For Immediate Release

Dallas--The Institute for Policy Innovation (IPI) is pleased that the Supreme Court has correctly decided that President Trump improperly used the 1977 International Emergency Economic Powers Act to impose harmful, capricious, sometimes malicious and often incoherent tariffs on goods purchased by American businesses and consumers. And we await the comedy of a response from the Trump administration.

All tariffs thus unconstitutionally collected by the U.S. Government should automatically and immediately be refunded to those who paid them, without challenge and without delay. Anything less can only be interpreted as the Trump administration refusing to comply with a Supreme Court ruling, and would continue the ongoing economic harm caused by tariffs. Essentially, a chunk of private sector capital was unconstitutionally removed from the private economy and transferred to government. Conservatives have never believed that government is a wiser and more efficient steward of resources than is the private sector.

We are disappointed that it apparently did not trouble three supposedly textualist justices that the word “tariff” appears nowhere in the text of IEEPA.

We look forward to future occasions when the other party attempts to similarly impose tariffs and we will be able to point out that progressive Supreme Court justices found otherwise.

We realize that the President will undoubtedly attempt to reimpose as many of the tariffs as possible under different legal justification, but we also have no doubt that he will similarly misuse those statutes as well, ignoring conditions, limitations, and time durations. We similarly expect Congress to refuse to accept and exercise its constitutional duty over such policies. Still, today was a good day for the Constitution, for the rule of law, and for the economy.

For the last six months, the European Union (EU) has held in suspension its 25% retaliatory tariff on American bourbon. But that six-month suspension ended yesterday, February 5. Which means the EU could reinstate its bourbon tariff today, or at any point in the future.

Just what American bourbon producers need right now.

But not just bourbon producers—corn and wheat farmers, oak barrel manufacturers, and everyone else who is in the supply chain for producing bourbon are in the crosshairs. And especially the employees of those companies.

Since it’s been confusing to a lot of people, let’s review how tariffs work. If the EU puts a 25% tariff on imports of American bourbon, that means European consumers will pay a much higher price for it. The country that levies the tariff pays the tariff. The intent of tariffs is to make imports more expensive, so that imports will decrease. You intentionally make imports more expensive for your own consumers.

And, for the nth time, it is Americans who pay the tariffs that the Trump administration has levied on, well, just about everyone and everything. When the United States puts tariffs on bananas from Guatemala, it is American households, not Guatemalans, who pay the tariffs. Guatemalans just lose their jobs.

And when the EU tariffs American bourbon, we don’t pay more for bourbon—they do. But we sell less of it to them. In other words, we’re both harmed.

Sorry for being pedantic, but there has been so much misinformation and falsehoods about who pays tariffs, we need to be very clear and a bit repetitive.

“Well, I don’t drink bourbon and I don’t work in the liquor industry, so the tariffs won’t hurt me,” you might say. Granted. But the tariffs on hundreds of other consumer items and thousands of raw materials DO hurt you. They harm the industries you work in, and they make you pay higher prices.

And for what? To create a golden age of manufacturing in the U.S? How’s that working out?

The Bureau of Labor Statistics’ Employment Situation Report for December 2025 (released Jan. 9, 2026), showed that manufacturing employment was down 10,000 jobs over Q4 (Oct. → Dec.), and down 68,000 jobs year-over-year (Dec. 2024 → Dec. 2025).

Whatever policy problem you’re trying to solve, tariffs are a lousy tool to accomplish it.

We expect the Supreme Court to relieve us of many of the most egregious and capricious tariffs imposed by this administration any day now. Perhaps our trading partners are waiting as well.

But relying on a sober Judicial Branch to save us from an impotent Legislative Branch and the daily chaos of the Executive Branch is a precarious situation for a supposedly self-governing people.

Wednesday, November 5, the Supreme Court will hear one of the most important cases involving limited government in our lifetimes. Under the boring name Learning Resources, Inc. v. Trump, this is the case about whether a president has authority under the Constitution or statute to impose tariffs in the way the Trump administration has.

