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A hearing now on President -elect Trump's tariff proposals.
Some witnesses discuss how proposed tariffs could be used as a negotiating tool with other countries, while others talk about how tariffs could harm U .S. trade and increase inflation.
This is held by a joint economic committee.
Given that the magic hour has arrived, I'm happy to call this hearing to order, and we will have more people showing up.
House votes just finished.
Senate votes are about to begin.
This hearing will come to order.
I'd like to welcome everyone to today's hearing.
It's titled, Trade Wars and Higher Costs, the Case Against Trump's Terrorists.
And I would thank all of our distinguished witnesses for being here, even those who make the case for Trump's tariffs.
The Constitution, but let me turn to my opening statement.
The Constitution empowers Congress, not the President, to determine trade policy for good reason.
Misusing the power to impose tariffs can wreak havoc on our economy.
We're holding this hearing today because the President -elect has vowed to implement massive tariffs in his second term.
Wrongly, I believe, claiming that it will lower costs for Americans and bring back jobs.
The President -elect seems to have forgotten the outcome the first time he implemented this.
Trade wars that raised costs for Americans had outsourced American jobs and resulted in billions of federal bailouts to large corporate farms.
But this time it could be much worse.
His proposal across the border should apply a 10 or 20 % tax to all imported goods.
All imported goods.
Cell phones, auto parts, coffees, bananas, you name it.
Regardless of their country of origin, which greatly expands the type and the quantity of goods subject to the tariffs.
Experts across the ideological spectrum, both Democratic and Republican witnesses for today's hearing, have found that these tariffs drive up costs in the U .S., shrink the economy, and leave us worse off.
An analysis by our witness Brendan Duke of the Center for American Progress found that a proposed 20 % tariff on all imports combined with a 60 % tariff on Chinese imports would mean that a typical American household pays up to $3 ,900 more per year.
I know Ed Gresser from PPI has found similar effects in his work, which shows how tariffs harm the economy.
We need only look back a few weeks to this last election to see how much Americans dislike inflation and having their costs raised.
We're good to go.
And it's always refreshing when rigorous analysis done by experts across the ideological and political spectrum reach similar conclusions.
I was in New York this past week with another senior American economist well -known who said 98 out of 100 economists he would talk to would agree that tariffs are a bad thing.
We can all clearly tell China, Mexico, and Canada are not paying for these tariffs.
I was in business for almost 50 years.
We're good to go.
We're good to go.
Perhaps these exemptions were disproportionately granted to donors to Republican candidates, which is not my conclusion, but one reached by an analysis of exemption data and political contributions.
They conversely also found that companies' donations to Democrats reduced its odds of being granted an exemption.
The reality of this reckless economic plan is it won't grow the middle class, nor will it lower the cost of groceries and rent.
Donald Trump even wants to use these tariffs as a way to pay for the trillions of dollars in tax cuts.
For the writs that are in TCJA Part 2.
So higher costs for you, lower taxes for his wealthiest friends.
And thankfully, it's not just Democrats calling out his proposal.
There are economists on all sides of the political spectrum who agree that tariffs are bad economic policy, that we shrink the economy by billions.
I know, folks, this is basic economics.
Many people are calling the Trump tariffs tax hikes.
In my simple word, they are inflation aggravators.
There are threats to the economy, and the threat underscores the importance for Congress to reassert its constitutional authority over trade policy.
That's why I'm looking forward to the testimony of the witnesses.
As soon as Vice Chair Schweikert gets here, we can do his opening statement.
But in the meantime, let me turn to our witnesses.
Let me introduce them one at a time.
First, Senator, good luck with your vote.
Please come back if it's possible.
Mr. Ed Gresser is the Vice President and Director of Trade and Global Markets at the Progressive Policy Institute.
Prior to his current role, he worked at the Office of the United States Trade Representative.
He has served as the U .S. Trade Representative for Trade Policy and Economics.
He began his career as a Capitol Hill staffer and later as head of PPI's Trade and Global Markets.
He also co -founded and directed the think tank Progressive Economy.
So, Mr. Gresser, the floor is yours for five minutes.
Mr. Chairman, thank you very much.
Members of the committee, thank you for holding this hearing on an across -the -board increase in U .S. tariffs next year.
My view in brief, this would lower American living standards, erode our business competitiveness, and harm our exporters.
Depending on the method used, it could also damage U .S. governance and the separation of powers and raise corruption risks.
I might start with a definition, since, like you, I've heard some puzzling assertions this year that foreigners might somehow pay tariffs.
No, U .S. tariffs are taxes paid by Americans.
A tariff is a tax on purchases of goods from overseas paid to Customs and Border Protection by U .S.-based individuals or businesses.
If the buyer is a retailer, the tariff becomes part of the store price.
If the buyer is a manufacturer or a home builder or a farmer, it becomes part of production cost.
As an example, imagine a retailer ordering 10 ,000 men's cotton shirts at $10 each.
These have a 19 .7 % MFN tariff, so the retailer writes three checks, $100 ,000 for the shirts, Our
tariffs last year averaged 2 .4.
Thank you very much.
Thank you.
Thank you.
Thank you.
First to be pushed into the front line and first to fall.
Who are they?
American farmers earn 20 % of their income from exports and are always early targets for retaliation.
USDA believes in 2018 and 19 they lost $27 billion to foreign retaliation.
In a business world, African American exporters average 21 workers at payrolls of $75 ,000 each compared to 11 workers in $54 ,400 across the privately held business community.
These are important and successful parts of our economy and we shouldn't sacrifice them lightly.
Many of exporters' losses, though, come even without retaliation, as friendly fire casualties of our own tariffs.
Arizona, New Mexico and Texas, for example, exported $141 billion worth of goods south to Mexico last year.
This included tens of billions of dollars in auto parts, semiconductors, specialized components and other high -value things that Mexican plants buy to assemble into cars and appliances.
If we put tariffs on Mexico, these plants in Mexico will contract.
They will then buy less from their Phoenix, Rio Rancho, and Houston suppliers, and then the U .S. and Mexico both lose output and jobs.
Finally, and apart from the economic consequences, I am highly concerned to read discussion of potential attempts to impose tariffs by decree without congressional approval.
The Constitution gives Congress the unambiguous power to set taxes, duties, imposts, and excises.
It's actually the very first enumerated power, and it's there for good reason.
If a president or any single individual can create his or her own tariff system, not only do impulsive and unsound decisions become more likely, but all future presidents would face standing temptation to use tariffs in corrupt ways, to reward supporters and cronies,
or to punish critics and business rivals.
This risks systemic harm to American governance, and I hope no administration would proceed in such a way.
Thank you.
Mr. Kressler, thank you very much.
And now we move on to Mr. Brendan Duke.
He's the Senior Director for Economic Policy at the Center for American Progress.
Prior to joining CAP, he worked as a Senior Policy Analyst on the National Economic Council and served on the Biden Administration's Supply Chain Disruption Task Force.
He's also been a Senior Advisor to Senator Michael Bennett, worked for the Center for Budget and Policy, and most importantly, in his distinguished background, he was part of the Democratic staff of the Joint Economic Committee.
So welcome back, Mr. Duke.
The floor is yours for five minutes.
Thank you, Congressman Beyer, and thank you, members of the committee.
My name is Brendan Duke.
