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May 2, 2016

Beyond the American Manufacturing Competitiveness Act: Congress Should Get More Serious about Tariff Reform

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. To mitigate those costs, Congress occasionally suspends 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, this gesture does provide some cost savings to U.S. producers. But Congress could and should do much more. A new paper by Dan Ikenson makes the case for why Congress should get much more serious about tariff reform.

Global Steel Overcapacity: Trade Remedy "Cure" Is Worse than the "Disease"

Central planning has led to the largest global steel overcapacity the world has ever seen. Most of the glut is due to clumsiness by Chinese policymakers as they attempt to guide that nation's economy. They set their steel sector on a path of continual expansion, which led to an eight-fold increase in steel output over 15 years. However, Chinese leaders didn't build an "off" switch into this system. Steel production continues to run out of control and now accounts for half of global output. Not surprisingly, world steel prices are low and U.S. producers are seeking more import restrictions.

"There's no way that policies designed to boost prices for a relatively small part of the U.S. economy can increase economic welfare when those costs are passed along to the much larger steel-consuming sector," says Cato Trade's senior fellow, Daniel R. Pearson.

Recent Research & Commentary

Congress Must Do Better Than Its 3% Solution on Tariff Reform
Daniel J. Ikenson

You and Donald Trump Might Not Like Free Trade, but It's Been Good to You Both
Daniel J. Ikenson

The Truth about Trade
Scott Lincicome

Our Scholars on this Month's Trade News

Even if there were a President Trump or President Sanders, rest assured that the Congress still has authority over the nuts and bolts of trade policy. The scope for presidential mischief, such as unilaterally raising tariffs, or suspending or amending the terms of trade agreements, is limited. But it would be more reassuring still if the intellectual consensus for free trade were also the popular consensus.

-Daniel J. Ikenson

The U.S. presidential campaign has pushed the rhetoric of trade policy discussions in a very unfortunate direction. It is almost impossible to have a sane policy debate in the current atmosphere. Hopefully, after the election there will be positive trade liberalization proposals from someone. For now, though, almost all the candidates are (mistakenly) blaming trade for America's economic woes.

-Simon Lester

The global steel industry - mostly driven by China - has gotten itself into one of the largest commodity-market imbalances the world has ever seen. Excess capacity to produce steel exceeds 600 million metric tons, which is equivalent to more than one third of annual worldwide steel output. Not surprisingly, prices are low and steel producers from many countries are clamoring for government assistance. However, restricting imports to drive up prices would inflict severe harm on downstream manufacturers by driving up their costs and making them uncompetitive. The structural surplus in steel will be difficult to correct. Ending all government support to the steel industry, including in China, would allow the marketplace to make the needed adjustments.

-Daniel R. Pearson

Republican front runner Donald Trump has used the bilateral trade deficit as evidence that China "is killing us on trade" and says that "we can't allow China to continue to rape our country." Every election year, politicians slant toward protectionist rhetoric, but the 2016 campaign may inflict lasting damage on the quality of discourse that shapes American trade policy.

-K. William Watson
Congressional Trade Votes Profile

Representative Niki Tsongas (D-MA) has been working on behalf of New England shoe manufacturers to force the Pentagon to buy American-made athletic shoes. Her voting record demonstrates a general opposition to free trade.
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In this Issue

Beyond the American Manufacturing Competitiveness Act: Congress Should Get More Serious about Tariff Reform

Global Steel Overcapacity: Trade Remedy "Cure" Is Worse than the "Disease"

Recent Research & Commentary

Our Scholars on this Month's Trade News

Congressional Trade Votes Profile: Niki Tsongas


Blog Posts

Daniel R. Pearson's Testimony to the U.S. International Trade Commission (ITC): China's Steel Overcapacity and Its Impact on the U.S.
Daniel R. Pearson on Cato's Daily Podcast: Steel Tariffs, Trump and Free Trade
K. William Watson on CNBC Asia's Squawk Box: Transatlantic Trade and Investment Partnership
Scott Lincicome on The Fifth Estate: Trade, the Economy and the Morality of Trade
Blog Posts

Congress Fist Bumps Itself Over Tariff "Reform" Bill That Keeps 97% of Import Taxes in Place

Miscellaneous Tariff Bill Shows Why Washington Needs a Refresher in Business Accounting

Trade and the Panama Papers

"Protectionism Reduces World Income"

The Continuing Anti-Trade Adventures of Ted Cruz

These Shoes Were Made for Rent-Seeking

Redundant Patent Court Faces Much-Needed Congressional Scrutiny

Free Trade Reveals, Not Causes, The Problem with America's Labor Market

Seriously, What "Giant Sucking Sound"?

Previous Issues

Cato Trade Monthly Update, Apr. 4, 2016

Cato Trade Monthly Update, Mar. 2, 2016

Cato Trade Monthly Update, Feb. 1, 2016

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Herbert A. Stiefel Center for Trade Policy Studies, Cato Institute
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