For social conservatives, the Dobbs case, overturning Roe v. Wade and restoring to states the power to regulate abortion, was the whole ball of wax. But for economic conservatives, and for those who believe in constitutional limits on executive power, Learning Resources is right up there with Dobbs.

Constitutionally, it always seemed clear that Roe was an overreach by the Supreme Court. Similarly, Trump’s assertion of authority to impose tariffs on various whims seems a clear overreach by the Executive Branch, and one without the weight of precedent.

I was surprised that the Supreme Court worked up the gumption (not a technical legal term) to overturn Roe, because of stare decisis and reliance interests. But I’ll be more surprised if the Court doesn’t significantly curtail presidential use of so-called economic emergencies to impose tariffs.

In fact, as George Will writes, the justices may have to suppress a giggle or two at the administration’s arguments. For instance, the administration argues that emergency powers are justified by persistent trade deficits. But how can something that’s been true for 50 years be an emergency?

And of course, there is that small matter that the statute being used to justify Trump’s tariffs never uses the word “tariff.” That’s likely because the authors of the legislation knew the Constitution reserves tax and revenue authority to Congress.

Those are just examples of how conservative textualists on the Court would seem to have no option other than to overturn the asserted tariff authority. But judicial conservatives also champion originalism or original intent as a principle of constitutional interpretation.

Can anyone assert with a straight face that those who wrote the Constitution, just a few years removed from an armed rebellion against an authoritarian king, intended for the American president to be able to slap tariffs on trading partners on a whim? For whatever reasons and for whatever amounts he chose? Of course not.

The entire constitutional design of our political system is a series of limitations on federal power, with a system of checks and balances to ensure that the limitations are observed and enforced. The only reason Congress hasn’t already acted to rein in this and other overreaches by President Trump is that congressional Republicans have apparently entered into an informal compact to collectively look the other way and violate their oaths of office.

Sadly, with Congress having thus tapped out, it falls to Trump-appointed justices to enforce a basic constitutional limitation on his power. Let’s hope they still have the gumption.

A Big Mac costs more in San Francisco than it does in Baton Rouge. And it costs more in Switzerland, but less in Mexico. 

Some prices vary from moment to moment. Your Uber ride could cost three different prices within the same hour, depending on demand. And of course, on any given flight passengers on the same flight may have paid a dozen different prices, depending on when they purchased.

Even a pint of strawberries might have different prices at the same grocery store, depending on the week or even the day that you shop.

This is called differential pricing, or dynamic pricing, and it’s how markets work to match customers with products and services based on supply and demand.

But when government steps in and tries to control pricing, market mechanisms get disrupted, supply and demand is set aside, both consumers and producers are harmed.

Americans generally pay more for name-brand prescription drugs (though NOT for generics) than those in other countries, but only partially because of differential pricing. It’s mostly because other governments exert price controls on drugs. The problem is not that Americans pay too much; it’s that other countries pay too little. They distort their prices, which causes distortions in our prices.

The solution to this is to insist that foreign countries bear more of their share of drug prices, and this can only be done through trade agreements. But of course, these days we’re into blowing up trade agreements, not strengthening them.

But instead of insisting that other countries pay a fair price for drugs, the Trump administration is advocating the opposite—importing foreign price controls to the U.S. The Trump administration doesn’t like importing underwear from Vietnam but loves the idea of importing Vietnam’s price controls on pharmaceuticals.

Specifically, the Trump administration is pushing Congress to include in its budget reconciliation package a provision that would limit the Medicaid reimbursement price to what other countries pay. They’re calling this MFN, or “Most Favored Nation” pricing, which is ironic, since the Trump administration decries the extension of Most Favored Nation status to China. You would think the acronym would be toxic.

Drug manufacturers already lose money due to the Medicaid reimbursement formula, but importing foreign price controls would squeeze them even further. In the current populist moment, putting the squeeze on drug manufacturers might feel good, and Congress might save a little money, but there are unseen costs.