I'm honored to submit this testimony about President -elect Donald Trump's tariff proposals.
Trump has unveiled several proposals to tax imported goods.
Too many for me to go through the allotted time here, but his most consistent idea is a sweeping 10 % to 20 % tax on all imported goods, with a special 60 % tax on imported goods from China.
Taxes on imported goods can serve two purposes.
There are three reasons for this.
First, it would apply to imported goods that the United States does not produce and does not have any reasonable hope of producing such as coffee or bananas.
We will simply raise revenue from taxing those imported goods from abroad instead of producing them here.
Second, economic theory and evidence shows that tariffs do not change the size of a country's trade balance since they also cause the currency to appreciate.
This makes imports cheaper.
In fact, Trump's Treasury Secretary nominee has stated, quote, historically 40 to 50 percent of the tariff is recovered in currency appreciation, end quote.
At the same time, dollar appreciation makes U .S. exporters less competitive with foreign producers and causes U .S. exports to fall.
So much of whatever increase in U .S. manufacturing we see from fewer imports would be offset from the reduction in exports.
Third, U .S. exporters would become less competitive because the across -the -board tariff would raise the cost of their inputs for U .S.-based production.
Across the board, tariffs ignore many of the key rationales U .S. policymakers have for imposing tariffs, such as protecting or growing a key industry on national security or economic competitiveness grounds.
It instead lets the market decide which imports and exports produce, almost certainly leaving those key strategic rationales completely unfulfilled.
Strategic tariffs in carefully chosen sectors can be a useful tool as part of a country's larger national security or industrial strategy.
Thank you.
We're good to go.
Renewing the expiring provisions and a 20 % across the board tariff would be a tax cut for the top 1 % and a tax increase for everyone else.
Several think tanks and Wall Street banks have estimated that the tariffs would produce a one -time increase in the inflation rate of 1 % to 2 .5%.
Inflation would eventually move back down, but families would pay those costs as long as the tariff is in place.
A common argument is that inflation was low during Trump's first term, so tariffs could not have been inflationary.
But they did not show up in the headline inflation rate because they were a relatively small fraction of the U .S. consumption basket.
We're good to go.
Thank you.
It is easy to imagine a major corporation with access to the Trump administration petitioning for tariff exclusions that its competitors do not receive.
That's the sum of my thinking on the across -the -board tariffs Trump has proposed.
Unlikely to boost American manufacturing, major cost for families, and opening the door to pay for play.
Thank you.
Mr. Duke, thank you very much.
Let me now yield to my friend from Kansas, Mr. Estes.
Thank you, Mr. Beyer.
I'd like to introduce our two distinguished witnesses.
First, I'd like to welcome my fellow Kansan, Mrs. Erica York.
And she currently serves as a senior economist and research director at the Tax Foundation, where her research primarily focuses on macroeconomic implications of federal tax policy, including corporate income tax, individual tax credits,
and tariffs.
Thank you.
Thank you.
A former technology executive in the private sector, his work now focuses on the economics of trade, globalization, and tariffs.
Thank you for joining us today, and I yield back.
This is Jork.
The floor is yours for the next five minutes.
Representative Beyer and members of the committee, thank you for the opportunity to join you today.
I want to begin by saying the goals of boosting U .S. competitiveness, increasing manufacturing productivity, and growing opportunities for American workers are worthy.
In my area of expertise, tax policy, these goals are best achieved by reforms that enhance the simplicity and neutrality of the tax system, not by policy changes that introduce new distortions, no matter how well intentioned.
For our conversation, I want to focus on the U .S.'s recent attempt to use tariffs to achieve these goals, why they fell flat, and how better tax policy, particularly moving to a consumption tax base away from an income tax base, can foster greater investment, productivity,
and competitiveness.
Debates about American manufacturing often focus on jobs rather than on output and productivity.
We're good to go.
We're good to go.
Thank you.
Today's interconnected economy further complicates the story of tariffs.
Our exporters are also our importers relying on a complex web of global value chains to source the parts and materials that they use to create jobs and produce here in the United States.
Rather than boosting competitiveness, tariffs on inputs increase the cost of operating in the United States.
We're good to go.
The tax system is still plagued by complexity.
We're good to go.
We're good to go.
Thank you for your consideration of these issues, and I would be honored to take your questions.
Mrs. York, thank you very much.
And finally, we'll hear from Mr. Perry.
Mr. Ferry.
Thank you.
Now?
Okay.
Could you start the timer again, please?
Good afternoon.
I'm Jeff Ferry, Chief Economist of the Coalition for a Prosperous America.
CPA is a bipartisan coalition focused on rebuilding U .S. manufacturing.
I have economics degrees from Harvard and the London School of Economics, and I've worked as an economist in the U .K. and the U .S.
We've supported tariffs as an important tool to rebuild U .S. manufacturing, increase the share of good -paying jobs in the economy, especially for the lower half of the income distribution, and restore U .S. national security.
The terms of this hearing focused on tariffs and prices are too narrow.
The primary purpose of tariffs is to stimulate domestic production.
Tariffs should be used wherever they can stimulate domestic production.
The evidence from the tariffs of 2018 and 2019 show many cases where tariffs did exactly that.
In those cases, the increases in production led to more investment and more US jobs.
The benefits clearly outweighed the price increases, which turned out, in fact, to be very small.
There are actually five significant reasons to support tariffs or some degree of protection for the US economy.
First, greater economic growth with less inequality comes from having high growth, high wage industries in this country.
Second, national security requires us to reduce our dependence on foreign parts and components for our warfighting equipment and critical technologies.
Third, Economic security and resiliency requires the ability to increase domestic production at short notice for everything from medical gloves to pharmaceuticals to the copper and aluminum cables used in our electricity grid.
Fourth, protective policies can and must be used to counter the biased, unfair, distortive economic policies of other nations, especially China.
And finally, tariffs can generate large amounts of federal revenue to help reduce the federal budget deficit, which is too high by any standard.
Our model showed that broad -based tariffs can generate six hundred twenty eight billion dollars a year in tariff revenue.
Turning to the issue of tariffs and prices In 2019, after the China tariffs were imposed, many economists and other so -called experts said that the cost of tariffs would be entirely passed on to U .S.
Consumers.
So I began asking every economist I met, okay, most of the China tariffs were at the rate of 25%.
Can you name for me one product where you have recently seen the price rise by 25 %?
Not one economist could name even one product.
Not one.
The facts finally became clear in an important paper published by the International Trade Commission in 2023 showing that price increases in the U .S. market were generally on the order of just 10 to 20 percent of the headline value of a tariff.
So, for example, the steel tariff of 25 % led to an average steel price increase in the U .S. of 2 .39%.
That's 2 .39%.
That's the price increase of steel tariffs.
On the production side, the steel tariffs led the major U .S. steel companies to build 15 brand new steel facilities across the country.
Those facilities employ some 5 ,000 new steel workers at compensation which averages around $100 ,000 a year.
That's a very good wage for a man or woman without a college degree.
Using the CPA trade model, we recently modeled a scenario where the US imposes 20 % tariffs on all worldwide goods imported, except for China, where we impose 60 % tariffs.
We assumed in our model that all of our trading partners impose reciprocal tariffs on US exports, matching our tariff rates.
Our 10 -year model found that U .S. GDP would rise by two percentage points more than in the no -tariff scenario in the first four years and continue to grow by slightly more in the next six years out to 2035.
