Democrats Criticize Universal Tariffs, 60% Tariffs on China

Beyer, who stood in for Joint Economic Committee Chairman Martin Heinrich, hosted the hearing Dec. 18. Whitehouse issued a statement after an estimate of the cost of 10% tariffs on all imports and an additional 60 percentage points in tariffs on Chinese exports was produced by the Congressional Budget Office Dec. 18.

Beyer, of Virginia, called these ideas (Trump also at one time said the universal tariff would be 20%) "massive tariff increases," and argued that while sections 301 and 232 and safeguard tariffs in the first Trump term raised prices and led to retaliation against U.S. exporters, this time could be much worse.

Democratic witness Brendan Duke, senior director for economic policy at the Center for American Progress, said that across-the-board tariffs "are not an effective manufacturing strategy," and noted that more than half of U.S. imports are intermediate goods used by U.S. businesses.

He rebutted an argument that was coming from one of the Republican witnesses, the chief economist at the Coalition for a Prosperous America, who testified that higher tariffs wouldn't fuel inflation, as inflation was low in 2019 and 2020, after Trump's tariffs kicked in. "This argument normally ignores the sheer magnitude of tariffs Trump is proposing, which are about four to ten times the size of those he enacted during his first term," Duke testified.

The other Democratic witness, Ed Gresser, director for trade and global markets at the Progressive Policy Institute, argued that the Section 301 and other tariff actions didn't reduce the manufacturing trade deficit, as Trump intended. He testified that the trade deficit has been a little over $1 trillion from 2017 to 2023 (most Trump tariffs were levied in 2018 and 2019).

Gresser said temporary safeguard tariffs have a valid goal, and the 100% tariffs on Chinese electric vehicles, imposed by President Joe Biden earlier this year, are similar. He said he supported hiking tariffs sharply on Russian imports after its full-scale invasion of Ukraine.

"But a general tariff increase is a poor policy choice. It would diminish American family living standards, weaken American industry, and put exporters, including many of the U.S.’s most productive and successful industries, at risk," he said.

The nonpartisan Congressional Budget Office projected that a 10% global tariff hike and 60 percentage point addition to Chinese tariff rates would make consumer goods and capital goods more expensive, and that would increase inflation by 1 percentage point in the year they were imposed.

They would also decrease real GDP by 0.6% by 2034. (In eight of the last 10 years, annual GDP has grown between 1.8% and 3%; in 2020, GDP contracted, and the rebound in 2021, including government stimulus, brought 6.1% growth)

However, the CBO also estimated that the additional tariff revenues would decrease deficits by $2.9 trillion over 10 years. That's enough to offset almost three-quarters of the cost of extending tax cuts expiring at the end of 2025, if no new tax cuts were added.

Jeff Ferry, chief economist at the Coalition for a Prosperous America, pointed to the CBO data to say the impact of the tariffs on costs and growth would be small, but its impact on revenue would be large. He argued that a jump in washing machines (and dryers) after safeguard tariffs on washers were announced was due to panic-buying, and said that washing machine prices are now below the pre-tariff level.

In his written testimony, he said, "President-elect Trump campaigned on restoring tariffs for both purposes: as a major revenue generator and to protect American workers from direct labor competition with workers in poorer countries."

Wyden said, in response to the CBO results, "The middle class is already getting clobbered by the cost of living in this country, and Trump’s only going to make it worse.” In the same release, Whitehouse said, "Trump’s claims about tariffs are phony as hell, and his reverse-Robin Hood scheme would raise costs on essentials like groceries and clothes while shrinking the economy -- all to reward his wealthy megadonors.”

The two Republican witnesses at the JEC illustrated the divide in the Republican Party between pro-trade and protectionism. While Ferry is a strong defender of tariffs to protect manufacturing, Tax Foundation research director Erica York argued that you have to look at not just the job growth in steel production when evaluating the usefulness of 25% tariffs, but also the job losses in construction and equipment manufacturers, who buy steel.

Rep. Dave Schweikert, R-Ariz., who will lead the JEC in the next Congress, is a fan of the Destination Based Cash Flow Tax approach, one that Republicans considered before going with the Tax Cuts and Job Opportunities approach of widening the income tax base and lowering the rates. York is an advocate of that approach, and argues it distorts the economy less than tariffs.

Beyer told York, "Whenever Democrats hear DBCFT they hear regressivity," but he asked her to explain how it's easier to enforce than an income tax.

York said there are ways to make it more progressive, either through rebates or an exemption for some level of consumption. She said a DBCFT is less regressive than a value-added tax, like Canada and the EU have, because businesses' payroll expenses are deductible.

Beyer asked the witnesses what should be done about de minimis.

Gresser said the fact that low-value shipments have gone from 100 million annually to about a billion "does put American retailers in a difficult position where they’re paying the full tariff and individuals buying online are not." So, he said, it makes sense for Congress to rethink it, but he wishes there was a way to handle it without raising consumer prices.

Ferry replied, "I think de minimis is effectively a free trade agreement with China." He said it has put "thousands of manufacturers out of business," and now is putting retailers out of business. "And I think we ought to put a stop to it immediately by abolishing it entirely."

In his written testimony, he said import duties and fees declined 17% from 2022 to 2023, with $19.6 billion lower collections, "and deserves scrutiny because merchandise imports were essentially the same: $3.35T in FY 2022, then $3.33T in FY2023 (a drop of 0.01%).

"The most likely explanation for the drop in revenue collection is the volume of de minimis shipments, which almost doubled, from 685M to 1,066M."

He called it "lawless anarchy at the ports."

Beyer said that when an exclusion process was opened for Section 301 tariffs, "our office, among many others, was deluged with businesses wanting tariff exemptions, wanting us to write letters and intervene with the administration and the like." He cited academic research that showed large companies that donated more to Republicans were more likely to have exclusions approved (see 2411270051), and asked the panel if more tariffs mean more opening for corruption.

Gresser said that tariffs are "relatively easily manipulated by wealthy and connected businesses." He said when about 35 people at the Office of the U.S. Trade Representative are handling 53,000 applications for relief, each petition only got about 10 to 15 minutes for review, and he said that leads to random outcomes. He said that if a company was able to get that petition in front of a political appointee, they "are probably able to get a better read."