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PJ Media encourages you to read our updated PRIVACY POLICY and COOKIE POLICY.

Why Not Just Slap on Tariffs?

The trouble with the import tax and export credit system now under consideration by House Republicans is simple: it redistributes rewards and penalties arbitrarily. There are industries that are naturally dependent on imports, for example, retailers and oil refiners. President-elect Trump criticized the House plan as "too complicated," and he's right.

The House is to encourage domestic production by refusing to allow corporations to treat imported items as an expense for tax purposes. But oil refiners import most of their raw material and add a limited amount of value by refining it. The cost of inputs is the majority of the final cost of refined products. If refiners can't expense their input costs, the results would be "devastating," according to a study by the Koch brothers.

As Bloomberg News reported Dec. 8,

Koch’s statement made clear that the company supports a comprehensive overhaul of the U.S. tax system. But its opposition to border adjustments is the most politically prominent yet in a swelling chorus of corporate voices concerned that the proposal would damage companies such as Wal-Mart Stores Inc. that rely on imported goods to sell products at low cost.

The Republican plan is something like chemotherapy: stress the whole body to kill a few cancer cells. It might help, or it might do more harm than good. But there's an economic equivalent of the new cancer therapies that isolate and attack the pathological cells without sickening the whole organism.

We need a corporate tax cut. And U.S. industries need protection against predatory practices. To quote from the World Trade Organization's website: "A country can use the WTO’s dispute settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse effects. Or the country can launch its own investigation and ultimately charge extra duty (known as 'countervailing duty') on subsidized imports that are found to be hurting domestic producers."

China subsidizes industries outrageously--by offering cheap credit to state-owned companies from state-owned banks, and allowing state-owned companies to run at a loss while they crush the competition with low prices. That's how entire industries that began with American innovations turned into Chinese monopolies.

Solar-cell technology was invented in America and Germany. In the mid-2000s, China bought German production equipment, manufactured solar cells and cut prices by half. America's market share in solar cells fell from 50% in 2007 to just 6% in 2011. Meanwhile, China built enormous amounts of capacity through the entire supply chain for solar cells.  The basic inputs into solar cells--polysilicon, glass frames, and other materials--were produced in China at lower prices than other manufacturers could offer.

In this case, America belatedly slapped on tariffs, but the Chinese producers ignored them. The Commerce Department in 2014 imposed anti-dumping tariffs of 26.71 percent to 78.42 percent on Chinese dollar imports, and tariffs of 11.45 percent to 27.55 percent on imports of solar cells made in Taiwan. It was too little, too late. By that time the whole supply chain for solar cells had moved to Asia, and American producers couldn't compete.