By 2035, an additional 5 .97 million jobs were created and real household incomes were up by 12 % or $10 ,000 per household as compared with the no -tariff scenario.
Thank you.
Mr. Chairman and Mr. Vice Chairman.
Mr. Perry, thank you very much.
I'd like to welcome the Vice Chair and soon to be the Chair of the Economic Committee to the hearing today.
I apologize for my tardiness.
That's just wonderful to have you here.
Let me first recognize the distinguished Congresswoman from Milwaukee, Ms. Moore, for her five -minute question.
Who has amazing fingernails.
Thank you so much.
You know, I was thinking back to my, and Mr. Perry, you'll appreciate this, you know, my obsession with I think that's where I'm starting to have some problems.
When I read the very complicated material and I think about, thank all of our very distinguished guests.
And I guess where I want to start, maybe Mr. Ferry, I'll start with you since you're sitting right there and you just finished testifying, and really claimed such great, you seem to be very fond of the thought of tariffs.
But don't you think that the tariffs that President Trump provided in his first administration basically did nothing until...
There was some industrial policy linked with it.
When Biden came along, many people said, well, why didn't he end the tariffs if tariffs are so bad and might increase prices and so on?
Don't you think it's because the chips and science provisions, the Reduction and Reflation Act,
all these things really wrapped some policy And created a raison d 'etre for the tariffs.
I'm thinking of my own senator, Senator Tammy Baldwin, who very successfully pushed the buy America and helped the steel industry, but it wouldn't have helped us very much had we not put some policy and stuff behind it to incent investments in that.
So I'm wondering if one of the mistakes that all of us I think that when I hear about these cross -the -board tariffs,
and I'm not an expert at these things, I wonder if that won't have major winners and losers, if it won't invite some grift, quite frankly,
or it won't invite...
No, I don't agree, Congresswoman.
Anybody agree with me on the panel?
Mr. Duke?
Yeah, so I mean, I think the key thing is that the Biden administration showed that you can Combine strategic investments in certain industries with the tariffs to push forward.
The problem across the board is you can't do industrial policy on everything, right?
There's no industrial policy by which the United States is going to produce coffee or bananas.
That is not going to happen.
And so why are we taxing that?
Again, tariffs lose their efficacy in terms of they drive production to a certain industry.
But if we're doing it to every industry, it just doesn't make any sense, right?
So I think that's the key thing, is that it just kind of devalues that.
I mean, there's costs to driving that production in a certain industry, but they can be worth it on national security or other grounds.
But doing it on everything just doesn't make any sense.
Can I explain a little bit my answer, Congresswoman?
I think we saw very clearly that tariffs on their own benefited many industries.
The US ITC study showed that out of 12 industries they studied, including steel, Production increased in all of those 12 industries, and that involved more jobs.
They did not study washing machines, which is one of the best examples of success.
Now, I agree with you that there are places where industrial policy can play a role.
Before my time runs out, Mr. Gresser, let's talk about washing machines.
Won't we have...
Am I time expired?
Won't we have...
The makers of dryers just automatically raising their prices because they can?
I mean...
Yes, that's what we observed with the tariffs.
The price of washers and dryers both went up by about $90 each, and that led to billions in added costs for consumers.
And if you look at the billions in added costs per job saved, it's extremely wasteful.
We're paying a lot more than the people in those jobs are earning.
And I would say on the US ITC report, they did find production would increase in protected industries, but that came at a cost to downstream industries like construction, like equipment manufacturers, who then had to pay higher costs for their inputs.
Yes, if I could add just a bit.
In terms of home appliances, probably it advantages some and disadvantage others, but we have fewer people making home appliances now than we did before the tariffs.
Likewise, the ITC's look at the steel industry showed, yes, that it benefited them a bit as of 2021.
They had grown by $2 .2 billion along with aluminum, but steel users, in particular auto parts, machinery,
My time has expired.
Thank you.
Thank you very much.
We now recognize the gentleman from Arizona, Mr. Swigert.
Thank you, Mr. Temporary Chairman.
You look good in that seat.
Sorry, he's actually one of the people I actually like, which is a fairly small list.
Mr. Chairman, without...
How small is that list, sir?
You are way up on top of that one.
You know she's actually...
Never mind.
Mr. Chairman, I'd like to actually introduce a list just partially to help me make a point of the number of members of Democrat leadership and basically national unions who actually support...
Without objection?
Without objection.
Thank you, Mr. Chairman.
Ms. York, in reading over some of your testimony, can you help me?
Because I've been working on sort of a concept.
And I don't know if I'm speaking to traditional tariff models, but...
Is there a...
design, whether it be a destination tax or cash flow tax or some of these other models that actually, at least would mean, from a tax arbitrage standpoint, American workers manufacturing, might have a level playing field.
So there's a hierarchy in this question.
What first should I do so our manufacturing, both in and out, would actually have a level playing field with tax?
Yeah, most other countries across Europe, they rely on value -added taxes.
Those are border -adjusted, which ends up being trade -neutral, like if we adopted a value -added tax or a DBCFT would end up being trade -neutral.
The reason we have an impediment to manufacturing and investment and productivity in our tax code is the way we define our income tax base and that we base your tax residence on being in the United States.
We have a source -based tax system.
So, Ms. York, what would you design that would be in some ways Maximize productivity,
maximize tax receipts, maximize benefit to working population in this country, but would be as minimally economically distortive as possible.
Is it a destination tax?
And is that sort of an economist's vision of what a future tariff model would actually look like?
We're good to go.
That tax, you could do a value -added tax if you want to add that element.
If I was trying to avoid moving to a national VAT, because...
Then I would border adjust the cash flow tax.
All right.
Who really objects to a border adjustment?
What we saw in the debates in the lead -up to the TCGA was that the big debate occurred over whether the currency would appreciate.
The currency appreciation is what makes it trade neutral because you're applying the tax on imports by denying that deduction and then you're not taxing exports by providing that exemption.
I know this is your specialty, but it's slightly more complex because you also pick up, hopefully, the export additional value of some of the refundability of things being exported out.
Yeah, you have a question.
If you're an exporter in lost position, whether you get that tax refunded to you, there are design options for that that you can make it equivalent.
But I think that was the big impediment, the question of whether currency would appreciate.
And I think most models point to that it would.
If you look at the experience of the 2018 -2019 tariffs, you saw currency appreciation.
If you look at recent tariff announcements, you see currency appreciation just with a threat of tariffs.
So I think we have reasonable evidence to say that the currency would move.
And we're out of time, and I really had something I wanted to touch on.
Look, when this hearing was first announced, Yeah.
Thank you.
And just before I recognize the gentleman from California, I would like to point out that...
I have never evangelized tariffs.
No, you are a purist.
You win.
But you're also a cardio.
Import cardio, by the way.
The gentleman from California, Mr. Panetta, the floor is yours.
Thank you, Mr. Beyer.
It's always entertaining when you have your vice chair next to you, be it on the Joint Economic Committee or be it on our committee in Ways and Means.
But I appreciate the fact that we're actually talking about something that...
Fortunately or unfortunately, it's gotten a lot of publicity lately and is a popular thing to talk about when it comes to tariffs.
But to be honest with you, we need to talk about the other T word, and that's trade.
