Month: August 2016

Despite the common refrain of low U.S. tariffs, American companies pay billions of dollars annually in taxes on imports from TPP countries. And while U.S. imports from the world have declined in 2016, tariffs paid on imports from TPP partner countries continued to grow – making swift TPP passage more important than every for U.S. companies with global supply chains.

In the first half of 2016 alone, U.S. imports from the new TPP countries faced nearly $2.7 billion in tariffs. That was about $68 million, or 2.6 percent, more than the same period in 2015. Put differently, American companies importing from these countries have 68 million new reasons to support TPP.

The table below shows the tariffs collected from each of the TPP countries not currently covered by a free trade agreement with the United States.

It’s a mixed bag for the countries in terms of whether tariffs paid increased or decreased. Higher tariffs paid on imports from Vietnam and New Zealand were partially offset by lower tariffs paid on imports from Japan, Malaysia, and Brunei.

There is considerable variation within the countries as well. For example, the biggest increase in tariffs paid on imports from Vietnam came on a certain type of shoes. However, the biggest decrease came on a different type of footwear. Similar examples exist in Japan and Malaysia, where the imports facing the biggest tariff increases and decreases are variations of similar products (autos and apparel, respectively).

While the details can be messy, the big picture is crystal clear: even short delays in passing TPP will lead to big tax bills for American companies.

 

Judy Hoarfrost (pictured above) has been involved with table tennis her entire life. She competed in her first U.S. Open at age 11 and joined the U.S. National Team at 15. Judy visited China as part of the “Ping Pong Diplomacy” team in 1971 – a full year before President Nixon and the normalization of U.S.-China relations – and has been inducted into both the USA Table Tennis and Oregon Sports Halls of Fame. That commitment continues as co-owner (with her brother and junior champion Michael Bochenski) of Paddle Palace Table Tennis in Portland, Oregon.

Paddle Palace, a growing table tennis equipment distributor with 11 employees, is one of the many small businesses that would benefit from lower U.S. import tariffs under the Trans-Pacific Partnership (TPP) agreement. Its imports of table tennis equipment from Japan currently face tariffs of 5.1 percent. The TPP would eliminate those tariffs immediately, potentially savings tens of thousands of dollars annually in waived taxes.

Lower costs associated with TPP passage would help Paddle Palace compete with an unlikely source: direct-to-consumer imports from Europe that do not face tariffs regardless of the country where they were manufactured. That is because only shipments over $800 must pay tariffs, a threshold that most one-off orders of things like table tennis paddles do not reach. As the North American Distributor for the major brands of table tennis, Paddle Palace currently is penalized for making larger purchases that are kept as inventory in, and then shipped from, its Oregon headquarters.

According to Hoarfrost:

“We are experiencing fierce competition from overseas companies who market directly to our end-use customers. These foreign competitors are gaining a market share of our business while not being subjected to the same U.S. taxes that we pay. The TPP will help level the playing field for our American company.”

TPP passage could benefit Paddle Palace’s own direct-to-consumer exports from Oregon as well. Since Paddle Palace’s imports from Japan do not qualify for benefits under NAFTA, they face tariffs of 7.0% when exported to Canada and 10.0% percent when exported to Mexico. Both countries agreed to eliminate import tariffs on table tennis equipment immediately under TPP, and as one of the largest equipment distributors, Paddle Palace is well placed to take advantage of those new markets openings.

Finally, more competitive pricing for imported equipment could lead to increased sales of associated products. For example, Paddle Palace has its own lines of rubber cleaner and glue that are manufactured in Oregon (by another company).

In short, there are many ways that TPP passage would benefit this small but growing Oregon business – but first Congress needs to pass the agreement.

Note: Paddle Palace is one of the first companies to join the free TPP Importers List. If you are an American importer that would benefit from lower U.S. tariffs under TPP, please add your company by filling out this form. 

Last week, Morning Consult released a new poll with some an interesting finding: support for TPP grows as Americans become more familiar with trade deal. While many voters still have not heard of the TPP or do not have an opinion on it, 35 percent of respondents said they support TPP compared to just 22 percent that oppose it.

The results notable for two reasons: 1) an earlier Morning Consult poll from March showed more opposition to than support for TPP, and 2) the major-party presidential candidates have spent the intervening months seemingly competing for the title of “most anti-TPP” candidate. Yet despite the drumbeat of anti-TPP rhetoric, overall support has grown, as shown in the chart below.

Perhaps most surprisingly, the shift in support appears widespread. One might expect the negative presidential campaigns to harden the stance of people already opposed, but the opposite has happened: the number of respondents that “strongly oppose” TPP fell by 3 percentage points, while those that “somewhat oppose” fell by 4 percentage points. The chart below shows the percentage point change for each response option between March and August.

While the public support trends are certainly good, Congress needs to learn about constituent companies and workers that would benefit from TPP passage. We encourage all companies that would benefit to add their name to the free TPP importers list here.

We recently came across an article from Mark Wallace, UPS senior vice president of global engineering and sustainability, called “The Urgency of Trade and TPP.” Adopted from a speech at the June 2016 Global Supply Chain Summit in Washington, DC, the full article is worth reading. What struck us most was the call to action:

TPP is approaching the finish line, but there are still obstacles in its path. As we near the finish, it’s critical that we avoid two big mistakes.

One would be to assume the logic that free-trade advocates see in the rightness of global trade will win the day.

The other potential mistake is to be afraid to step up to the debate. We have to be visible. We have to be vocal. We have to argue our case in every forum available to us.

The stakes are rising, the misinformation is growing and the clock is ticking. It’s time to push TPP over the finish line.

The message is simple but powerful: be visible, be vocal, and don’t be afraid to enter the debate. 

The stakes for importers are clear: billions of dollars in annual tariff payments that could be eliminated if Congress passes the TPP.

The costs of inaction are much higher than annual costs: if Congress fails to pass the TPP this year, another opportunity may not arise for several years (if at all).

Yet we cannot assume that the rightness of those arguments will win the day. So we offer the companies that would benefit from TPP a slightly tweaked version of the call to action:

Be visible, be vocal, and enter the debate here.

Last week we highlighted the state-by-state breakdown of tariffs paid on imports from TPP countries. Today, we are looking at the same data but from a slightly different angle: the average tariff faced on dutiable imports (i.e., those that already face no tariffs from any country). As shown in the map below, these average tariffs can be very high.

While Wisconsin faced the highest average tariffs at 14.2 percent, four other states including Vermont, Maine, Kansas, and New York also faced average tariffs of over 10 percent. These average rates may seem implausibly high given the common talking points about low U.S. tariffs, but imports of clothing and footwear often face tariffs of 20.0 percent or more.*

Products facing the highest tariffs typically would be subject to the longest tariff phaseouts under TPP, but that is not always the case. Many footwear and travel goods would be duty free on day 1 of implementation, as well as some apparel products like cotton sweaters (assuming they can meet the rules of origin). Even those products where some tariffs would remain for 10 years, such as women’s cotton trousers, would see tariffs cut in half upon implementation (again, subject to meeting the rules of origin).

Before any of these tariffs can be eliminated (or reduced), Congress must first pass legislation approving the TPP. The sooner it does, the better for American companies facing some very high taxes on imports from TPP countries.

* To be clear, states don’t pay or even collect the tariffs; importers pay the tariffs to the federal government. Estimates are based on national data on tariffs collected and the state import data using the Census Bureau’s “state of destination” definition. These average tariffs exclude imports of products that do not face tariffs from any country and therefore could not be reduced by congressional passage of the TPP.