The Miscellaneous Tariff Band-Aid
At great expense to producers, consumers, and taxpayers, the
U.S. government maintains “protective” tariffs on
thousands of imported products, including many items not even
produced domestically.4 To mitigate those
costs, Congress has passed eight MTBs since 1982. These bills
temporarily suspend duties on certain,
“noncontroversial” products—usually intermediate
goods, such as chemicals, electronic components, and mechanical
parts—that are not manufactured domestically but are needed
by U.S. producers to generate their own output. Although limited in
impact by its temporary nature, by the “no domestic
production” requirement, and by the caveat that the suspended
duty must not reduce tariff revenues by more than $500,000, the MTB
does provide some cost savings to U.S. producers. The last MTB
provided an estimated $748 million of import tax relief.5
Two Congresses came and went without producing an MTB mainly
because of disagreement among Republicans over whether the
underlying duty suspensions that get bundled into the broader bill
would violate their 2010 pledge to oppose earmarks. In 2012,
then-Sen. Jim DeMint (R-SC)—an otherwise ardent free
trader—led a successful effort to derail the MTB process in
the 112th Congress, declaring duty suspensions to be earmarks
because they provide only a “limited tariff
benefit”—defined under House Republican Party rules as
benefiting 10 or fewer entities. The 113th Congress failed to take
up the issue of duty suspensions, and early efforts to revive the
MTB process in the 114th Congress by way of the Trade Facilitation
and Trade Enforcement Act of 2015 fell short when the language was
stripped in the House-Senate conference committee process.
The AMCA of 2016 is an effort to reconcile the MTB process with
the Republican ban on earmarks so that duty suspensions can resume.
The crux of the bill descends from DeMint’s proposal in 2012
to insert the USITC into the process so that individual duty
suspension requests don’t go directly from constituents to
representatives and senators. Instead, such requests would be
vetted by a disinterested, objective third party. Although the bill
seems to do nothing about weeding out duty suspensions with
“limited tariff benefits,” the insertion of the USITC
into the process would presumably put enough distance between
constituents and Congress to ease concern over whether duty
suspensions are earmarks at all.
The effort to resuscitate a long-standing vehicle for lightening
the burden of import duties is laudable. But the MTB’s derailment,
which probably cost importers $3 billion (and the economy even
more) over four years was an unnecessary setback.6
Myopic Misgivings about
Miscellaneous Tariff Bills
Although the AMCA provides resolution to the GOP impasse, it is
important to see why this debate was unnecessary in the first
place. First, duty suspensions will nearly always have more than 10
beneficiaries—meaning they defy the earmark
definition—because the number of importing entities is likely
to increase after a duty is suspended and because the entities in
the supply chains of these importers will benefit too. The number
of beneficiaries is not static.
Second, and crucially, it is the duties—not the measures
to suspend them—that are the real earmarks. Duties enshrined
in the U.S. Harmonized Tariff Schedule constitute transfers from
consumers and consuming industries to specific, chosen producers.
Those duties were obtained through a process that included
earmarking, logrolling, and other forms of backroom dealing.
Efforts to suspend those duties today are intended to return the
tax landscape to a state of neutrality. That objective clearly
differs from measures that would channel resources from the
national treasury to projects that benefit a limited few in a
particular congressional district.
Under the MTB process, the suspension of import duties on
qualified products is an outcome available to anyone, and the
suspended duties provide benefits to everyone in the downstream
supply chain all the way to the final consumer. The fundamental
failure to make this connection—to recognize that there are
dynamic but not immediately observable benefits that will accrue to
the economy—helps explain why Congress struggles to see the
Given that duty suspension of qualified products is available to
all, the only conceivable sense in which one might consider the
benefits limited is that not everyone has equal access to the
process. Some import-consuming companies have the wherewithal to
make the formal requests—previously to their representatives
or senators, prospectively to the USITC—whereas other
companies do not.
Accordingly, the AMCA aims too low. Why require formal duty
suspension requests at all? Why not make them automatic? Why not
have the USITC do an assessment of the entire Harmonized Tariff
Schedule to identify all items that meet the statutory requirements
for duty suspension? Why have such restrictive criteria at all?
Congress can and should do much more about costly tariffs than what
is proposed in the AMCA.