A critical concept in market economics is “the seen versus the unseen.” It’s easy to see the supposed benefits of price controls, but they are short-term, and ignore the unseen impact of reduced investment, less innovation, and delayed or even forgone treatments and cures.

Implementing MFN for Medicaid drug reimbursement would be a long-term structural disaster in exchange for perceived short-term benefits. There are better ways to address our entitlements crisis, and Congress should pursue them.

There was a time when Congress did actually determine US trade policy.  The Institute for Policy Innovation recently produced a list of 15 treaties passed by Congress that President Trump violated in the past 24 hours.  I won’t list them all, but here are the first two and then the last two, to give you a flavor:

• On July 31, 2003, Congress passed a US-Singapore free trade agreement.
  Donald Trump just broke it.
   
• On July 31, 2003, Congress passed a US-Chile free trade agreement.
  Donald Trump just broke it.
   
• On July 15, 2004, Congress passed a US-Australia free trade agreement.
  Donald Trump just broke it.
   
• On July 21, 2004, Congress passed a US-Morocco free trade agreement.
  Donald Trump just broke it.
   
• On July 28, 2005, Congress passed a free trade agreement with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic.
  Donald Trump just broke it.
   
• On December 13, 2005, Congress passed a US-Bahrain free trade agreement.
  Donald Trump just broke it.
   
• On September 19, 2005, Congress passed a US-Oman free trade agreement.
  Donald Trump just broke it.
   
• On December 4, 2007, Congress passed a US-Peru free trade agreement.
  Donald Trump just broke it.
   
• On October 12, 2011, Congress passed a US-Panama free trade agreement.
  Donald Trump just broke it.
   
• On October 12, 2011, Congress passed a US-South Korea free trade agreement.
  Donald Trump just broke it.
   
• On October 12, 2011, Congress passed a US-Colombia free trade agreement.
  Donald Trump just broke it.
   
• And on January 16, 2020, Congress passed Donald Trump’s USMCA, a free trade agreement with Mexico and Canada.
  Donald Trump just broke his own four year-old trade agreement.

The website of the United States Trade Representative still touts these free trade agreements. Don’t be surprised if it gets taken down.

When did it become okay for a president to break treaties lawfully passed by Congress?

President Trump is relying on the 1977 International Economic Emergency Powers Act (IEEPA), which empowers the president to act in cases of “unusual and extraordinary threat.” Can anyone argue with a straight face and a sound mind that the United States faces an unusual or extraordinary threat from literally every country on Earth?

And what does it mean that President Trump has abused the IEEPA and has violated a dozen or more congressionally approved treaties? Hint: Republicans had better hold control of Congress after the 2026 mid-term election.

“Just trust President Trump to run the global economy” we were told today by the Secretary of the Treasury.

Really? That’s how our constitutional order works? Elect a president and then just trust him no matter what he does?

Um, no. That’s not how it works. That’s not how the Executive Branch works, and it’s certainly not how the Legislative Branch works.
 
If the American constitutional order ultimately crashes and burns, this will have been a major step toward its destruction, and congressional Republicans will be to blame.

Today's TaxByte was written by IPI President Tom Giovanetti.

• Who Pays Tariffs?
• Trump’s Tariffs Will Refill the Swamp
• Trump’s Astonishingly Wrongheaded Notions about Trade and Tariffs
  ______________________________________

Today's TaxByte was written by IPI President Tom Giovanetti.

February 5, 2025

BEFORE THE

EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

Washington D.C.

Docket ID: USTR-2024-0024, Request for Comment on the Section 301 Investigation of China’s Acts, Policies, and Practices Related to Targeting of the Semiconductor Industry for Dominance.

The Honorable Juan Millán
Acting United States Trade Representative
Office of the United States Trade Representative
600 17^th Street NW
Washington, DC 20508

Dear Acting United State Trade Representative Millán:

I and my colleagues at the Institute for Policy Innovation (IPI) would like to thank the Office of the United States Trade Representative for inviting comment on the Section 301 proceeding into China’s targeting of the semiconductor industry, and for considering our input.

