Agenda for the 116th Congress: Trade

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The Competitive Enterprise Institute’s new agenda for Congress, “Free to Prosper,” is out. It has an entire chapter devoted to trade, which will be a busy issue for years to come. To cut to the chase, here are our specific recommendations:

  • Repeal Section 232 of the Trade Expansion Act of 1962.
  • Repeal Sections 201 and 301 of the Trade Act of 1974.
  • Refuse to pass legislation enacting retaliatory trade barriers.
  • Institute a rule explicitly forbidding the president from enacting retaliatory trade barriers.
  • Pursue a bilateral trade agreement with the United Kingdom.
  • Pursue a bilateral trade agreement with the European Union.
  • Pursue either a bilateral or a multilateral trade agreement with China.
  • Oppose industries who want to burden future trade agreements with trade-unrelated provisions on labor, environment, intellectual property, and regulatory “harmonization.”

President Trump’s doubling of tariffs has already cost the economy almost 1.8 percentage points of growth. That means 2018’s 3.4 percent third quarter growth could have been 5.2 percent instead. If the economy veers into recession in the near future, President Trump’s trade policies will likely have played a major role. Congress needs to act as soon as possible to prevent further damage.

Our trade policy recommendations follow four general themes that have bipartisan appeal—important in a newly divided Congress.

The first theme is that the executive branch has grown too powerful. Only Congress has the rightful authority to tax. The president has abused the tariff-making authority Congress delegated back in the 1960s and 1970s with Sections 232, 201, and 301. The time has come for Congress to take back that power so no president cannot further abuse it.

The second theme is to move on from the “reciprocity” model for tariffs—the idea that America will only lower its tariffs if other countries also lower theirs. American tariffs hurt American consumers and producers regardless of what other countries do. To paraphrase the renowned Cambridge economist Joan Robinson, when other countries dump rocks into their own harbors, the solution is not to dump rocks into our own harbors.

Not only have America’s higher tariffs failed to convince other countries to lower their trade barriers, our trading partners have raised their in retaliation. American consumers and producers are being hit twice as hard—once by our own tariffs, and again by other countries’ retaliations. That’s more rocks and less harbor. Congress needs to do some dredging, and quickly.

Third, Congress should work with the executive branch on liberalizing trade with other countries. New agreements with the United Kingdom and European Union should emphasize not just lower tariffs, but the concept of regulatory equivalence. Basically, this means that if a product is deemed safe for people in the UK to use, then the U.S. government should automatically deem it safe as well. Such a policy would reduce compliance costs for each country’s domestic producers, reduce frictions to international commerce, and serve as a positive foreign policy gesture to boot. Note that this is different from regulatory harmonization, in which countries agree to have identical regulatory policies. Instead of harmonization’s uniformity, equivalence has an ethos of “if it’s good enough for you, it’s good enough for me,” while allowing countries to continue to experiment with new policies that might be more effective.

China is more complicated. President Trump pulled the U.S. out of the Trans-Pacific Partnership (TPP), which still has 11 member countries, with more likely to join. The binding agreement commits China to make many of the reforms the Trump administration has unsuccessfully been pressuring China to make via higher tariffs. It is not too late for the U.S. to rejoin the TPP.

The fourth theme is that future trade agreements should stick to trade issues wherever possible. This policy horse left the barn long ago, but it is important to remember for when unintended consequences come to pass in the future. In the short term, it can be expedient to add trade-unrelated labor provisions to buy union support, or environmental provisions to buy support from green energy companies and activists. It is a legitimate question whether the agreements could pass without the support such provisions can purchase. But it is just as easy to add poison pill-style trade-unrelated provisions that could torpedo an agreement. If the long-run goal is to create more wealth for more people—and it should be—trade agreements should stick to trade issues, and separate issues should be treated separately.

For more, read CEI’s “Free to Prosper: A Pro-Growth Agenda for the 116th Congress.” Previous posts in the Agenda for Congress series: