We'll Pay an Import Tax
By Stephen Tuttle | Feb. 18, 2017
Our new president has pledged to bring back manufacturing jobs, a reality that has already been happening for the last seven years. Since 2010 there's been an increase of more than 800,000 new manufacturing jobs compared to the five million we lost in the previous ten years.
Additionally, some 300 companies with offshore operations moved back to the United States in just the last three years.
Despite the good news, we'll never again reach the zenith of manufacturing jobs we once had. Necessary environmental regulations, automation, significantly cheaper offshore opportunities and trade agreements are obstacles that can't be overcome regardless of the wishes of the president.
Trump would like to “level the playing field” by instituting what amounts to an import tax on goods coming into this country. He started by suggesting a 35 percent tax on goods imported from Mexico, presumably to teach them a lesson about something. He settled back to 20 percent but started widening the target to include any country with which he believes our trade agreements are unfair.
For starters, Trump claims, the 20 percent tax on Mexican imports would easily pay for the wall about which he won't stop talking, so Mexico would be paying for it.
Well, not exactly. The cost of any import tax will be passed along to consumers, as such increased costs always are. Just how many products would see a price increase? Many.
We are dependent on imports.
Start with our closets. According to the American Apparel and Footwear Association (AAFA), 97 percent of all apparel sold in the United States is made elsewhere. From the cheapest to the most expensive clothes or shoes, they come flowing in from China, Bangladesh, Indonesia, India, Malaysia and elsewhere.
There are U.S. clothing manufacturers. L.L. Bean in Freeport, Maine, might be the most famous, but even they include imported items in their catalog. Whatever your clothing budget, just add about 20 percent.
We've known for some time most electronic gadgets and appliances are made elsewhere. It's a pretty good bet your computers, televisions, cable modem, Wi-Fi system, DVR and everything else you have hooked up were made in Asia. Even your remote control will say “Made in China” on the back.
Except for the Macbook Pro, all Apple products are made in China and your non-Apple smartphone wasn't made here, either.
Adding 20 percent to items already costing hundreds would be a problem for a lot of us.
Food would be next on the list and we get plenty of it from Mexico this time of year. Berries of all sorts, avocados, vegetables. Central America and Chile provide most of the rest of our winter produce. All of it would get more expensive.
Cars and trucks would get pricier, too.
Determining a vehicle's birthplace is a little trickier these days. Lots of parts from different places. A decade ago Cars.com created the American Made Index (AMI) to help us decipher things. To qualify for the AMI, a car or truck has to have at least 75 percent of its parts manufactured in the United States, be assembled in a plant here and make the majority of its sales here.
The vehicles highest on the AMI, the very most American made cars? The top five, in order, are the Toyota Camry, Honda Accord, Toyota Sienna, Honda Odyssey and Honda Pilot. I'm not making that up. Ford doesn't have a single vehicle that even qualified for the list.
An import tax would penalize some domestic automakers while rewarding some foreign brands. How that helps our economy is as yet an unsolved mystery.
Trump is correct that some trade agreements seem imbalanced, and not in our favor. Those agreements often gave American companies their first access to new markets. Plus, export income is actually a small part of our economy – we consume about 90 percent of what's manufactured here ourselves.
American manufacturers, confronted with labor, environmental and tax headaches found greener pastures elsewhere. A compliant workforce unfettered by minimum wages or other labor laws, not to mention the absence of environmental regulations and other pesky rules, were attractive lures.
Bottom lines, shareholders and American consumers benefited. But it cost us millions of jobs. The question now is does making American consumers pay more for imports restore our manufacturing base. It's hard to make that case.
Certainly the government would increase its revenues in a couple of ways. The import tax itself would increase revenues, and the increased cost to consumers would increase sales tax revenues at state and local levels.
But it would be a gut punch to American consumers, the very folks who drive our economy. They can call it whatever they want, but let's not pretend; it would be a tax passed along to us, a hit from the folks always promising lower taxes.