The Institute for Policy Innovation is a non-profit, non-partisan public policy “think tank” based in Irving, Texas, and founded in 1987 to research, develop and promote innovative and non-partisan solutions to today’s public policy problems. IPI is a public foundation, supported wholly by contributions from individuals, businesses and other non-profit foundations.

We at IPI believe in free trade, as in the most liberal trade policies possible. We generally oppose government interfering in a transaction between a willing seller and a willing buyer, regardless of whether that transaction crosses political borders. We’re fond of saying “countries don’t trade; people do.”

However, every policy position and principle must consider national security, which is among the most vital functions of government. Genuine national security concerns should always factor into any government policy decision. Too often recently national security has been used as a pretext for old fashioned protectionism and zero-sum thinking on trade, and we are critics of such pretext. However, the matter upon which we comment today is a genuine and obvious national security matter.

Through tightened export controls and the CHIPS Act, the United States has continued to expand policies to protect domestic semiconductor manufacturing capabilities—policies that encompass both industrial competitiveness and national security components. Initiatives to bolster U.S. semiconductor production, and thereby improve supply chain security, have been supported by each of the past three presidential administrations (Obama-Biden, Trump-Pence, Biden-Harris); Republican and Democrat lawmakers; and even U.S.-allied nations, including Japan and the Netherlands, which are dominant suppliers of lithography semiconductor equipment.

So long as China maintains its ideology and poses a threat to the free nations of the world, reducing our dependence on China for critical chips and depriving China of advanced technology are in the national security interests of the United States. Further, while total semiconductor supply chain self-sufficiency (i.e., no reliance on foreign suppliers) is inadvisable and unfeasible, preventing China from monopolizing the legacy chip market, including upstream inputs like Silicon Carbide (SiC) substrates and wafers, is necessary for America to have a secure and reliable supply via domestic production and  “friend-shoring”—reorienting global supply chains away from adversarial countries to those with which the U.S. has normalized relations.

As the USTR’s investigation docket notes, China has “nearly doubled its global share of foundational logic semiconductors production capacity” over the past six years. CIO magazine reported in December 2024 that China is poised to account for more than 60% of new global capacity for legacy chips by 2030, which is “supported by billions of dollars in subsidies, wage-suppressing labor practices, and state-directed technology transfers.”

The Chinese Communist Party (CCP) remains committed to achieving dominance in emerging high-tech industries, as outlined by the national “Made in China 2025” plan, which is predicated on state-funded subsidization. Last year China established its “largest-ever” semiconductor investment fund, a $47.5 billion initiative spearheaded by the country’s six largest state-owned banks. This third and largest round of financing indicates the Chinese government is “doubling down” on its strategy to create overcapacity and thereby price out competitors.

SiC production is the latest industry targeted by the CCP to consolidate semiconductor supply chains. SiC wafers have become a preferred semiconductor base material because of their improved performance, especially in high-power applications, such as electric vehicles (EVs), aerospace technology, solar panels, and defense systems. Late last year media reported that Chinese oversupply depressed prices for six-inch SiC wafers to about 25% below manufacturing costs and caused eight-inch SiC wafer prices to fall 50% in six months.

Those trends corroborate that the Chinese government and its state-sponsored companies are applying the same strategy China used to monopolize global LED, renewable energy, and battery manufacturing markets, among others. That is, leverage state subsidies to bolster domestic production, deflate market prices, and force out free-market competitors.

Unlike China’s dominance in the other markets, its gains in SiC substrates wafer production pose a threat to the United States’ national security. SiC-wafer semiconductors are a critical component of EV powertrains, battery chargers, rail transit, and electrical power grids. If China is allowed to gain an even tighter grip on SiC production, U.S. supply chains for these important industries will become even more dependent on one of our country’s biggest adversaries.

