Benefits of trade, and TPP specifically, are often concentrated in unexpected places

Posted on by Dan Anthony

Diffuse benefits and concentrated losses. Those two characteristics supposedly make free trade hard to defend. Senator Jeff Flake (R-AZ), one of the most vocal supporters of trade generally and TPP specifically, made that point in a Politico article last week.

Yet the benefits of trade – or potential benefits from changes in trade policy – often are very concentrated in unexpected places. Looking at which states import specific products from TPP countries, and how TPP would impact tariffs on those products, shows how.

Take U.S. imports of arc-welding equipment from New Zealand. These products faced about $53,000 in tariffs in 2015, which the TPP would eliminate immediately. It is hard to imagine hundreds of arc-welding equipment importers across the United States rallying for TPP to save a few hundred dollars each (i.e., if the benefits are diffuse).

However, 100% of U.S. imports of those products last year went to Colorado. Based on this, it seems likely that a single company would benefit from TPP tariff cuts on arc-welding equipment from New Zealand, and that the company is located in Colorado. This example is hardly unique.

Nearly all states are the dominant importer of at least one product that stands to benefit from significant tariff cuts under TPP (see table below). In 2015, U.S. imports of fishing nets from Japan went exclusively to Alaska ($70,000 in tariffs paid), while plastic toilet seats from Malaysia went to Georgia ($800,000 in tariffs paid), and wool fabrics from Vietnam went to Vermont ($100,000 in tariffs paid). Less surprisingly, nearly all mufflers and exhaust parts from Malaysia went to Michigan ($250,000 in tariffs paid). As the Alaska and Vermont examples show, even small states are often the top beneficiaries for specific products.

All of the imports above would become duty-free immediately under TPP. Unlike the diffuse benefits case, it is easy to understand the motivation for sole-importers of products facing $50,000 or $100,000 or even $800,000 annually to support TPP.

So why aren’t they? Many – in particular small businesses – appear unaware of the potential benefits of TPP. They lack of time to pore through a 5,000-page document in search of the two to three lines impacting their business (in an agreement that may not even come up for a vote). Perhaps just as importantly, the resources dedicated to educating exporters about potential TPP benefits simply do not exist on the importer side.

At least as it relates to engaging importers in support of TPP, it appears that lack of education may be a bigger problem than a lack of concentrated benefits.

The table below shows an example of U.S. imports from TPP countries that are concentrated in each state, along with the estimated tariffs paid on those imports into that state and how TPP would lower those tariffs. 

tpp_unique_products

Kasich supports TPP that could save Ohio importers hundreds of millions of dollars

Posted on by Dan Anthony

On Friday, Ohio Governor John Kasich joined a bipartisan group of political and business leaders at the White House to talk about the importance of passing TPP this year. Kasich also penned an op-ed in the Wall Street Journal, which noted:

With 40 million American jobs dependent on trade, the U.S. economy is already interconnected with the rest of the world. So TPP is not about something “new” as much as it is about helping existing U.S. companies—large and small—find growth opportunities in Japan, Australia, Canada, Chile, Malaysia, Singapore, Vietnam and four other Pacific Rim nations that want to increase trade with America.

There is little doubt that Ohio is an export powerhouse and that the TPP countries are very important export markets. According to the Business Roundtable:

  • Ohio exported more than $30 billion in goods and services to TPP countries in 2014;
  • TPP countries accounted for nearly 60 percent of the State’s goods exports, and
  • U.S. trade – exports and imports of goods and services – with TPP countries supported about 560,000 jobs in Ohio.

The last bullet contains a key, but often overlooked, point: those 560,000 jobs in Ohio rely on exports and imports. And the TPP provides significant potential benefits for the Ohio companies that import from TPP countries, their workers, and their customers.

