Congress

After State of the Union, Republicans Face a Crucial Choice on Trade

There are dueling bills in front of Congress, both backed by Republicans. One would expand Trump's tariff authority, while the other would check it.

|

MIKE BLAKE/REUTERS/Newscom

For the first two years of President Donald Trump's tenure, his administration has been the sole driver of federal trade policy. Whether setting tariffs or negotiating trade deals—like the rewrite of the North American Free Trade Agreement (NAFTA) last year—Trump has been the one doing things and Congress has been mostly content to let it happen, with a few performative grumbles here and there.

Now, for a variety of reasons, Congress is set to play a bigger role on the trade front, whether it wants to or not. Doing so likely will expose a deep divide within the Republican Party—where one faction is trying to claw back congressional control in the trade sphere, while another seeks to hand yet more authority to the chief executive to write the rules for how America participates in the global economy.

Trump asked for the latter during Tuesday's State of the Union address, calling specifically for Congress to pass the United States Reciprocal Trade Act. "If another country places an unfair tariff on an American product, we can charge them the exact same tariff on the exact same product that they sell to us," Trump said.

As that explanation suggests, the bill would effectively give the president more excuses to raise trade barriers and impose tariffs, which are really just taxes paid by American importers. For example, the European Union currently charges 10 percent tariffs on cars imported from America but America charges only 2.5 percent on car imports from Europe. If the Reciprocal Trade Act were to become law, Trump could circumvent Congress and raise car tariffs to 10 percent—something that he's already threatened to do via a different mechanism, and something that would be disastrous for American auto dealers and car-buyers.

The bill has other shortcomings too. It grants authority for the president to respond to "significantly higher tariffs" imposed by other countries, but does not define exactly how high those foreign tariffs must be—which would effectively give Trump and future presidents a blank check to crank up protectionism.

"You could drive a Mack truck through that loophole," says Scott Lincicome, a trade lawyer and a scholar for the libertarian Cato Institute. "It seems pretty unlikely that, given recent events, the president wouldn't exploit that authority if it was given to him."

Indeed, Trump has already made use of the massive loophole in Section 232 of the Trade Expansion Act of 1962. That law gave presidents the authority to impose tariffs for national security purposes but, importantly, did not define what counts as a matter of national security. Trump has used Section 232 to impose tariffs on steel and aluminum imports—including imports from close U.S. allies like Canada and Europe—under the gossamer-thin rationale that national security is served by increasing the price of imported metals.

Restricting Trump's ability to continue abusing Section 232 is the aim of the other trade bill now circulating in Congress. As I detailed last week, a bipartisan group of lawmakers from the House and Senate have joined together to sponsor the Bicameral Congressional Trade Authority Act, which would give Congress the ability to block future Section 232 tariff proposals and would limit the definition of "national security" in the law.

The dueling bills are a telling representation of the Republican Party's Janus-like stance on free trade at the moment. Aside from the "R" that appears next to their name, there is no overlap between the 18 Republicans who have sponsored the Reciprocal Trade Act, sponsored by Rep. Matt Duffy (R–Wis.), and the free-traders, like Sen. Pat Toomey (R–Pa.), backing the Bicameral Congressional Trade Authority Act.

"Senate Republicans are overwhelmingly in favor of free trade," Toomey said last week. "I am very doubtful that [Duffy's bill] will work, and fundamentally I think it's a mistake to just grant this authority to the president. That's the central problem."

There's plenty of other internal disagreements over policy within the Republican Party, on everything from fiscal policy to immigration, and from entitlements to foreign interventions. On trade, however, Republicans are faced with a difference of kind—not of degree. There is effectively no middle ground to be had between those who want to give the president greater power to levy tariffs and those who want to claw back the power he already has. Nor could there be, as the two opinions are not merely opposite policy prescriptions but are based on diametrically opposed views about how the power in Washington should be shared.

"You've got the principled, practical guys on the one side who want to limit tariff authority, and then on the other side it's a group of hardcore Trump supporters who may be looking at this a matter of politics and not policy," Lincicome says.

This deep division within the Republican Party will likely come to a head not over the tariff bills themselves, but in the upcoming debate over ratifying the United States-Mexico-Canada Agreement (USMCA), the new NAFTA.

