- The Foundry: Conservative Policy News from The Heritage Foundation - http://blog.heritage.org -

A Conservative Agenda for Trade: Eliminate the Threat of Tariffs

Posted By Derek Scissors, Ph.D. On May 29, 2013 @ 10:00 am In Economics | Comments Disabled

Newscom [1]

Newscom

When it comes to trade, the ultimate objective for conservatives should be to eliminate tariffs [2]—not just reduce some or all, but take them completely off the table and make it as difficult as possible to impose or threaten to impose tariffs (or quotas).

Many Americans believe that tariffs are a way to protect American companies and workers from harm at the hands of foreigners. In fact, tariffs are just another form of taxation that is paid ultimately by American consumers. Tariffs also disrupt trade. The ultimate solution to these problems is to take tariffs off the table entirely, including the many threats to impose tariffs.

It’s true that tariffs can help a small minority of American companies and workers who could not otherwise compete successfully in the marketplace. But the costs of these benefits to the few are paid by other Americans in the form of higher prices and reduced availability of goods and services. And studies [3] have shown that tariffs are among the most regressive taxes levied by the American government [4]—that is, their cost falls most heavily on the poor.

Politically, tariffs are odd ducks. It is the rare Member of Congress who doesn’t have some constituency that is historically favored by protectionist tariffs or quotas. But ask Members if they would favor eliminating an entire group of taxes, thus simplifying the tax structure, and you’d get a lot of quick yeses. Ask if they’d favor permanently reducing taxes on the poor and you’d get even more quick yeses.

Eliminating tariffs now and in the future would do exactly this; yet, for fear of alienating important supporters, many Members hesitate when it turns out the taxes being cut are called “tariffs.” An understandable response, but it’s clearly one that can corrupt the idea of equitable treatment for all, a cornerstone of economic freedom [5].

A twist on the long-standing debate over tariffs is the harm caused just by the act of threatening to raise tariffs. Few foreign companies can afford to develop a U.S. marketing and distribution system for their products if they are under threat that a tariff might price them out of the market. That means less competition. So whether tariffs are imposed or just threatened, the result is the same: Prices rise, the benefits of trade are reduced, and a select few industries or companies get to postpone adjustments that are necessary to be genuinely competitive.

Eliminating all tariffs is not an easy goal to reach, and it will take years. But being pro-consumer, pro-competition, and pro-prosperity means working to completely eliminate the pernicious use or threat of tariffs.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2013/05/29/a-conservative-agenda-for-trade-eliminate-the-threat-of-tariffs/

URLs in this post:

[1] Image: http://blog.heritage.org/wp-content/uploads/cargo_130307.jpg

[2] eliminate tariffs: http://www.heritage.org/research/reports/2013/04/tariff-reform-needed-to-boost-the-us-economy

[3] studies: http://www.heritage.org/research/reports/2012/04/affordable-footwear-act-give-shoe-taxes-the-boot

[4] tariffs are among the most regressive taxes levied by the American government: http://www.dlc.org/ndol_ci6030.html?kaid=108&subid=900003&contentid=254243

[5] economic freedom: http://www.heritage.org/index/

Copyright © 2011 The Heritage Foundation. All rights reserved.