Trump Is Right About Stiff Tariffs in Asia
One of the most memorable lines in President Trump’s address to Congress this week was when he cited Harley-Davidson as an example of a great American product facing as much as 100% tariffs in one country abroad — in this case, in India. Trump didn’t mention it, but India is not the only country that discourages Harley’s international sales. Thailand imposes 60% tariffs and China 30%, levels not seen in the U.S. since the 1930s following the infamous Smoot-Hawley Tariff Act that raised tariffs to marked highs.
No American trade negotiator would consider this to be acceptable. A disparity of this kind is important to all American businesses. It is one of the chief reasons that 14 U.S. Presidents in a row, now including this one, favor negotiation of international trade agreements. Opening foreign markets is vitally important to the American economy because most of the world’s consumers lie outside the United States, and foreign markets are growing faster than the U.S. market.
We do not have to look to India to find a barrier to U.S. exports. There is an example much closer to home. Economic relations between US and Canada are smooth, and the President gave a shout-out to cooperation with Canada when he cited his recent meeting with Canadian Prime Minister Justin Trudeau for their joint decision to help ensure that “women entrepreneurs have access to the networks, markets and capital they need to start a business and live out their financial dreams.”
That sounds very good, but there is a wrinkle: The path forward for a lot of women (and men) in this internet age is to start a small business. Online businesses rely on companies like eBay and parcel delivery services to reach distant markets. They also rely on the same delivery services to get the access to supplies that their businesses require. Global value chains are not just for big businesses. If you want to start anything from a toy business to selling knitwear, or are into 3-D printing, you will need overnight delivery of supplies from distant places, often outside your home country.
If your business is located south of the U.S-Canadian border, no problem. Just place your order for what you need and if it is less than $800 in value, it enters duty free. But if you are a small or medium Canadian business, the duty free amount is 20 Canadian Dollars, which translates to just 15 U.S. Dollars at today’s exchange rate. This means paying a tariff on practically everything shipped from the U.S. — however minimal the value of the shipment is. Potentially worse, packages can be held up by customs while a duty is calculated.
This is a burden particularly on U.S. and Canadian commerce because the two economies are intertwined. Small and medium-sized Canadian businesses cannot grow as fast as they should if foreign inputs are tied up at the border and saddled with taxes, and American exports to Canada cannot grow as rapidly either. Of course, this is not just about small businesses. Any business is going to need spare parts to keep machinery going, whether it is a sophisticated bottling plant or it just owns a photocopier. In addition, there is a cost to Canadian consumers who just may want to have some degree of equality with their American friends and family to buy things online, wherever the seller is located. It is also a burden on Canadian customs officers who might have their time better spent focusing on large value shipments.
Canada’s trade policies are actually nothing like India’s in the Harley tariff comparison above. But there is a parallel. As noted, Canada taxes at the border anything over $15 in value. This compares poorly with a whole range of countries — Mexico at $50, Japan at $90, and even Korea and Peru letting in duty-free packages that are less than $150 and $200 in value respectively.
President Trump enunciated his chief trade concern in his address to Congress as follows: “Currently, when we ship products out of America, many other countries make us pay very high tariffs and taxes — but when foreign companies ship their products into America, we charge them almost nothing.” I don’t think he had Canada in mind. Canada is really very open to American goods, but in this respect, on small value shipments crossing the border, not so much.
Alan Wolff is senior counsel at Dentons LLP, and has served as a senior U.S trade negotiator in Republican and Democratic administrations. He is Chairman of the National Foreign Trade Council (NFTC).