And I can't stress that enough.
So I understand why we're talking about tariffs, especially considering how kind of in vogue they are politically, to be frank.
And what would you expect when you had the president -elect talking about how he wants to apply?
Either 10 to 25 % across the board cuts or 60 % tariffs on China.
And so you also, though, had this first Trump administration use tariffs accordingly, yet they were maintained by the Biden administration.
And then with the Biden administration, you had them working on frameworks, but really not leaning in to any sort of agreements.
And as I like to say it, a framework to me is like having a hamburger without the beef.
To be frank.
And also then you had a vice president who actually voted against the last major trade deal we had, USMCA.
And I think that's probably the last time we've had serious discussions about a trade deal was when we actually worked together, Democrats and Republicans, to pass the USMCA.
So I appreciate this type of discussion on tariffs, but I just hope we get to a point, especially on the Ways and Means Committee, where we can start talking trade again.
Because I do believe that these types of proposals that are put out there by the president -elect could have serious consequences on the American economy.
And I mean, the thing is, is that you don't know what the president -elect is going to do.
I mean, people say, well, he's not going to, you know, put forward these types of tariffs.
He's just using it for leverage.
And look, you're seeing, as was reported by the Wall Street Journal about five days ago, CEOs flock to Mar -a -Lago.
We're good to go.
We're good to go.
It's an approach that I believe could not only harm businesses and workers and consumers here at home, but also weaken the United States leadership in the global economy.
So I hope that we can dive more deeply into how tariffs affect consumers, how we can talk more about trade and how we can have a sensible path going forward.
Again, my name is Jimmy Panetta, and I represent the 19th Congressional District in California.
I have the southern part of Silicon Valley.
I have the mouth of the Salinas Valley.
So I have a lot of semiconductor chips, and I have cow chips, put it that way.
So a lot of agriculture, a lot of high -tech going on.
And what we saw, though, when it comes to the agriculture, though, is when tariffs are levied, the ag sector bears a brunt of the retaliatory tariffs.
And during the last Trump administration, 30 billion of agriculture products were targeted by retaliatory tariffs, which represent 22 % of all retaliated goods.
The administration gave $16 billion in relief payments to farmers to mitigate the impacts of those trade policies.
I understand that.
But I guess, Mr. Gresser, if I could impose my first question to you, if the proposed tariffs were implemented, what would be the impact on ag?
Thank you, Congressman, for that question.
It would be quite extensive.
The 2018 -19 tariffs were pretty limited to metals.
That's about 20 billion or 20 to 40 billion in imports, plus China.
And according to the USDA, farmers lost more than $27 billion in export income over that time.
And that was only really for one country and small slices of others.
If we have, for example, threats of tariffs on Canada and Mexico and China together, that's 10 % of all farm income in the United States.
Farmers are always the first to be hit by retaliation.
The last group went soybean support.
And quickly, the number one issue in my district is affordable housing or the lack of.
So, Mrs. York, given that there is an estimated shortage of 7 million affordable homes already, what would broad tariffs do to the cost of housing?
Broad tariffs would increase lots of the components we use to build housing, and so it would reduce the housing supply further.
Great.
Thank you, Mr. Chairman, again.
I appreciate this opportunity.
Thank you for having me wave on, and thank you for having this discussion.
Yeah, thank you, Mr. President, very much.
I mean, I recognize this gentleman from Kansas, Mr. Estes.
Well, thank you, Mr. Chairman, and thank you for all your witnesses for being here today.
You know, this Congress just has a few weeks remaining until the results of the November election take effect in Washington.
Two years ago, Americans flipped the House majority from Democrat to Republican, and this year they flipped the Senate and the White House.
If you ask voters across the country, whether they were in red districts or blue districts or anything in between, many will say that the economy was the driving factor when they cast their ballot.
And we know that over the last 75 years, nothing's lifted more people out of poverty than free and fair trade and an open capitalistic market society.
And tariffs are part of that to help make, it's a tool to help address and make sure that we do have free and fair trade.
So today we're standing here and we're looking at...
Four years of two different administrations to compare with.
And if we talk about the pocketbook issues as a top priority for so many Americans, inflation stands out as that problem.
Under President Biden, the average year -over -year inflation rate was 4 .99%.
Under President Trump, that was 1 .91%.
And the truth is, if you add a cumulative amount, it was even worse over four years than what those yearly averages look.
During the President Biden's administration, inflation has gone up over 20 .6 % cumulative versus only 7 .3 % during the entire four years President Trump was in office.
Americans have felt the pain of this inflation, particularly after a booming economy with President Trump in the White House.
And during that time, inflation was low, even with the tariffs, as we've talked about earlier today.
So with my colleagues and some of the political pundits trying to scare the public into just rejecting the economic agenda, it's important to remember that Americans do remember the truth because they saw it every time they went to the grocery store, paid a utility bill, or filled up their gas tank.
The truth is tariffs are one of those tools that a president can use to help negotiate with allies and strengthen national security.
If used strategically, they can help build our economic prosperity, bringing foreign countries to the negotiating table, creating new trade agreement opportunities, and prevent bad actors from manipulating our markets or threatening our security.
Mr. Ferry, we saw vastly different economies and inflation rates under the two previous, our current and former president, despite President Biden keeping most of President Trump's tariffs intact.
Would you agree that the concerns raised by my colleagues aren't necessarily as relevant based on what we've seen and that the spending and poor economic agenda pose a far greater threat to American consumers than the tariffs that President Trump has talked about?
I would certainly agree that the inflation performance of the Biden administration was terrible and is one of the reasons why your friend to the right is about to become chairman of the committee.
However, you know what I would say, and I agree with what's been said about consumption taxes, and I agree with some of the things Brendan Duke has said as well.
But the overriding fact, Congressman, is that today the Chinese manufacturing sector is more than two times the size of the U .S. manufacturing sector.
We gave some wonderful javelin shoulder -resting, hand -held weapons to the Ukraine.
Within weeks, we'd run out of the missiles that those javelins shoot.
Why?
Because the parts come from Asia.
And it's not true that the prosperity of this country over the last hundred years is due to free and fair trade.
The prosperity of this country over the last hundred years is due to industries that innovate and create high productivity jobs and high productivity, highly competitive products.
We've lost a lot of that through bad policies and also just through the aging of these industries.
We need to take action to get those things back.
The Trump tariffs in the first administration We're good to go.
Yeah.
And let me correct if I misspoke.
When I talked about the last 75 years of lifting people out of poverty, it was around the world.
I would agree with you that innovation in the United States has been very important in terms of a driver and helping generate the U .S. economy.
And I would agree with you that Presidents Bush and Clinton did a lot to lift the Chinese out of poverty.
And the day they invade Taiwan, some people might not feel so good about that.
Thank you, Mr. Chairman.
Are you back?
Thank you, Mr. Esses.
Let me move on to my own.
First of all, Mr. Esses, I want to agree with you.
The inflation has been terrible, but we need to compare apples to apples.
We had Donald Trump in those four years without COVID, COVID in the last couple of months, and then President Biden having to put up with the supply chain chucks, with the tripling of...
Thank you for your comment about...
We're good to go.
I think?
But the bigger tariffs that are coming, the 10 and 20 percent and the 60 percent, likely to affect our housing supply chain.
Whenever we are imposing high taxes on inputs, that becomes part of the production cost.
