Unlike the World Series, trade has many winners

Posted on by Dan Anthony

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Last night, the Chicago Cubs beat the Cleveland Indians in the 10th inning of Game 7 to win their first World Series since 1908. It was an incredible end to an amazing series. There will be much rejoicing in the city of Chicago as lifelong fans get to celebrate the first world championship in 108 years. (Trust me, I live with one.)

As the American Apparel and Footwear Association’s Steve Lamar wrote the other day in The Hill, there are numerous ways that international trade is like baseball. Those similarities can teach many lessons. For example, competition is fierce between companies both within the United States and across the globe. Yet there is a very important difference between trade and baseball: trade can (and does) have many winners.

Take our new research on potential tax cuts if Congress passes TPP. It shows that TPP could eliminate $650 million in tariffs on imports into Illinois and eliminate $1.3 billion in tariffs on imports into Ohio in the first five years. Unlike baseball, where no result could have made both Cubs and Indians fans happy, these potential savings from trade are not mutually exclusive. TPP tariff reductions on imports into Illinois in no way prevent companies in Ohio from benefiting – or Alabama or Wyoming or any other state. Cubs and Indians fans can both win!

These gains add up. If US tariffs of 20-30 percent on footwear and clothing go away, the American families have more money to put towards other priorities, whether that is other goods, saving for college, or even baseball tickets. If tariffs on industrial goods and raw materials are eliminated, American manufacturers can lower prices (thus driving up sales) or invest those savings into developing new products, hiring new workers, or purchasing needed equipment. Once again, there can be many winners.

With so many aspects of our lives viewed through a lens of either winning or losing, it can be hard to see trade differently. There can be only one World Series champion. Cubs and Indians fans both know that is unquestionably true. Fortunately, the TPP (and trade more generally) is subject to a different set of rules where many can win.

Don’t be tricked: failure to pass TPP will cost American employers billions of dollars annually

Posted on by Dan Anthony

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Trick or treat? That is the question as American companies look ahead to a potential vote on the TPP agreement during a “Lame Duck” session of Congress after next week’s elections. The stakes are high, as it appears unlikely that TPP will be a priority for the next Administration, regardless of who becomes the 45th president. So passing TPP before the end of the year is crucial.

Don’t be tricked: congressional failure to pass TPP will cost American employers billions of dollars annually. Our research shows that TPP could have cut up to $17 billion in import taxes paid by American companies through 2020 had it gone into effect earlier this year. This page shows how TPP could benefit employers in each state.

The direct hit to companies’ bottom lines comes on top of all the lost opportunities for expanding sales in newly opened markets like Japan and Vietnam. Because many tariff cuts are phased in, the longer it takes to pass TPP, the longer it will be before American companies and workers can benefit from it. Even a one-year delay is a scary prospect!

For American employers competing in the global economy, failure to pass TPP this year would be anything but a treat.

New interactive map shows potential import benefits from TPP by state

Posted on by Dan Anthony

Today we launched a new interactive map featuring first-of-its-kind research on the potential impacts of US tariff cuts under TPP for employers in all states.

The research is unique in several ways. First, it quantifies estimated tariffs paid on import from the so-called “new TPP” countries (i.e., Brunei, Japan, Malaysia, New Zealand, and Vietnam). Second, it uses the proposed US tariff reductions to show how those taxes could be reduced for employers in every state over the first five years of TPP implementation. Third, the research provides multiple examples of specific products imported into each state of products whose tariffs would be eliminated immediately upon implementation (e.g., Alabama’s imports of textile finishing dyes from Japan or Michigan’s imports of mufflers from Malaysia).

The interactive map highlights the top-line data for each state in terms of import taxes paid and potential tax cuts. For example, employers importing into Kentucky from new TPP countries paid an estimated $117 million in import taxes in 2015. If TPP were in effect, tariffs on those same products would be reduced by 90 percent by year five, potential saving Kentucky employers over $500 million along the way.tpp_state_imports_map

tpp_state_imports_kentuckyIn addition to the “fast facts,” clicking on the map also provides an option to download the corresponding one-page fact sheet for each state (pictured). The fact sheets include addition details, such as how the tariffs paid would fall over time, the list of key products eligible for duty-free treatment, and the top sources for products currently facing import taxes.

Using Kentucky again: most tariffs would be eliminated immediately and the majority of tariffs paid are on imports from Japan. Numerous raw materials and components used by American manufacturers – such as metal-working machinery from New Zealand, wiring sets (auto parts) from Vietnam, and rubber gaskets from Malaysia – are among the Kentucky imports that would go duty-free immediately.

Perhaps surprisingly to many, there is tremendous variation between the states – and those differences are not just based on import volumes. For example, while more than 95 percent of imports into Alaska and West Virginia could be duty free by year 5, just 28 percent of imports into Hawaii could be eligible. we’ll be publishing several blog posts daily for the rest of the month to highlight some of the research for each state.

 

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. 

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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.

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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.

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.

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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.