Free Trade

Josh Hawley's Latest Plan To Hike Tariffs Would Be a Win for China

Shutting down the GSP program would reduce economic growth in developing countries and raise taxes on American importers.


The latest legislative proposal being pushed by Sen. Josh Hawley (R–Mo.) aims for what might be thought of as the Triple Crown of contemporary conservatism. It misunderstands economics and the benefits of global trade, promises to hurt people who have done nothing wrong, and wraps itself in a feigned sense of toughness while actually doing more to help China than America.

Hawley's bill, introduced on December 8, would temporarily shutter the Generalized System of Preferences (GSP) program, a 1974 law that grants special import status to goods received from certain developing nations. The GSP program is a unilateral trade policy—that is, America reduces its tariffs to allow more imports from nations that qualify for GSP status even if those countries don't do the same in return—that recognizes the fundamental benefits of free trade. American businesses and consumers can buy duty-free imports, while businesses in those GSP nations gain access to the world's largest economy, which helps them grow.

Think of the GSP program as a libertarian form of foreign aid. Rather than throwing money at developing countries, it simply removes barriers to trade and lets the international market create growth.

Hawley wants to suspend the GSP program because he has a zero-sum view of trade and economic growth. If a developing country is getting special treatment, that means American workers must be losing out.

"Trade programs should protect American workers and help their families to prosper, not benefit foreign nations or mega-corporations," he said in a statement announcing the bill. "Yet, for decades our trade policy has decimated millions of American jobs. It's time to put workers at the center of our trade policy."

Under the terms of his bill, the Trade Preference Reform and Worker Protection Act, the GSP program would be suspended until unemployment in the United States falls below 4 percent—and it would be suspended again whenever America's unemployment rises above that threshold, which is most of the time.

Cutting off beneficial trade terms with developing countries won't help American manufacturing workers because they're not competing to make the same products. Under the terms of the GSP program, the lowered tariffs for GSP imports do not apply to goods deemed "import-sensitive"—that is, items widely produced in the United States whose industry lobbyists have convinced Congress that more international competition would be bad. Textiles and shoes, for example, are excluded from the GSP program. According to the Congressional Research Service, a think tank housed within Congress, the most common items imported via the GSP program are "travel goods" and "jewelry."

Unless American workers are going to start producing handmade Thai jewelry, Hawley's bill doesn't have much to offer. On the flip side, he would actually be hiking tariff costs on American businesses that continue to import goods from former GSP nations.

And while it wouldn't help American workers, Hawley's proposal would deal a serious blow to poor people running small businesses in those developing nations. A 2016 report from the Office of the U.S. Trade Representative found that "trade expansion induced by greater access to the U.S. market caused a significant acceleration in the growth rates of developing countries."

Perhaps in the hopes that other conservatives will ignore the actual reality of what he's proposing, Hawley staff have been wrongly presenting the GSP proposal as an attack on China. Facing criticism on Twitter, Kyle Plotkin, Hawley's chief of staff, defended the proposal by invoking the threat of American jobs being offshored to China.

Except, well, China isn't part of the GSP program at all. Ironically, terminating the GSP program would probably boost China by effectively raising American tariffs on imports from countries that compete with China. A 2019 survey of American importers found that if GSP was terminated, one-third of them would source more goods from China.

Hawley and his staff seem to be "paying a little too much attention to Twitter and not enough attention to the facts," Patrick Hedger, vice president of policy for the Taxpayers Protection Alliance, a free market nonprofit, tells Reason. "There are serious consequences to politics like this. Governing based on likes and retweets by playing to knee-jerk populism won't help anyone, besides maybe the politician engaged in it."

Though Hawley's bill is unlikely to become law, it's still worth noting because of what it says about the senator's view of free trade, as well as his populist approach to lawmaking that ignores inconvenient facts. After all, what he's proposing is a policy that would blame foreigners—not even immigrants, but literally people who haven't even tried to come here—for America's own economic problems, which the policy change itself would not fix. And in his rush to condemn free trade for all that is wrong with the world, he's not standing up to China but potentially handing it a larger share of global trade.

It is remarkable that Hawley has managed to pack so much of the ethos of Trump-era economic nationalism into a three-page bill, but that's what makes him a rising star.

Bryan Riley, director of the free trade initiative at the National Taxpayers Union Foundation, a free market think tank, describes Hawley's proposal as a "pro-communist China bill to encourage production in China instead of in developing countries" that are currently eligible for GSP.

"If you want to get tough on China," says Riley, "it would seem to make sense to reduce barriers to imports from other countries."

But it wouldn't be economic nationalism if it made sense.