Though Trump often talks about the USMCA as if it is a done deal, it must be approved by Congress before taking effect. Its chances to pass have already been complicated by Democrats' takeover of the House, but there is no indication that even a Republican-controlled Congress would pass the USMCA in its current form. Toomey, for example, is on the record as a "no" vote unless changes are made to do away with some of the deal's protectionist elements, like the stringent barriers for importing automobiles built in Mexico.

Whichever trade bill emerges victorious is likely to be attached to the USMCA, assuming that the trade deal manages to get through Congress. And if either is going to pass this year, one half the GOP will have to prevail over the other.

Asked Wednesday what it would take for pro-trade Republicans to support Trump's call for the passage of the Reciprocal Trade Act, Sen. Ron Johnson (R–Wisc.) tried to find the largely nonexistent middle ground.

"I certainly would like to see these things approved by Congress," he said.

Told that the bill Trump wants passed seems designed specifically to circumvent Congress, he paused.

"Well," Johnson said, "then I'd have a problem with that."

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

18 responses to “After State of the Union, Republicans Face a Crucial Choice on Trade

  1. Poor Boehm.

    The US economy is getting stronger by the day. China, Canada, Mexico, and the EU have caved to Trump’s strategy. NAFTA is being destroyed for the Non-Free Trade Agreement.

    1. The US economy is getting stronger by the day.

      OK, nonsense like this really makes me wish Reason would reinstate Palin’s Buttplug. I try to fill the void left by his absence by posting links detailing the disastrous impact Drumpf has had on the economy. But I cannot be as effective in this role because I lack PB’s encyclopedic economic knowledge. He’d refute your assertion with dozens of advanced measures of economic health that I’ve never even heard of.

      But seriously though, this economy sucks.

      #DrumpfRecession
      #UnbanPalinsButtplug

    2. Ignorance must be your excuse for not following up on previous NAFTA/USCMA promises.

      loveconstitution1789|12.3.18 @ 10:20AM|#

      Do you need me to link the rules of NAFTA and USCMA so you can compare and contrast the “worseness” for us?

    3. Everything I have seen comparing NAFTA and USCMA shows USCMA significantly less free than NAFTA. You like to holler that free trade does not exist, that we only have managed trade, and that Trump is using disastrous tariffs to bludgeon other countries into negotiating better deals. But when asked to explain how well this worked with improving NAFTA, you just make hollow promises.

      loveconstitution1789|12.3.18 @ 10:20AM|#

      Do you need me to link the rules of NAFTA and USCMA so you can compare and contrast the “worseness” for us?

      Come on, bud, man up. Show your work like your promised.

    4. But you won’t show any links to comparisons where NAFTA comes out worse than USCMA because there aren’t any, and it would show the worthlessness of your promises.

      loveconstitution1789|12.3.18 @ 10:20AM|#

      Do you need me to link the rules of NAFTA and USCMA so you can compare and contrast the “worseness” for us?

    5. Cat got your tongue? Come on, follow through.

      loveconstitution1789|12.3.18 @ 10:20AM|#

      Do you need me to link the rules of NAFTA and USCMA so you can compare and contrast the “worseness” for us?

    6. Guess I’ll be lucky to even get an alphabet troll non-response.

      loveconstitution1789|12.3.18 @ 10:20AM|#

      Do you need me to link the rules of NAFTA and USCMA so you can compare and contrast the “worseness” for us?

    7. Poor alphabet troll. Still wont compare and contrast NAFTA and USCMA.

      Clearly its script is very limited.

      1. Poor Nazi troll bitch can’t refute this!

        From PoliticoEU:

        Trump rejects EU offer to scrap car tariffs

        By MAXIME SCHLEE 8/31/18, 9:23 AM CET Updated 9/1/18, 11:30 AM CET
        U.S. President Donald Trump said the EU’s offer to scrap tariffs on cars is “not good enough” because European consumers’ “habits are to buy their cars, not to buy our cars.”

        In an interview with Bloomberg published Friday, Trump also said the EU “is almost as bad as China, just smaller.”

        On Thursday, EU trade chief Cecilia Malmstr?m told European Parliament’s trade committee that Brussels is willing to scrap tariffs on all industrial products, including cars, in its trade talks with the United States.

        “We are willing to bring down even our car tariffs down to zero ? if the U.S. does the same,” she said, adding that “it would be good for us economically, and for them.”

    8. Poor Nazi troll bitch.

      Only progressives like you love “managed” trade.

