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Misguided Misgivings about the Miscellaneous Tariff Bill

May 08, 2012

Those of us who view import tariffs as distortive taxes on consumption and production tend to find merit in any effort to reduce them. That’s why Senator Jim DeMint’s opposition to the perennial import duty suspension process known as the Miscellaneous Tariff Bill (MTB) seems a bit misplaced. DeMint has – according to Cato’s Congressional Trade Votes database – a glowing record of unfettered support for free trade. So what’s DeMint’s problem with the MTB?

Well, the MTB is a vehicle through which duties on certain, “non-controversial” products – usually raw materials or intermediate goods, such as chemicals, electronic components, and mechanical parts, used by downstream U.S. firms to produce their own output – are temporarily suspended for two or three years. A product is considered non-controversial if its proposed duty suspension engenders no opposition from a domestic producer and if its suspension will not reduce tariff “revenues” by more than $500,000.

Given those conditions (temporary, no domestic producers, tariff savings of no more than $500,000 per product), the MTB is hardly the kind of bold reform to spark an economic renaissance. It’s far from the kind of across-the-board, even-if-we-have-domestic-producer-opposition, unilateral trade liberalization that would really help U.S.-based firms reduce their costs and compete more effectively at home and abroad, and help U.S. individuals and families reduce their costs of living. But that shortcoming – the MTB’s smallness – is, regrettably, not the basis for DeMint’s opposition.

Rather, DeMint’s opposition to these kinds of duty suspensions is borne of his party’s 2010 pledge to oppose earmarks. DeMint’s view is that these duty suspensions provide a “limited tariff benefit,” which is defined under House rules as benefiting 10 or fewer entities.  However, the fact is that the benefits are not limited.  Anyone or any entity that imports or intends to import as a result of the tariff suspension benefits, as do others down the supply chain all the way to the consumer.  There is a pretty clear distinction between funding expenditures from the national treasury for the benefit of a limited few in a particular congressional district and suspending the payment of taxes on imports, which is available to all and can benefit many.

Trade liberalization, in this case, is being held captive to the Republican Party’s battle over semantics.  In the meantime, there are likely to be real costs to real businesses and consumers if the MTB is jettisoned because several duty suspensions are set to expire at the end of the year.

Moreover, even if these duty suspensions were earmarks, DeMint’s proposed alternative does nothing to change that.  He and Sen. Claire McCaskill (D-MO) proposed legislationlast year that would require the U.S. International Trade Commission to decide which products qualified for duty suspension, and then to inform Congress of those products.  Presumably, this would reduce the lobbyist activity in Congress, which is something DeMint cites as unseemly and the source of America’s disgust with the process.  Well, his solution seems a bit cosmetic.  It could be a better approach, and the USITC might recommend more duty suspensions than are currently pursued, but it’s entirely unclear why a duty suspension under that system would not be an earmark, where suspension under current procedures is considered as such by DeMint.

To overcome his own concerns that narrowly-defined tariff suspensions recommended by the firms likely to benefit are indistinguishable from earmarks, DeMint should be thinking bigger and more substantively. His bill with Sen. McCaskill does nothing to overcome the smallness of the effort. We’re still dealing with temporary suspensions on products not made in the United States that don’t deprive the Customs Service of more than $500,000.  Where’s the creative destruction in that?  Where are the gains from trade? How does that liberate America’s downstream producers from the monopolistic tendencies of upstream producers who raise prices behind tariff walls?

The MTB is hardly a demonstration of congressional courage or wisdom. It nibbles around the edges of the problems caused by our distorted tariff system. However, it is a step in the right direction, if not for the huge savings and efficiencies, for the fact that it provides the rare occasion when policymakers of both parties and at both ends of Pennsylvania Avenue actually talk about the benefits of imports and how tariffs raise costs of production and living expenses for Americans.