The voices of Tax Policy Center's researchers and staff
Trying to parse President-elect Donald Trump’s Sunday threats against US manufacturers that move production overseas is not easy. One thing is sure: His tweet storm warning of new tariffs raises far more questions than it answers.
This is what Trump said: “The U.S. is going to substantialy [sic] reduce taxes and regulations on businesses, but any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its products back into the U.S. without retribution or consequences, is WRONG! “There will be a tax on our soon to be strong border of 35% for these companies wanting to sell their product, cars, A.C. units, etc., back across the border.”
It is striking that Trump tweeted these remarks just four days after his nominee for Commerce Secretary, Wilbur Ross, insisted that Trump had never threated to “willy-nilly” impose blanket tariffs on China. Here is that Q&A from his interview with CNN on Nov. 30:
ERIN BURNETT, CNN: Trump has threatened 45 percent tariffs on Chinese imports to the US. That's a threat, right? He said, I'm going to threaten it because I don't want end up having--
WILBUR ROSS, COMMERCE SECRETARY NOMINEE: No, here's what he actually said.
ROSS: What he said was if it turns out that the Chinese currency is overvalued, valued as much as 45 percent, and if they won't negotiate, then it may become necessary to threaten them with as much as a 45 percent tariff. That's not willy-nilly slapping a 45 percent tariff on everything.
Thus, Ross seems to be walking back Trump’s threats of blanket tariffs on goods produced by Chinese firms even as Trump is threatening a 35 percent tax on imports into the US by some US-resident manufacturers. It is hard to see how this is good for US business.
The Trump plan raises a myriad of issues. For example, would it apply only to new offshore production by US-based firms? Or only to offshore production by firms that close a US plant? What about existing imports of, say, Trump ties?
Would the import tax apply to foreign-based firms that close US plants and shift production elsewhere? If Toyota shutters an assembly line at its Camry plant in Lafayette, Indiana and opens a new line in Mexico, would he slap tariffs on Toyota imports into the US? If he did, would it apply to all Toyotas, or just Camrys?
Would Trump’s tariffs apply only to producers of finished goods, as he seems to imply? How would he treat the supply chain? For example, what would happen if an automaker switched from domestic to imported steel?
How would he treat goods that are assembled overseas from US-made components? Will the Trump Administration try to measure the US-content of foreign assembled goods? What about an firm that moves final assembly overseas but increases its use of domestically-produced parts?
These are just a few of the issues that Trump’s tweets raised, but did not resolve. But you get the drift: Introducing selective trade barriers raises far more questions than it answers. And in today’s interconnected world, it is very hard to measure all the direct and indirect ways they could affect US jobs, even if we understood his policy. But maybe that is all beside the point if the main goal is to look like you are protecting American jobs, even if you are not.
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Inside of Toyota plant in Georgetown, Kentucky. (AP Photo)