That becomes then part of the price that the home builder has to sell it at.
So prices of housing will rise.
It will rise at different rates for different types of buildings.
But if one of our goals is to reduce...
I mean, first of all,
America's exporters are our biggest importers.
So they get hit in that way, and they also get hit by the appreciated dollar.
And then, obviously, ag is a whole other sector that gets disproportionately hit.
And you mentioned that there's been no evidence that suggests that tariffs would change the trade balance.
Intuitively, it seems like it should help the trade balance, that we would be importing less and therefore owing other countries less.
Why doesn't that happen?
Sure.
The trade deficit is Basically defined by the balance between investment and savings in the U .S. economy.
Tariffs, if they're not going to deficit reduction, and Donald Trump has talked about $8 to $9 trillion of tax cuts, so I don't think we're talking about deficit reduction here, don't actually increase national saving.
And so it basically changes, it basically, what happens is imports as a share of the economy fall, which seems like it's accomplishing it, but then exports as a share of the economy also fall, so they net out.
And again, what are we trying to do here?
Is that we just get a portion of the economy falling and a portion of the economy falling.
It doesn't really actually meet any strategic goals that we're trying to accomplish.
If our goal is resiliency with China, that doesn't accomplish it if just causing the import share of GDP to fall a little and the export share of GDP to fall a little.
Thank you.
Mrs. York, you talked extensively about the consumption -based cash flow tax.
Let me ask you, A yin and a yang question.
Number one is whenever Democrats at least hear that, they think regressivity.
That the people at the bottom end who spend almost all their income are going to pay a much greater share of their income than the people that can save a third, a half, whatever.
On the other hand, I'd love your input on what that will mean for tax avoidance.
Since we know that 99 % of people that have 1099s or 401 or W -2 is pay the taxes and that something like $650 billion to a trillion dollars a year is missed in taxes not collected from people that don't get their things that way.
Yeah, consumption is much more observable than income, so it's much easier to administer and enforce a consumption tax than it is an income tax.
And then on the question of regressivity, I would point to ideas like Senator Cardin's progressive consumption tax.
There are a number of design options that you have with a consumption tax that can avoid a regressive impact, whether it's a rebate, whether it's a large exemption, or other design elements.
The DBCFT in particular...
Thank you very much.
My time is up.
I would like to announce that the whole game will do a second round of questions because there's much to talk about.
And you guys are, I know, you guys are all, you're so lucky that every member here is a member of the distinguished Ways and Means Committee, the only committee mentioned in the U .S. Constitution.
And with that, let me recognize the gentleman from Illinois, Mr. Schneider.
Thank you, Mr. Chairman.
I think you also forgot we're supposed to, we are under contract to say the very important, very powerful Ways and Means Committee.
Thank you all for being here.
I want to thank the Chair and Ranking Member for calling the hearing and your witnesses for sharing your perspectives with us.
Being a member of the Ways and Means Committee, Trade and Subcommittee, but also on the House Foreign Affairs Committee, I'm proud that so much of our work is focused on international leadership.
The world is better, I think, with the United States leads in.
We're at the table.
We're good to go.
We're good to go.
We saw the chaos President Trump's trade war created during his first term.
During that administration, I met with manufacturers and businesses throughout the Illinois 10th Congressional District, my district, and heard directly from constituents about the impact tariffs were having on their businesses and how employers had to quickly adapt to a challenging trade environment.
They talked about having to make hard decisions not to make certain investments, having to make decisions about whether to hire.
I'll start with you.
President Trump's recent...
Sure.
So the United States actually was in a manufacturing recession right before COVID.
We were actually shedding manufacturing jobs while they were happening.
In part because of the trade war, the retaliation and trade wars that were occurring because of U .S. dollar appreciation, which obviously the Taxes and Jobs Act helps fuel with the higher deficits that that caused.
So that's what we saw then.
Obviously, we hit COVID, you know, obviously a very weird, difficult period, and we're coming out.
But I think the key thing is that just that uncertainty, that the president can just rage post a trillions of dollars tax increase, and what are business people supposed to do about it?
Putting it through an administrative process that they don't understand.
The idea that a small Illinois business is going to have to follow the ins and outs of Politico Pro's trade newsletter is just not good policy.
It's not what we should be doing here in Washington, D .C.
Great.
Thank you.
Mr. Gresser.
It can take years to move supply chains, to rejigger your entire value chain.
Can you share steps Congress should take, in your mind, Congress should take to identify the products that are wholly manufactured in China and to work to shift, help businesses make shifts necessary in the future?
Well, one thing I would say right away is that a policy of making threats and picking fights with our two large neighbors is directly against that.
Thank you very much.
Yeah, I'm almost out of time, but it's not just crude oil.
Canadian timber is important.
If you want to increase housing costs, increasing the raw materials that go to frame those houses doesn't make a lot of sense.
That's well put.
I yield back.
Thank you, Mr. Snyder.
I again recognize the incoming chair of the Joint Economic Committee, Mr. Schroeder.
I hope that had the tone of you being happy.
Thank you, Mr. Chairman.
Mr. Ferry, CBO a little while ago put out a letter.
I mean, hours ago, I think.
And one of their numbers was a dynamic score that a 10 % across the board would static.
Decrease deficits by about 2 .2 trillion.
Dynamic about 2 .1.
But if it's a broad -based, are you someone as, because you have pretty good, pretty impressive economic credentials, do you also see the currency adjustment within a broad -based sort of flat model tariff like that?
Our own model shows with a larger A larger tariff, 20 and 60, roughly $6 trillion of federal income over 10 years.
So that's considerably more, okay?
And that's because we assume the economy will grow more than I suspect the CBO does, although I haven't read the CBO.
Yeah, the CBO letter was just, I don't think, they did a 60 % tariff, but some of the numbers in there were solely focused on, looks like on China.
But have you ever run the 10 % model?
Yes, we've run a 10 % model and published it, and it was somewhat consistent with what you're asking about.
Let me answer your question directly.
Currency is what you're interested in?
Yeah, currency is one of my, because there's a reason for that.
Right, and most of these models do not include currency.
Because currency is a nominal variable, a monetary variable, not a real variable.
So you have to take a position on what you think would happen in the currency.
And my view is that the currency value of the dollar is not determined by the trade balance.
And I think there's 50 years of evidence to show that.
I would have supported the DBCFA.
If it had included a proposal to manage the currency, the US needs to manage the dollar to a competitive level.
So what I'm saying is the currency is completely unpredictable.
I actually agree with the incoming Treasury Secretary that governments in certain advanced countries, particularly the Anglo -Saxon countries, will typically allow stupid things to happen to their currency.
So what we would need to do to achieve what you're talking about is manage the dollar, hold it at a competitive level, and say we're going to allow those tariffs to increase the size of the productive sector of the economy.
Okay.
Does that answer your question?
It does.
Look, I don't have a PhD, but I always then worry about nominal interest rates' effects on the selling of debt.
A good example, I mean, look what happened to Brazil yesterday and other countries that have also tried to do some of the management of the currency value.
You know, the debt markets, particularly a country like ours, we brought, what, $10 trillion to market last year?
And with our demographics, it's going to get worse.
Matter of fact, a couple minutes ago, the 10 -year went over 4 .5%, even though the Fed reduced interest rates, and I think that's partially future expectations of...
