On
February 10, Ambassador Katherine Tai visited an eyewear manufacturer
in the Chicago area called American Optical. The conversation was about
the Trump China tariffs. The company said that while it manufactures its
end product in the United States, it relies on some parts and
components from China that it says cannot be found here at home. Those
parts happen to be subject to the tariffs former president Trump imposed
on a wide range of
Chinese products.
Ambassador
Tai’s response was that the real problem was not the tariffs but that
the materials the company needed were not available from U.S.
manufacturers, and that we should focus on vulnerabilities like that
rather than the tariffs. There are two reasons why that was an
unfortunate response and one explanation for why it occurred.
First,
it illustrates the Biden administration’s failure to distinguish
between what is important and what is not. There has long been
widespread agreement among politicians and the general public that the
United States should take steps to protect its national security. That
means, on the one hand, export controls on critical technologies, and,
on the other, encouraging resilient supply chains that avoid dependence
on single sources of supply, particularly from unreliable suppliers like
China.
The
problem in both cases is deciding what matters and why. The “why” is
usually national security—goods and technology that contribute to our
military capabilities and we want to make here and keep here. The “what”
is more complicated. There are some easy calls—semiconductors and their
manufacturing equipment are obvious, both in terms of restricting their
export and promoting their domestic production. But others are
not—electric vehicles, for example, which is a competitiveness problem
more than a national security issue. We would like to make them here
because of the jobs and economic
growth associated with them, but their direct national security
relevance is limited.
It
is also the case with eyeglasses and sunglasses. It would be nice to
make them here—it would be nice to make everything here—but we can’t, so
we need to choose, and for my part, eyewear doesn’t make the cut.
Eyeglasses are important to the millions of Americans who can’t see
clearly without them, but, with all due respect to American Optical,
that doesn’t make them critical to our national security. Ambassador
Tai’s response was discouraging because she conflated “vulnerability”
with national security when it is at best a competitiveness problem.
When the administration has
addressed the question of what matters, as it did in its four critical
supply chain studies issued in June 2021, eyewear didn’t make these
lists. The truth is that vulnerability is inevitable in a global
economy, and the task of government is not to prevent it across the
board but to decide when national security concerns make it necessary to
intervene in the market.
The
second reason is that this is an example of tariff inversion and import
substitution. Normally, tariffs are low on imports of parts and
components and higher on imports of finished products. This is so the
United States can encourage more manufacturing and assembly of end
products here because the value-added is greater. Higher tariffs on
inputs simply make it harder for U.S. companies to manufacture here
while encouraging imports of competing finished products. This is the
case with eyewear. If Ambassador Tai really wants to build a domestic
eyewear industry, she should support lower tariffs on
the parts that are not available here so that our manufacturers can
produce competitive eyeglasses. History shows that import substitution
strategies don’t work very well, but they can be justified on national
security grounds. In this case, however, that is not a viable argument.
Finally,
I suspect the reason for her response has more to do with politics than
economics. It is obvious to everybody that Office of the U.S. Trade
Representative (USTR) has been slow rolling the tariff exclusion process
from the beginning, despite congressional pressure to act and the fact
that the first two tranches of the tariffs were supposed to expire last
summer. I sympathize, up to a point. There is no politically winning
action the administration can take. Anything USTR does will be too
little for the business community and too much for organized labor, not
to mention the China-hawk
Republicans who, in their hearts, would probably prefer a complete
embargo. In those circumstances, it is no surprise that the
administration’s response has been to do nothing.
Restarting
the exclusion process was supposed to be a small step that would
relieve some of the pressure to eliminate the tariffs entirely by giving
the business community, not to mention the administration, an exit
ramp, however modest. Their failure to use it as such is not only a
political mistake, as it only increases the pressure to act, but it is
also a dereliction of duty. The right of the people to petition the
government and have their grievances addressed is fundamental,
particularly with a process the government created. In this case it
appears so far they can file all the petitions they
want, but none of them are going to be decided.
The
bottom line is that business is not getting the guidance it needs on
what constitutes a national security issue, and it is not getting
promised case-by-case regulatory relief. We can see clearly what’s going
on, but the administration seems unable to see clearly where its actual
interests lie.
William
Reinsch holds the Scholl Chair in International Business at the Center
for Strategic and International Studies in Washington, D.C. |