunct Scott Lincicome has a good twitter thread on the legislation here. I'm going to focus on an additional problem with the legislation: Because of its cherry-picking approach to tariffs, it will not even involve reciprocal trade. Rather, it looks like nothing more than an excuse to raise U.S. tariffs.

Last year, I blogged here about a comparison of tariff levels across countries, which makes clear that among wealthy countries, average tariff levels are roughly similar (with slight variations depending on how you do the measuring). Of course, within those average levels, the tariffs on particular goods vary a lot. For example, and somewhat famously in trade circles, U.S. car tariffs are 2.5% while U.S. truck tariffs are 25%, whereas in the EU car and truck tariffs are both 10%. Trump administration trade officials have focused on the tariff for cars, and said, in essence, "Hey, EU car tariffs are higher than ours and that's not fair!" But when you look more broadly at tariffs on both cars and trucks, and realize that U.S. truck tariffs are much higher than EU truck tariffs, it is clear that U.S. and EU tariff levels are roughly equal as things stand now.

The "United States Reciprocal Trade Act" picks up on the Trump administration's approach of using a skewed look at cherry-picked individual products, by focusing on duties and other trade barriers for "a particular good." Here's an excerpt:

SEC. 3. AUTHORITY TO TAKE CERTAIN ACTIONS RELATING TO RECIPROCAL TRADE.


IN GENERAL.—If the President determines that—


(1) the rate of duty imposed by a foreign country with respect to a particular good, when imported from the United States, is significantly higher than the rate of duty imposed by the United States on
that good, when imported from that country, or

(2) the nontariff barriers applied by a foreign country with respect to a particular good, when imported from the United States, impose significantly higher burdens, alone or in combination with any
tariffs imposed by that country on that good, than the burdens of the nontariff barriers applied by the United States with respect to that good, alone or in combination with any tariffs imposed by the United States on that good, when imported from that country, the President may take one or more of the actions authorized under subsection (b).

(b) ACTIONS AUTHORIZED.—The actions authorized under this subsection are the following:

(1) To negotiate and seek to enter into an agreement with the foreign country that commits the country to reduce the rate of duty or reduce or eliminate nontariff barriers on the good that is the subject of the determination under subsection (a).

(2) To impose a rate of duty on imports of the good that is equal to—

(A) the rate of duty imposed by the foreign country with respect to the good, in the case of a determination described in subsection (a)(1); or

(B) the effective rate of duty of the nontariff barriers applied by the foreign country with respect to the good, alone or in combination with any tariffs imposed by that country on that good, in the case of a determination described in subsection (a)(2).

In a nutshell, using the vehicle example, this legislation would let the administration address the higher EU car tariff by raising the U.S. car tariff, but would not do anything about the higher U.S. truck tariff. In theory, in reaction to a U.S. demand to renegotiate car tariffs, the EU could negotiate on just those tariffs, but realistically the EU is not going to negotiate about cars without also talking about trucks, so they are not going to lower their car tariff. Thus, the end result under this legislation will be that the U.S. car tariff goes up and all other tariffs stay the same.

Congressman Duffy has used this same example to defend the bill:

"... I'm going to drop a bill, the Reciprocal Trade Act, which is going to allow the president to say 'OK you have a 10 percent tariff on our autos, and we only have a 2.5 percent tariff on your autos,' [so] we'll give the president the authority to raise our tariffs to 10 percent to match the European auto tariff, and once they reduce theirs the president can reduce those tariffs as well.”

As explained above, this focus on individual products gives a distorted view of what is going on with tariffs around the world.

To reiterate, this legislation is obviously not free trade in any sense of that term. But it is also not reciprocal trade. Rather, it is about trade that is unreciprocal in such a way as to allow the administration to raise U.S. tariffs on goods for which it would like to have higher tariffs.

Now, if the Trump administration really wanted to bring down EU tariffs, it could do so in the normal way, which is to sit down with the EU to negotiate lower tariffs on all products -- cars, trucks, and everything else -- traded between the U.S. and EU. That process is, in fact, slowly moving forward. This new legislation will only get in the way.