Our demographics and our binging on debt.
So I'm trying to work with our brothers and sisters on this committee and Ways and Means on how do we maximize economic productivity and growth,
tax receipts as an offset to a debt where, you know, we have a CR heading to the floor that may be about to add another $140 billion of an offset.
Debt.
So that means our baseline now is already, what, 2 .3 trillion debt this coming year?
Maybe with some of the other economic factors, if interest rates stay this high, you're going to a 2 .6.
That means you're borrowing $80 ,000 a second.
We've got a math problem.
And so is a tariff, destination tax, choosing those who we like and incentivizing trade with them and punishing those we don't?
I mean, it's somewhere here there has to be a unified theory, both receipt stabilization, economic growth maximization, and accepting the reality of our demographics.
Remember, 100 % of the debt, basically from today through the next 10 years, is interest and demographics.
It's health care costs.
We got old.
It's not Republican or Democrat.
It's math.
But it's so hard because we're so busy beating the crap out of each other, partisan -wise, That we don't actually pull out things called, what are they called?
Oh, calculators.
And sorry for the preaching, but I'm frustrated.
You're right.
This is a serious problem.
What we have to do is get the budget deficit down, which involves cutting spending.
We can, as you say, increase tax receipts by growing the productive sector through tariffs and industrial policies.
And we can hold interest rates down in doing that.
And I hope there's actually even a third round because there's a difference between industrial policy and subsidized industrial policy because across the world now we've set off a cascade where China, I think, has put $30, $36 billion into their chip sector.
Europe just did almost the same thing.
Taiwan's about to do it.
So all we did is now create rent -seeking around the world when it's industrial policy with cash.
And there becomes the problem.
We didn't actually gain really that much true productivity because we just set off a subsidization cycle around the world.
So with that, I yield back.
Thank you for your patience.
Thank you, Mr. Schweiker.
Recognize again the gentle lady from Milwaukee.
You know, Mr. Schweiker, you always give a great jumping off point.
I do it just for you.
You do it just for me, I think.
I've been listening very carefully to folks and listening to how the farmers really caught hell.
I'm from Wisconsin.
We have soybeans.
That's in the mix of stuff that really took a beating.
But the strategy was just to subsidize them.
I want to know, number one, for people, how sustainable that is, and is that worth it if we had to cross the board?
If we did the cross -the -board tariffs, you know, we could just keep on subsidizing the losers.
And, you know, the $6 trillion, Mr. Ferry, are you suggesting, you have been suggesting that this could pay for the tax cuts.
You mean all of them?
The whole TCJ, FJ?
They could pay for all of them without raising prices.
And so I find that, you know, the $6 trillion, we didn't find that the tariffs really trickled down to people that much.
And I guess I am wondering, your model, you know, how you got to the $6 trillion.
Well...
In a couple of seconds.
The first thing I want to say is that When I was a kid in the 1970s, my dad was a union print worker in New York City earning $200 a week.
That was good money.
That was very good money.
And on a part scholarship, I went to Harvard.
And the reason why a lot of the kids from my neighborhood went to Ivy League schools was because their dads were working in jobs that had high productivity and they were able to get good money in those days.
Today, we're in a completely different economic mess.
Now I'll answer your question.
$6 trillion comes from $600 billion a year.
Our model suggests that if you've got $3 trillion of imports and you tariff them at 20%, that's $600 billion a year.
The difference between my model and one difference, there are many differences, one difference between our model and other models is that other models assume imports will decline.
Brendan Duke and I actually agree that imports are only going to decline for a short period of time.
The trade deficit will remain.
So imports move up again.
You're tariffing them at 20%.
The net result is those $6 trillion.
Now, what you do with those $6 trillion is critical, and I wrote a paper...
That's right, because if it's just CEO pay, then that's going to be a problem, and that's what we've been experiencing, Mr. Gresser, to pick up from where he left off.
The $6 trillion and how it circulates in the economy.
For sure.
A couple of things.
One, if we're taxing $3 trillion imports and getting $600 billion out of it and the imports don't decline, one, that's not realistic.
Two, it would mean there's no effect on the employment mix that Mr. Ferry is talking about.
So that's not a realistic assumption.
It doesn't create jobs.
Not in the outcomes that he's discussing.
There have been very serious criticisms of this model done by, for example, Robert Koopman, the former USITC director who oversees the USITC modeling.
So I would be very careful about accepting these figures at face value.
What we're talking about in a tariff of 20 % on imports is a 20 % tax on crude oil.
$250 billion worth of crude oil.
We're talking about 20 % on clothes.
We're talking about 20 % on appliances.
Most of these things will bring in some money and raise prices.
I did look at one appliance, toasters.
In order to make toasters in the United States and pop -ups, based on the experience of Japan and Italy and UK, they have to cost about $300 each.
You're talking about big, big impacts on middle -income and low -income families.
With very little return in the economy.
And then how much do the subsidies cost to save soybeans and farmers?
Is that worth it?
The subsidy for ag, I believe, is about $28 billion for lost exports.
So you're essentially paying people who are making good livings and honest livings and doing very well because they're now kind of on their backs.
U .S. government, we spend $7 trillion a year.
We can afford to spend $28 billion a year.
But why?
Why not let people keep winning rather than subsidizing them for losing?
Well, so little time, so many questions.
You're back.
Thank you.
Let me recognize the gentleman from Kansas again, Mr. Estes.
Well, thank you, Mr. Chairman.
I hesitate to jump into the give -and -take you and Mr. Schweikert have.
I don't know whether I should call you acting chairman or...
Lord chairman.
Lord chairman?
Okay, sure.
This is a...
Current chair.
Current chair.
Excellent.
Well, great.
This is a great opportunity to be able to get together and talk and have another round of questions.
There's so many good things we want to talk about.
I think so much of what we...
What we're all trying to look at is how do we get a good, strong, growing economy which ultimately provides good jobs for Americans and ultimately helps with raising tax revenue to help support the government functions that we want to have and trying to figure out what the right policy decisions are for all of those implementations.
There's a couple of questions I want to ask you as a follow -up.
Mrs. York, one of the things, going back into the...
The testimony that you had, the question I had, I was trying to follow through the thought process on the double taxation of savings as it relates to a decision that somebody makes to consume today versus invest.
Because to me, if they make that decision, consume today after you're paid the payroll versus investing it.
The tax would be on the earnings of the investment.
Yes, it's delayed, but it wouldn't be on the original investment itself.
So I was trying to follow that double taxation process.
Yeah, we've got a handy chart on our website if you want to see some number examples.
But essentially, when you pay tax when you earn your money, that reduces how much you've...
Thank you.
All right.
All right.
Thank you.
Mr. Ferry, at the end of my previous round of questions, you'd made a comment that really stood out in terms of that China's manufacturing base is double United States.
And that goes to highlight a lot of what I was trying to highlight as we're talking about how do we incentivize free and fair trade and making sure that we have open markets that people can engage in and a capitalist society and moving forward.
One of the things I wanted to talk, I had a question in general about for you is that, you know, one aspect of tariffs is to help protect the United States against some of these abusive practices by other countries.
We've had major concern about the Chinese Communist Party stealing intellectual property for decades.
And now as... Mr. Schweiker pointed out, we've started this round -robin of multiple subsidizing.
