Discussions about trade often present a false dichotomy: if exports are good and then imports must be bad. This oversimplified view lends itself to policy prescriptions that encourage exporters and discourage importers, yet the real world is much more complicated.
According to the Census Bureau’s 2013-2014 Profile of U.S. Importing and Exporting Companies, about 36,000 American manufacturers were importers in 2014. A separate table showed that 25,000 manufacturers were both exporters and importers. Put differently, nearly 70 percent of manufacturers that imported also exported products in 2014. So any efforts to raise the costs of imports are likely to drive up the costs of U.S. manufacturing, thereby making U.S. exports less competitive as well.
The GSP program helps demonstrate the importance of imports for manufacturers. In 2015, about two-thirds of all imports under GSP were raw materials, components and parts used to make other things in the United States. GSP waved over $400 million in taxes on those products – or about 60 percent of the total tariffs waived by the GSP program in 2015. By comparison, those same products account for just one-third of total U.S. tariffs collected (from all countries) in 2015.
For some states, basically all products imported under GSP in 2015 were raw materials, components and parts. For example, 99.7 percent of tariffs waived on imports into West Virginia in 2015 were for raw materials and parts. These included primary form plastics, chemicals, and transmission parts. Raw materials are parts accounted for 90 percent or more of the tariffs waived by GSP last year in several other states, including Wyoming, Louisiana, Michigan, Indiana, and Alaska.
When import costs are increased, such as when GSP was allowed to expire, American manufacturers (and their workers) suffer. For example, the new taxes associated with GSP expiration after one year forced Matrix Metals to lay off 75 workers in Iowa and Texas and prevented McGuire Manufacturing from replacing two full-time workers that left the small, Connecticut-based company.
Manufacturing jobs losses like those are completely avoidable. Eventually, Congress approved GSP renewal with big bipartisan votes in both the Senate and the House. Yet the false belief that imports must displace U.S. production fails to account for the fact that most imports, especially those under GSP, actually help make American manufacturers more competitive.