      Remind us again, when you are laying in bed at night next to your mom do you still fantasize about Trump grabbing your pussy?

  2. Why do I get the sense here that principles really do not matter to either the theorists arguing which trade policy is superior or the division of votes among Republicans in Congress. What I really suspect controls all the rhetoric are the directions from extremely specific business interests who garner some advantage one way or another and everyone else is a stooge. Lobbyists are calling all the shots.

    Purely on principle, if Germany charges Chrysler 10% tariff to sell a 700 hp Hellcat in Berlin, the USA should charge a 10% tariff on the 650 hp turbo Porsche being delivered in Seattle. That is so simple you can’t talk me out of it.

    As Trump said about immigration policy, it really comes down to what the political class wants versus what the working class knows we must have to maintain this American Dream for the Middle Class. It looks like Trade Policy is simply another chapter in the same Bible.

    1. Purely on principle, if Germany charges Chrysler 10% tariff to sell a 700 hp Hellcat in Berlin, the USA should charge a 10% tariff on the 650 hp turbo Porsche being delivered in Seattle. That is so simple you can’t talk me out of it.

      Yes, on the principles of an eye for an eye, you fuck with me and I fuck with you, etc.

      But tariffs are taxes on your own people! It is exactly the same as your neighbor grounding his kid, and because your kid complains, you ground her as revenge on the neighbor, to force him to stop grounding his kid.

      If Germany taxes its people 10% for a Hellcat, you turn around and tax Americans for buying a Porsche.

      Yes, that reduces the number of Porsches sold in America. Yes, it may influence Berlin politicians. But the German tariffs didn’t influence DC politicians, did it? Or if it did, all it did was ramp up the tariffs Americans pay, and by that pattern, its influence on Berlin politicians will be to raise Hellcat tariffs even more.

      If you have other principles, describe them and how they apply to tariffs.

    2. In addition, the “eye for an eye” principle shows a deep misunderstanding of trade. Exports are the price we pay to get imports, just as work (an export in its own way) is the price we pay to buy things (food, rent, car, vacation).

      Suppose China were to subsidize everything they sell to us; cut the prices we pay in half. That’s predatory pricing, but predatory pricing is a myth for any business that wants to stay in business; there are any number of explanations on the web.

      But suppose China does that and pays for it with taxes on their own citizens. What happens? Because everything we buy from China costs half as much, we have a lot of money left over with which to buy all sorts of other products. Businesses will gladly make those. They will be American at first. Suppose China tries to jump in; taht’s just more of the same thing. Imagine someone subsidizing everything you buy. Would you still buy the same stuff, or would you buy twice as much?

      Everything we buy from them means they have a growing collection of greenbacks. Fiat money is not like gold; its only use is to buy American products. Sure they could use it to buy stuff from other countries, but only if those countries can buy American products.

      Dollars out HAVE TO equal dollars in with fiat currency. I believe the same applies to gold to, in a more roundabout way, btu that doesn’t matter to this.

  3. Yes, I am an old eye for an eye man and quid pro quo too. I chose ridiculous cars as an illustration because the American consumer does not need to buy a 650 hp foreign-made car just to impress us neighbors and screw the American worker in the bargain. If he is so set on the Porsche, he can write to Berlin and tell them to increase the American product and labor content that goes into their six-figure wondercars.

    Also we need to encourage German politicians to be nicer to their lower classes. A Hellcat is a tremendous performance bargain compared to the pricey Teuton speed machines. It is pure class snobbery for the German government to use high tariffs to make speed something only the rich can afford. If America stands for anything, it ought to stand for that.

    1. If America stands for anything, it ought to stand for leaving people alone and not stealing their stuff.

      In other words, stop stealing my money to raise the prices of things I buy so you can satisfy your eye-for-an-eye urge against people who I want to do business with.

      If you want to voluntarily submit to raised prices on products you don;t want to buy, go for it. But stop mucking around in my business.

    2. “the American consumer does not need to buy a 650 hp foreign-made car just to impress us neighbors and screw the American”

      Geez, Bernie is damn proud of you for that line right there.

  4. I think you mean *Sean* Duffy.

  5. Start working at home with Google. It’s the most-financially rewarding I’ve ever done. On tuesday I got a gorgeous BMW after having earned $8699 this last month. I actually started five monthsago and practically Text. profitvid.com

Please to post comments

Comments are closed.