Oct 26, 2023

Three ways U.S. trade policy is pushing manufacturing offshore (and how to turn it around)

Elected officials of both parties often speak about their desire to strengthen American manufacturing and create more high-wage jobs in the sector. Unfortunately, U.S. trade policy too often has the opposite effect.

For every stump speech extolling U.S. manufacturing prowess, there are dozens of policies whispering a different message: Namely, that manufacturers should take their job opportunities and investment capital offshore.

It doesn’t have to be this way. The U.S. is a manufacturing powerhouse, with world-leading firms and highly productive workers, and they can compete and succeed in global markets — if elected leaders get the policy mix right.

Here are some of the biggest opportunities for policymakers to undo incentives for offshoring of manufacturing:

Pass the Miscellaneous Tariff Bill (MTB). First, the problem: The U.S. levies duties on a wide range of inputs used by U.S. manufacturers that just aren’t available from domestic sources. In many cases, these are raw materials or low value-added parts and components that can’t be produced domestically at scale or at a competitive price.

Enter the MTB. It temporarily suspends tariffs on a carefully vetted list of imported goods, most of which are inputs used by U.S. manufacturers. The U.S. International Trade Commission (ITC) confirms that products proposed for tariff relief are not made in the U.S. or are unavailable in sufficient quantities to meet U.S. businesses’ needs.

That’s why MTBs have been approved overwhelmingly by Congress many times over the past four decades. However, the last iteration lapsed more than two years ago, and the newest one has been gathering dust.

Meanwhile, manufacturing offshore often means not having to pay these duties on inputs. Canada, for example, worked with its domestic manufacturers to permanently end duties on many manufacturing inputs. It’s long past time for the Congress to pass the MTB.

Establish a Sec. 301 Tariff Exclusion Process. The Chamber has commented at length on the Sec. 301 tariffs levied on more than $300 billion worth of goods from China. However, it’s surprising that nothing has been done to respond to some of the most compelling pleas for tariff relief.

We hear regularly from U.S. manufacturers — makers of telecom equipment, faucets, grills, and more — that make their products in the U.S. but depend on a few imported inputs. Absent tariff relief, the incentives these manufacturers face are clear: They could move their operations offshore and achieve big cost savings within months. Of course, the cost would also include thousands of lost American jobs.

It gets worse. These companies’ competitors are often importing finished goods into the U.S. duty free. In other words, U.S. tariff policy punishes American companies for manufacturing their products in the U.S. — and gives an advantage to those manufacturing offshore. Multiple administrations have declined to remedy this situation.

This can’t go on. Establishing a streamlined, responsive petition process for firms to seek relief from the Sec. 301 tariffs is long overdue.

Rationalize Tariffs on Steel Products, Such as Tinplate. The U.S. imposes multiple layers of tariffs on steel imports, from Sec. 301 and Sec. 232 duties to more than 300 anti-dumping and countervailing duty (AD/CVD) orders imposing nosebleed-high tariffs. Partly as a result, U.S. steel production dominates domestic consumption: Import penetration has declined in recent years to 26 percent in 2022. (China, often a target of these duties, isn’t even a top 10 source of imported steel.)

However, “steel” encompasses a wide variety of highly specialized products, and tariffs on specific products hit some steel-consuming industries hard. One example is “tinplate,” steel sheet coated in tin to impede rust, which is used to can food: U.S. production is insufficient to meet demand, so import duties represent a burden placed directly on U.S. food manufacturers and their consumers.

A petition to impose AD/CVD tariffs of up to 300 percent on tinplate is now under review by the Commerce Department and the ITC. However, a study for the Consumer Brands Association warns that, if imposed, these “tariffs would threaten nearly 40,000 union and non-union manufacturing jobs and increase the cost of canned foods and products by up to 30%.”

Policymakers need to find ways to ensure greater restraint on this front. As the same study found, “for every one steelmaking job that might be protected, 600 U.S. manufacturing jobs will be put at risk.” It’s not lost on domestic food manufacturers that their competitors in Europe, Canada, and Mexico face no such threat.

Fundamentally, the competitiveness of U.S. manufacturing depends on keeping costs low. Trade policies that add unnecessarily to manufacturing costs eat away at prospects for hiring, innovation, and expansion. U.S. officials should reverse course and eliminate these policies that incentivize the offshoring of U.S. manufacturing.

John Murphy is senior vice president for International Policy at the U.S. Chamber of Commerce.

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Pass the Miscellaneous Tariff Bill (MTB).Establish a Sec. 301 Tariff Exclusion Process.Rationalize Tariffs on Steel Products, Such as Tinplate.