China's doing a super deduction for research and development expensing, which makes the United States even more vulnerable.
How do you think tariffs or other trade tactics can be used to protect the United States' intellectual property in future years?
It's very difficult to protect intellectual property from such a resourceful secret service.
And a huge operation that the Chinese run.
I myself worked for technology companies that were victims of Chinese intellectual property theft.
I don't think tariffs are the central weapon to protect against that.
There are export controls and there's better security.
But what you have to understand, and I think...
We sometimes don't take a strategic enough view.
We have to step back and we have to say to ourselves, in a world like this where China, where we run a trillion dollar trade deficit, China runs a trillion dollar trade surplus,
and you've got other countries also exploiting our propensity to consume rather than produce.
Yep.
Well, thank you.
Thank you for all the witnesses for being here today.
I yield back.
Thank you, Mr. Esses.
I'll go to my second round of questions.
I first want to make the point that on the deficit reduction that the tariffs generate, that's only deficit reduction if we don't use it to pay for tax cuts, which is, I think, is the intention right now.
So we would anticipate the deficit.
Much to our consternation, continue to go up greatly in the next four years.
Mr. Duke, Mr. Ferry said...
Sure thing.
So, our trade partners, they can manipulate their currency.
They did that in the teens.
But I think fundamentally, the reason why the dollar would depreciate from this is because...
We are taxing imports, right?
And that just causes the dollar...
There's no distortion to fix here.
That's just what we expect to happen.
And I think fundamentally, I think the reason why we have a trade deficit, a big part of the reason why we have a trade deficit is because we have a fiscal deficit because we don't save enough.
If we want to address the dollar, the simplest way to do that is to reduce the deficit.
I think a really good way to reduce the deficit is to take the $5 trillion of tax increases on the wealthy and corporations that President Biden put out, put that toward deficit reduction, not just put the Trump tax cuts on the credit card,
causing the dollar to appreciate, but bring down the deficit.
It's about 7 % of GDP right now.
That strikes me as a way easier way than getting into managing the dollar, which I don't, you know, I mean, Mr. Bessett made a lot of money off, you know,
Thank you very much.
Mr. Gressler, in your stated remarks and even more length than you've written, you talk about the constitutional challenges, that Article I, Section 8 of the U .S. Constitution gives Congress the ability...
To set tariffs, trade policy.
Over the years, Congress has passed at least six bills that I know of.
201, 302, the IEEP that my friend, Ms. DelBeney, has a very good bill on right now.
That basically give this power back to the president.
Why is that a bad thing?
And why is that especially a bad thing in light of our inability to pass a continued resolution this afternoon?
When Congress...
Well, I think the most direct answer is respect for the Constitution and its text and what powers it gives to the Congress and what powers it gives to the President.
But in terms of the laws you're mentioning, there are definitely some that I think are responsible and useful delegations.
If you create...
Trade Promotion Authority Bill.
That says negotiate trade agreements.
Here's what we want to look like.
If you succeed and you satisfy us, you have proclamation authority to lower tariffs.
Or on the other side, anti -dumping law.
We think Congress, this is what dumping is.
This is what we would like you to see do with petitions.
Here's how we'd like you to investigate it.
Here's what we'd like you to do.
What concerns me is...
An open -ended right for the president to create any new tariff he wants, to cut any tariff he wants, to do whatever product, whatever country.
I think that is a recipe for very bad government, for very bad choices.
And going back to my first point, Congress should exercise its responsibility.
The Constitution says Congress has the right to, or the responsibility to deal with foreign...
Mr. Gressler, one more relevant question, because I read your trade remarks every week.
We're losing Earl Blumenauer, who's been the champion for getting rid of the $800 de minimis exception for all these goods coming in from China.
I forget what it is.
It's a big, big number.
A billion dollars a day or something like that.
What's your perspective on de minimis, especially in light of the conversation about tariffs?
Because it is closely related.
In terms of de minimis, I believe they're about...
When Congress passed this law, there were about 100 million packages coming to the U .S.
Now there's about a billion.
That does raise interesting questions, and it does put American retailers in a difficult position where they're paying the full tariff and individuals buying online are not.
So I think there is some good reason to rethink some of this.
I would like to think that there are some ways to do it without raising prices on individuals and families.
That's where my starting points are.
I agree.
Mr. Ferry, do you have any input on De Minimis?
Yes.
I saw your eyes twinkle over there.
Yes.
I think De Minimis is effectively a free trade agreement with China.
It's enabled them to ship billions of dollars of goods into the U .S., putting thousands of manufacturers out of business.
Now, as it accelerates, it's putting retailers out of business.
And I'm hearing from business people that if we lose our retail channel to the consumer, then we lose the ability to sell.
So it's hurting both manufacturers and retailers.
And I think we ought to put a stop to it immediately by abolishing it entirely.
And remember, we're the only country in the world with an $800 limit on de minimis.
And I'll say it again very briefly.
We have to decide whether we are a country that consumes.
We're good to go.
I think?
Thank you.
My research assistant from Arizona has just pointed out that de minimis went up 209 % in the last six years.
I recognize my friend from Illinois, the distinguished congressman, Mr. Snyder.
Thank you.
I'll go to Mr. Gresser.
I'm looking at your testimony.
This may or may not be a fair question.
You know, as I study history a little bit, in the 1980s, we imposed an embargo, shipping grain to the Soviet Union.
And I've looked at reports that show in Illinois, we never really recovered from that.
The high point was 1979, and we lost those markets because other people went to other places.
I'm wondering if you look at the last four years of the last administration and the embargoes.
Have industries recovered from the impact of the trade war?
Are American industries still struggling?
That's a great question.
There's, I think, strong evidence that agriculture has not recovered from that.
We have lost market share for the long run.
One thing that's interesting to me on the manufacturing side is that over these past four years, the use of steel in the United States has declined pretty sharply.
So we're importing a lot less steel than we did Thank you.
I mean, expanding on your comment about necessity.
Necessity is the mother of invention.
It's not just that they make do, it's they find...
Alternatives or innovation comes and it accelerates that replacement of one product for another.
It's fair, I want to pick up on what you said, the loss of retailers.
When we talk about supply chains, value chains, it's a chain.
I guess I'm into the aphorisms right now, but a chain is only as strong as its weakest link.
And for a manufacturer to get its products ultimately to a consumer, there's a lot of links in that change, but the last one is the interface where the consumer actually can see, touch, and acquire the product.
What do you see as the long -term impact of a decline in retail because of inability to address the de minimis issue?
The impact of the decline in retail is, among other things, well, it's serious at several levels.
First of all, it's a decline in tax revenue for state and local governments, which depend dramatically on retail revenue.
And Congressman Beyer and I live in the same district, and a lot of the revenue for the city of Alexandria comes from the retail community.
And the more they buy from Sheen and the other de minimis China sellers that are selling tax -free, the more that tax revenue declines.
That's number one.
Number two, retail provides a lot of jobs.
Even though they're not high -paid jobs, they're jobs for a certain type of person.
The person who loves fashion works in a fashion retailer.
The person who loves bicycles works in a bike shop.
And those jobs are in decline, which adds to the problem of mediocre jobs and more and more people working in temporary jobs, working in warehouse or delivery type jobs, which are two of the, unfortunately,
two of the main growth sectors for people without college degrees or without high school degrees.
So it's a serious issue.
