Tariffs and protectionism are not the way to make America great again

Tariffs and protectionism are not the way to make America great again
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Last month the U.S. International Trade Commission (ITC) ruled in favor of a petition filed earlier this year under Section 201 of the Trade Act by solar panel manufacturers Suniva and SolarWorld. The filing alleged that the two bankrupt companies experienced serious injury due to overseas competition. Section 201 is a rarely used remedy for domestic industries seriously injured by or threatened with serious injury from increased imports. An ITC recommendation on this case is expected by November 3 and is likely to include tariffs which, if the president agrees, could cost 88,000 American jobs and inhibit growth in America’s solar industry.

Section 201 is being used to unfairly protect a domestic industry again. In May, Whirlpool filed a petition alleging that Korean companies LG and Samsung have harmed it in the large residential washer (LRW) market. According to the suit, LG and Samsung are selling large residential washers (LRWs) in the United States at below the production cost. An ITC ruling is expected on October 5, and if the trend holds, the ITC will recommend the president impose tariffs. As with the case involving solar panels, if the president accepts the recommendations American families will bear the costs of the U.S. giving into protectionist impulses in the form of higher prices, lost consumer choice and possibly, jobs.

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Foreign direct investment (FDI) creates American jobs. However, unfairly targeting foreign businesses with barriers to entry reduces U.S. attractiveness to foreign investors. George W. Bush was the last president to invoke Section 201 in 2002 imposing 30 percent tariffs on steel imports. It had a devastating economic impact. According to a Consuming Industries Trade Action Coalition study, the tariffs resulted in the elimination of 200,000 American jobs with minimal benefit to U.S. steel producers.

 

Similarly, a ruling in favor of Whirlpool could sacrifice American jobs. Samsung announced plans to open a facility in South Carolina's Newberry County, which is projected to create 1,000 American jobs. Another 600 American jobs will be created in the LG facility in Clarksville, TN, scheduled to open in 2019. LG also plans to establish one North American headquarters in New Jersey and two in Michigan. Reduced industry competition resulting from tariffs will ultimately lead to fewer choices and higher prices for American families. Perhaps greater product innovation would be a more sustainable long-term strategy for Whirlpool to attract consumers and retain market share than misusing trade remedies.

According to Whirlpool’s ITC petition, its “domestic industry [has] suffered significant market share loss, deteriorating financial performance, low and declining capacity utilization, and suppressed investment and employment.” However, there is ample evidence that the company is thriving. Whirlpool enjoys a 35 percent share of the U.S. LRW market which equals LG’s and Samsung’s combined market share, and according to Whirlpool’s website, net sales, including U.S. washer sales are up from the same time last quarter and 2015 revenues were the highest since 2007. Given all this success, it’s not surprising that Whirlpool’s CEO is getting a raise. 

Section 201 tariffs, which usually apply to ALL imports of a specific product, are not even the appropriate remedy for the harm Whirlpool claims to have suffered. Whirlpool is requesting that tariffs only be applied to Samsung and LG LRWs. They are narrow remedies more typical of anti-dumping and countervailing duties cases. However, the World Trade Organization (WTO) Appellate Body already ruled against the U.S. last September in an LRW anti-dumping and countervailing duties challenge that Korea brought, prompting Whirlpool to attempt this unusual remedy.

The United States created the rules that govern international commerce during the period immediately following World War II. They ushered in an unprecedented period of global peace and prosperity. However, when we try to subvert the system, American credibility on the importance of free market principles disappears.

For weeks, the president has complained to his senior advisors, “I want tariffs.” Tariffs will not make America great again and have the potential to ignite a trade war that will cost American jobs, increase prices paid by hardworking taxpayers and limit consumer choice. Instead of amplifying the current anti-trade climate, the Administration would better serve American families by preventing special interests from misusing U.S. trade law to gain undue advantage instead of engaging in fair, free market competition that will benefit everyone.

 Karla Jones is the director of the nonprofit American Legislative Exchange Council's Task Force on International Relations and Task Force on Federalism.