In 2015, the United States collected an estimated $357 million in tariffs on imports into Ohio from the TPP countries with which the United States does not have an FTA already (i.e., Brunei, Japan, Malaysia, New Zealand, and Vietnam). That is nearly $1 million per day. Among all states, only imports destined for California and New Jersey paid more.

tpp_top_5_states_tariffs_paid_2015
Much of the tariffs were assessed on apparel from Vietnam, but a number of industrial products used by U.S. manufacturers also faced millions of dollars in tariffs. For example, Ohio imports of:

  • wire harnesses – the electrical connectors that make auto blinkers blink and windshield wipers wipe – from Vietnam alone faced about $5 million in tariffs;
  • machining centers and lathes – factory equipment used for metalworking by American manufacturers – from Japan faced $5 million in tariffs, and
  • the windshield wipers and blinkers mentioned above from Malaysia faced nearly $500,000 in tariffs.

The TPP would eliminate each of those tariffs immediately, making products manufactured in Ohio with those parts that much more competitive in global markets. Products accounting for about half of the tariffs paid ($177 million) on Ohio imports from new TPP countries would get immediate duty-free treatment under TPP.

For those gains to occur, Congress must first pass TPP. Kasich summed up the choice facing Members of Congress later this year:

Saying “yes” to TPP makes possible the economic growth American businesses and their employees want and need. Saying “no” is not a neutral or beneficial move—far from it. Turning down TPP slams the door on a way forward for job creation, and it will have a choking effect on the jobs, companies and communities that are now sustained by trade.

This is particularly true for jobs, companies and communities in Ohio with strong trade ties to the TPP countries.

If your company would benefit from U.S. tariff cuts under TPP, please add it to our free TPP importers list here. You can learn more about potential TPP import benefits here.

Hatch: “I think we’re going to get [TPP] done in lame-duck”

Posted on by Dan Anthony

That is what Senate Finance Committee Chairman Orrin Hatch (R-UT) reportedly told The Hill newspaper yesterday. Hatch, as chairman of the committee with jurisdiction over trade issues and one of the architects of the Trade Promotion Authority (TPA), would play a key role in moving TPP implementing legislation through the Senate.

Since TPP negotiations concluded last year, Hatch has expressed concerns about certain provisions related to biologic drugs. That issue has not been resolved, but the article notes that “Hatch said he is getting assurances from the White House that a solution is in the works that will address the trade deal’s problems.”

Given his key position, Hatch’s support is necessary for any successful effort to pass TPP this year. Yet much work remains to educate Members of Congress about the potential benefits of TPP for American companies and workers. Importers with a stake in TPP can show their support for passage in 2016 by adding their names to the free TPP importers list here. Those who are unsure about potential gains can learn more at our TPP Import Benefits page.

Cato Institute’s TPP Chapter-by-Chapter Analysis Highlights Significant U.S. Import Benefits

Posted on by Dan Anthony

Yesterday, the Cato Institute released a working paper with a “chapter-by-chapter analysis of the TPP from a free trader’s perspective.” Among the chapters scoring highest on a scale of 0 (protectionist) to 10 (free trade) was the National Treatment chapter detailing tariff cuts (Chapter 2), which scored an “8.”

While not the traditional lens through which trade policies (and politics) are viewed, the paper notes upfront that “the benefits of trade are the imports we obtain, not the exports we give up” (p. 5). Therefore, its assessment of the National Treatment chapter focuses more on the potential benefits from U.S. tariff cuts than on those from the much-touted “18,000 tax cuts on Made-in-America exports.”

In terms of the tariff provisions’ impact on American manufacturers, the assessment states:

The chapter provides for the elimination – immediately or eventually – of nearly all U.S. tariffs on goods from the other TPP parties. That dynamic is more likely to ‘secure America’s emerging role as the world’s most attractive site for manufacturing…’ than is the reduction of barriers to U.S exports (p. 18).

In terms of the impact on Americans more broadly, the assessment states:

It also promises that American consumers will enjoy greater variety of goods at lower prices, thus improving living standards and easing the strain on family budgets (p. 18).

It also notes that upon entry into force:

the proportion of MFN duty-free tariff lines on U.S. imports from TPP parties will increase from 36.4 percent to 90.5 percent, and to 99 percent upon full implementation (p. 20).

Those are significant benefits indeed, and TPP partners open their markets to U.S. exports “just as wide and usually faster.”

Yet the analysis also notes some negative aspects of the TPP, including long tariff phase outs for “autos, beef, clothing, and much of U.S. agriculture” (p. 21). For example, the current 25 percent tariff on U.S. imports of light trucks from Japan will remain unchanged for 30 years (!) following implementation, after which it will be eliminated. By that time, the more relevant question likely will be whether the U.S. creates separate tariff lines with different rates for self-driving light trucks.

Additionally, some of the product specific rules of origins for politically sensitive items such as autos (addressed in Chapter 3) and textiles and apparel (addressed in Chapter 4) limit the benefits of tariff reductions detailed in Chapter 2.

In the end, the Cato chapter-by-chapter analysis is in line with the opinions of most TPP supporters: the agreement may not be perfect, but it represents a major improvement over the status quo for U.S. companies, workers, and consumers and therefore deserves support.

“Low” US Tariffs Cost American Companies $17 Million A Day on Imports from TPP Countries

Posted on by Dan Anthony

Alan Wm. Wolff, a senior trade negotiator in both Republican and Democratic administrations, wrote a good commentary for Fortune today on “Why Mitch McConnell Should Move Ahead on the Pacific Trade Deal.” It gave four specific reasons that passing TPP is in the U.S. national interest, including: safeguarding America’s stake in Asia, boosting the U.S. economy, constructing 21st century trading rules, and maintaining U.S. credibility.

However, the statement that “U.S. trade and investment barriers are already low” needs some clarification. We’ve shown previously that average tariffs on imports from TPP countries can be quite high. Those taxes are paid by the end consumer, whether they are U.S. manufacturers trying to remain competitive in the global marketplace or families trying stretch paychecks as far as possible. And it is possible for barriers to be low but still very costly.

In fact, companies importing from TPP countries currently pay about $17 million per day in tariffs. That is nearly double the amount paid in 2009, as shown in the chart below.

tpp_average_daily_tariffs

In fact, the daily tariff cost has increased every year since 2009. This is true despite ever-lower tariffs on imports from countries with previously signed FTAs. For example, the U.S.-Australia FTA went into effect in 2005 but U.S. tariffs on some products are subject to 18-year phaseouts. While those products will not be duty free until 2022, the face a slightly lower rate every year. And yet cost for American importers continues go grow.

The fact that U.S. importers pay significant tariff costs does not undercut any of the arguments made by Wolff. Indeed, they strengthen the argument that Congress should consider the TPP agreement this year, as they are another cost to American companies, workers, and families for every day of delay.

118 Apparel, Footwear, Travel, and Retail Organizations Call on Congress to Support TPP

Posted on by Dan Anthony

Earlier today, 118 companies and associations sent a letter to every Representative and Senator urging a vote in support of TPP this year. The letter notes that “the TPP represents a once-in-a-generation opportunity” whose tariff savings could exceed $1 billion in the first year alone. Once fully implemented, the TPP could eliminate $2.8 billion in taxes collected annually on U.S. imports of clothes, shoes, backpacks, athletic equipment, and related products.

The letter followed an op-ed in The Hill highlighting the potential benefits of TPP for American families wrapping up their back-to-school shopping, who probably did not give much thought to the impact of the United States’ outdated (and regressive) tariffs. The TPP would eliminate some very high import tariffs immediately – from 17.6 percent tariffs on backpacks to 20.0 percent tariffs on sneakers to 32.0 percent tariffs some sweaters – and phase out many more.

For this to happen, Congress must first pass the TPP. The sooner it does, the sooner American families will stopped being subject to these costly, hidden taxes on everyday items.