The chair of the House Ways and Means Trade Subcommittee, Dave
Reichert (R-WA), points out that since the last MTB expired in
2012, U.S. companies have faced an annual $748 million tax hike on
manufacturing. That may be true, but since 2012, U.S. Customs has
collected roughly $43 billion annually in tariff
“revenue”—approximately $26 billion of which was
from duties on intermediate goods.7 In other
words, the AMCA fixes $748 million (less than 3 percent) of a $26
Congress should be thinking bigger about what it can do to
eliminate costly, investment- and production-diverting import
Attracting and Retaining
Investment Is the Proper Policy Goal
Although trade barriers have been reduced considerably since the
end of the World War II, U.S. policy continues to reflect an
intolerable amount of protectionism, including tariffs assessed on
approximately one-third of all U.S. imports.8
Eliminating—or at least reducing—those burdens should
be a congressional priority because duties raise the cost of
production, reduce investment and hiring, dissuade foreign
companies from establishing operations in the United States, and
encourage existing producers to relocate to countries where the
burdens are less onerous.
Trade liberalization is about expanding markets across national
boundaries and broadening the scope for specialization and
economies of scale—the essential ingredients of wealth
creation. Although the public often thinks of improved access to
foreign markets as the conveyor of trade’s benefits, the
primary mechanism through which the benefits are channeled is
imports. Of course trade liberalization means more customers for
U.S. exports, but it also means more competition for U.S.
consumers’ dollars, greater variety, better quality, more
innovation, a greater number of sources for raw materials and
intermediate goods, and more scope for supply chain collaboration.
When trade barriers come down, the factory floor can span borders
and oceans, which enables production to be organized in new and
more efficient formats.
In most tradable industries, global production sharing has
become the norm. About half of the value of all U.S. imports in
2015 consisted of industrial supplies, other intermediate goods,
and capital equipment—the purchases of U.S. producers, not
end-use consumers.9 According to estimates
from the World Trade Organization, intermediate goods (excluding
oil and fuels) account for about 60 percent of the value of global
To compete more effectively at home and abroad, U.S. companies
(and the U.S. operations of foreign-headquartered companies) need
access to imported inputs at world market prices. Production costs
in the United States must be competitive. Yet under U.S. tariff
policy, many imported inputs are subject to duties—even when
there are no domestic suppliers to “protect.” These
taxes raise production costs, deter investment, and chase producers
offshore, where they can access needed inputs at market prices. The
consequences are reduced economic output and job loss or
In the 21st-century global economy, capital is mobile, and
businesses have options regarding where they locate production,
distribution, and research and development activities. Thus,
governments are competing to attract job-creating, value-added
investment in their economies. Public policies—including
tariffs and other trade policies that increase the cost of
production—are on trial, and the verdict will be found in the
investment flow data.
For now, there is more investment in U.S. manufacturing than in
any other country’s manufacturing sector. But what matters is
whether the rate of investment growth is sufficient to keep up with
the growth in demand for manufacturing output and the supply of
qualified labor. Nibbling around the edges with small, temporary
tariff reprieves through legislation such as the AMCA is an
inadequate gesture that does little to put the United States in a
better position to win more investment location decisions going
Congress Should Think
Bigger on Tariff Policy
In 2014, U.S. Customs collected nearly $45 billion in duties,
taxes, and fees levied on imports, with approximately $27 billion
collected on imported intermediate goods, which amounts to nothing
more than a tax on U.S. value creators.11
Duties on products such as magnesium, saccharine, polyvinyl
chloride, and hot rolled steel may please their domestic producers,
who are freed to raise prices and reap larger profits. But those
same duties are costly to U.S. producers of auto parts, food
products, paint, and appliances—producers that consume those
products as inputs in their own manufacturing processes. Current
U.S. tariffs elevate the interests of certain producers over the
interests of others. Oddly, it tends to be the producers of lower
value-added basic materials that are protected at great expense to
the higher value-added, intellectual property, capital, and
export-intensive industries, which tend to contribute more to GDP
and employ more and higher-skilled workers.
Meanwhile, U.S. antidumping actions are not just a dispute
between domestic industry and its foreign competition. They reveal
conflicts of economic interests between the duty-seeking U.S.
industry and its U.S. customers. Those customers—usually
other U.S. producers—are given no quarter under the law. If
the petitioning industry can demonstrate that it has suffered
“material injury” on account of less than fair value
imports, duties are imposed regardless of the impact on downstream
consuming industries and the economy at large. That is hardly a
recipe for rational policymaking.