Thank you.
And let me close, Mrs. York.
I'll turn to you.
You had an article in Tax Foundation last month.
Talking about the inflationary impact of tariffs, can you describe some of the other effects tariffs will have on the economy, both short and long term?
Yeah, the big long term effect is that they reduce the real value of after -tax incomes by increasing prices that we pay in the United States.
And they also lead to a less efficient allocation of resources.
By transferring income, transferring jobs, transferring production to the targeted firms and away from where it's currently employed.
And we have evidence from 2018 and 2019 that that's what happened.
If you look at the US International Trade Commission report, if you look at studies by academics, they find net decreases in manufacturing employment, net decreases in manufacturing production because of these downstream effects.
Yes, tariffs can create benefits in the protected industry, but you have to weigh those against the downstream costs.
Great.
Thank you.
With that, I yield back.
Thank you.
We are honored to be joined this afternoon by the distinguished lady from the state of Washington, former chair of the New Democrat Coalition and many other honors, Ms. Domenech.
The chair is yours.
The floor is yours.
Thank you, Congressman Beyer.
Thanks all of you for joining us and for sharing all of your thoughts.
I'm joining today's committee hearing because my constituents in Washington Have a lot of questions and concerns about the incoming president's new sweeping tariff proposals.
I serve on the Ways and Means Committee and the Trade Subcommittee because trade is very, very important to my state's economy.
More than 40 % of jobs in Washington are tied to trade, ranging from technology products to aircraft and trucks, as well as billions of dollars of agricultural products like seafood and dairy.
Thank you.
To be clear, sometimes using tariffs as a targeted tool can be helpful.
Tariffs can be part of a holistic strategy to push back against unfair trade practices of another country and to reduce dependency within our supply chains or to protect American industries that are important for our national security or fighting climate change.
I've introduced legislation that would oppose a tariff on certain goods that are produced in carbon -intensive ways.
But sweeping tariffs like the ones that President Trump has proposed can damage communities across the country and raise prices of everyday goods like groceries, gas, and prescription drugs.
Economists, including several of our witnesses today, have estimated that if these proposals aren't tempered, the average American family will pay thousands of dollars more per year because of increased prices.
And the last thing Americans need right now is higher prices.
These estimates don't account for retaliation, which can be devastating for American industries.
In my state of Washington in 2019, apple growers across our state lost millions of dollars in market share in India.
Thank you.
I know we talked about this a little bit earlier but Mr. Gresser or Ms. York,
do you think the president should be able to raise taxes on Americans by billions of dollars without consulting Congress?
I think it's very clear that broad sweeping tariffs would have a negative effect on Americans.
We've also estimated tax increases on U .S. households exceeding $2 ,000 with universal tariffs.
Congress very clearly has the authority here, whether that is repealing a tariff that's already been imposed, or whether that is adding some checks to the tariff powers that have been delegated to the President.
Mr. Gresser.
I think almost any time, anywhere in the world, where a President or Prime Minister declares states of emergency and tries to rule by decree, it's not a positive sign.
In the case of the U .S. tax and tariff system, the Constitution is very clear.
This is a congressional power.
And so, no, I don't think it's appropriate for a president to declare a state of emergency and then use it to do whatever he likes, especially if there is no emergency.
And I applaud you for the bill you've introduced on IEPA in particular.
Thank you.
Mr. Duke, how could sweeping tariff increases on Canada and Mexico and other trading partners impact export -focused industries and jobs like those in Washington state?
Yeah.
I can think of four ways.
I can think of three ways.
First of all, as we discussed, tariffs cause the dollar to appreciate.
So all of a sudden, they're less competitive abroad.
That Indians, the Washington apple, costs more to them in the Indian rupee.
And that's what happens.
I think a second part is that U .S. Exporters are our biggest importers.
They rely on imported goods to stay competitive.
There was a study that showed Trump's first round of tariffs were the equivalent of a 2 % tariff on U .S. goods abroad because of those higher costs they bore.
The third part is obviously retaliation, just as you said.
And again, for no appreciable gain, it's just to do a sales tax on coffee and bananas.
That doesn't make any sense to me.
And lots of times the retaliation is on industries that have nothing to do with what the original tariffs are, so it makes it even more complicated.
No.
Thank you.
I've got all my time.
Thanks.
I appreciate it, and I yield back.
Mr. Beyer.
Still many.
Thank you very much.
We're almost done, but I have a couple quick questions.
First of all, Mr. Schneider said that necessity is the mother of invention.
I want to point out that Thorstein Veblen said that invention is the mother of necessity, too.
Second, I am concerned about how in the last round with Trump, our office, among many others,
was deluged with businesses applying for tariff exemptions and wanting us to write letters and intervene with the administration and the like.
I mentioned earlier that at least somebody had done research that showed that firms favorable to the administration get better treatment than firms unfavorable to the administration.
Mr. Gressner, can you talk at all about how...
Corporations could game this system, or is there an opening for corruption because of who gets to pay the tariffs and who doesn't?
Yes, tariff systems are going back 200 years.
Former Treasury Secretary, Mr. Gallatin, for Jefferson and Madison, tariffs are very opaque and non -transparent in comparison to other sorts of taxes and relatively easily manipulated by wealthy and connected businesses.
The problem I saw with the exclusion system you mentioned was that they were asking about 30 or 35 trained and talented people to handle 53 ,000 applications for relief.
The GAO found that each of these petitions got on average 10 to 15 minutes review from a frontline staffer and then seven minutes from a supervisor.
So it was a generator of random outcomes.
It wasn't a real process.
And I could easily imagine that businesses which are larger or older or for whatever reason more tied into the political system would have been better at getting these petitions in front of a political person who could say, oh,
actually this one looks kind of meritorious.
Let's give it another thought.
Yes, a system of this sort is going to attract so many applications it will overwhelm the people working on it and the outcomes from that level will be unpredictable and those which are better connected for whatever reason are probably more likely to get a better read on their petition.
So I think you're spot on.
Great, great.
Thank you very much.
One last question for Mrs. York.
Thank you for educating us all to...
How do you see overcoming?
You know, 125 years or 140 years of history.
What are the steps between where we are and the Erica York vision for tax policy?
The first two steps are fairly straightforward, and we've already taken steps toward them.
Full expensing for capital investment, that's had bipartisan support in the past, like expensing research and development costs, doing bonus depreciation, improving the tax treatment of structures.
So that's fairly familiar policy.
And then in the TCJA, there was also introduced a limitation on interest deductions.
So it's going further in that direction and fully moving the tax treatment of interest.
So both of those are...
We're good to go.
We're good to go.
By the way, I rarely defend the TCJA.
I'm not going to now, but full expensing is the one thing that I've seen has a significant impact on investments.
With that...
Thank you all very much for joining us.
This probably won't be the last you hear of tariffs in the coming weeks and months.
But we just want to say again that economists on the left and right fear that President -elect Trump's tariffs risk shrinking our economy and harming Americans.
We've emphasized again and again that the Constitution is our responsibility, not the President's.
And I want to thank all of you for participating so nobly in this.
And thank you for my colleagues.
And thank you for letting our fellow Waves and Means members wave onto this discussion.
Questions for the record may be submitted after the hearing.
The record will remain open for three business days.
And the hearing is now adjourned.
And thank you for letting me give you notes.
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