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How Simple Changes to Tariffs Could Help U.S. Manufacturers

June 3, 2015

By Daniel J. Ikenson

The myth of decline dominates the narrative about U.S. manufacturing. Yet, the preponderance of evidence indicates that U.S. manufacturing, relative to the past and relative to other countries’ manufacturing sectors, excels by the metrics that speak to its current and future prospects. But it could be doing even better if Congress made some simple changes to the outdated U.S. tariff system.

According to WTO and OECD figures, intermediate goods trade may account for as much as 75% of all global trade. The proliferation of cross-border investment and transnational supply chains has blurred the distinctions between U.S. and foreign products and has rendered tariffs on imported inputs incompatible with the imperative of wooing, securing and maintaining productive, capital investment in the U.S. To compete more effectively at home and abroad, manufacturers in the U.S. need access to imported inputs at world market prices. Last year, about 55% of U.S. imports were intermediate goods and capital equipment, the purchases of U.S. producers.

Yet, under U.S. tariff policy, many imported inputs remain subject to import taxes. Duties on products such as magnesium, sugar, polyvinyl chloride and hot rolled steel may please domestic producers, who are freed to raise prices and reap larger profits. But they are costly to U.S. producers of auto parts, food products, paint, and appliances, who consume those products as inputs in their own manufacturing processes. These taxes chase manufactures to foreign shores, where those crucial ingredients are less expensive, and they deter others from setting up manufacturing operations stateside.

Read the full article at The Cato Institute: How Simple Changes to Tariffs Could Help U.S. Manufacturers

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