From 2000 to 2009, 80 percent (130 of 164) of all U.S.
antidumping measures were imposed on imports of intermediate goods.
The restrictions clearly raise the costs of production for
downstream producers, rendering them less competitive at home and
abroad. Yet the statute forbids the administering authority to
consider the downstream impact. In one-third of those cases, the
petitioning industry obtaining relief consisted of a single
company—a monopolist. In many cases, the downstream U.S.
producers moved their operations to Canada, Mexico, or other saner
shores in order to remain competitive.12
During the financial crisis and subsequent recession in 2009, as
G-20 governments were reassuring each other that they would not
resort to beggar-thy-neighbor protectionism, the Canadian and
Mexican governments took an entirely different tack, slashing
duties on imported intermediate goods. Those governments properly
recognized import duties as business costs and, because business
revenues were projected to plunge on account of the global economic
contraction, chose to alleviate the burdens on their businesses by
reducing their import taxes. That logic is universal and does not
apply only in times of economic recession.
Recognizing that downstream import-consuming industries account
for a greater share of U.S. GDP, employ more workers, pay more
taxes, and are more innovative than the protected firms in upstream
industries that produce raw materials, Congress should permanently
eliminate import duties on all intermediate goods, regardless of
the existence of domestic production. Import duties are taxes on
U.S. producers and consumers for the benefit of some—and
sometimes for the benefit of nobody. Any government seeking to
minimize irrational policies and hoping to be a magnet for
investment in value-added activities should avoid needless taxes on
downstream industries. That includes the U.S. government.
Congress should establish a policy of zero tariffs on
intermediate goods and reform the antidumping law to require the
administering authorities to conduct an analysis of the economic
costs of prospective antidumping duties on downstream industries.
The statute should instruct the authorities to deny imposition of
duties if the estimated costs are deemed excessive or
disproportionate to the estimated benefit conferred on the
petitioning industry. Those would be meaningful reforms that would
go a long way to bolster U.S. attractiveness, now and in the
future, as a destination for both U.S. and foreign direct
investment, which will be a major determinant of economic growth in
the 21st century.
It’s time for Congress to start thinking big on tariff
1. United States House of Representatives Ways and
Means Committee, “Bipartisan Members Introduce American
Manufacturing Competitiveness Act of 2016: Strengthens MTB Process,
Upholds House Earmark Ban,” news release, April 13, 2016,
3. President Barack Obama, “Remarks by the
President at the Signing of the Manufacturing Enhancement Act of
2010,” White House, Office of the Press Secretary, August 11,
4. For a list of all imported product
classifications and their official tariff rates, see the U.S.
Harmonized Tariff Schedule, https://hts.usitc.gov/current.
5. U. S. House of Representatives Ways and Means
Committee, “Bipartisan Members Introduce American
Manufacturing Competitiveness Act of 2016.”
6. Ibid. This figure is based on a $748 million
annual cost, quoted in the news release, and multiplied by four
7. Calculated from data extracted from USITC’s
Interactive Tariff and Trade DataWeb, https://dataweb.usitc.gov/ and U.S. Customs and Border
Protection, “Antidumping and Countervailing Duty Collection
of Outstanding Claims: Fiscal Year 2014 Report to Congress,”
November 24, 2014, http://www.cbp.gov/sites/default/files/documents/ADCVD-Outstanding-Collections-Report-FY14.pdf.
8. See the U.S. Harmonized Tariff Schedule,
9. U.S. Bureau of the Census, U.S. International
Trade in Goods and Services (FT900), December 2015, exhibit 8,
“U.S. Imports of Goods by End-Use Category and
Commodity,” February 5, 2016, http://www.census.gov/foreign-trade/Press-Release/2015pr/12/exh8.pdf.
10. World Trade Organization, “International
Trade Statistics 2013,”
11. Calculated from data extracted from the
USITC’s Interactive Tariff and Trade DataWeb,
https://dataweb.usitc.gov/and U.S. Customs and Border Protection,
“Antidumping and Countervailing Duty Collection of
Outstanding Claims: Fiscal Year 2014 Report to Congress,”
November 24, 2014, http://www.cbp.gov/sites/default/files/documents/ADCVD-Outstanding-Collections-Report-FY14.pdf.
12. Daniel Ikenson, “Economic
Self-Flagellation: How U.S. Antidumping Policy Subverts the
National Export Initiative,” Cato Trade Policy Analysis no.
46, May 31, 2011.