Likewise, U.S. national defense systems could become dependent on Chinese suppliers in the same way. Many flagship defense networks—particularly radar-dependent systems, like the Aegis Missile Defense, avionics systems, and satellite programs—rely on SiC-wafer chips, which can operate in harsh conditions. Supply-chain dependence on China could jeopardize the integrity and functionality of these (and other) defense systems. American military leaders and reports consistently identify China as the greatest threat to U.S. national security, and it’s reasonable to assume that in the event of a military conflict with China or one of its allies, China would sever sales to the United States, significantly disrupting supply chains.

IPI commends the USTR and related U.S. government agencies for working to strengthen America’s semiconductor supply chains. IPI supports USTR’s Section 301 investigation and believes evidence warrants trade controls to prevent China from subverting U.S. legacy chip and particularly SiC-wafer semiconductor manufacturing.

Thank you for your consideration. I am available to answer questions and welcome the opportunity to discuss these issues with USTR leadership in greater detail.

Sincerely,

Tom Giovanetti
President
Institute for Policy Innovation (IPI)

As advocates for economic liberty and low taxes, we aren’t fans of tariffs. Until 2016, most conservatives weren’t either.
 
Targeted tariffs and trade restrictions may have limited uses for national security, but consumers overwhelmingly benefit from lower prices made possible by global supply chains and comparative advantage. Global trade is a feature, not a bug, of the modern economy. Prioritizing consumer welfare over producer protection is essential to economic prosperity.
 
Not everyone agrees. Some argue that producers should be protected at the expense of consumers, while others equate trade deficits with economic harm. These views have found their strongest champion in Donald Trump, who openly used tariffs to raise revenue and pressure foreign nations during his presidency, and who plans to double down on tariffs in his second term.
 
While the Republican shift on tariffs is relatively recent, the real issue is broader. Policy disagreements are not supposed to be resolved by presidential fiat but by Congress. The Constitution is unequivocal in granting Congress authority over taxes, tariffs, and trade:
 
“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, . . . To regulate Commerce with foreign Nations.” (Art. I, Sec. 8)
 
Congress is supposed to jealously guard its prerogative to make law and set tax policy,
yet Congress has delegated conditional tariff power to the Executive Branch through laws dating back to the 1930s. Though conditioned on either emergency or national security, presidents have broad liberties with these powers far beyond their original scope. For instance, imposing a 25% tariff on avocados from Mexico hardly qualifies as a national security issue.
 
This overreach undermines constitutional separation of powers and undermines self-government. As with any policy, the Constitution requires the president to work with Congress, not evade Congress. Courts could eventually rule such delegations as unconstitutional under the “non-delegation doctrine,” but litigation would take years to resolve. Congress itself should act.
 
Senator Rand Paul (R-KY) has introduced the “No Taxation Without Representation Act” (S.5066), which would reclaim Congress’s tariff authority. Passing this legislation would restore separation of powers on tariffs and make tariff policy subject to deliberation and consent rather than presidential whim.
 
Whether you support or oppose tariffs, all constitutionalists should agree: the power to tax resides with Congress. Reclaiming tariff authority is vital to preserving the Constitution’s design and the role of Congress in self-government.

One of Donald Trump’s many disruptions to the center-right consensus was in the area of trade policy. For decades, the center-right has been largely supportive of “free trade” or trade liberalization, and the disagreements were about the minor details, like whether intellectual property issues should be included in trade agreements, or whether discrete trade agreements were better or worse than the World Trade Organization’s paralyzed processes.

Then Donald Trump came along, bashing trade deficits, bashing China, using zero-sum rhetoric to describe trade as between “winners and losers,” championing tariffs and protecting US domestic producers.

It was fascinating and depressing to see what happens when you open Pandora’s box. One result was former free-traders suddenly doing a 180 and embracing tariffs and protectionism as the new hotness compared to the old-and-busted free trade consensus.

Another was folks on the center-right who had apparently always been skeptical about liberalized trade but kept quiet because they knew they wouldn’t get anywhere. Again, when Donald Trump disrupted the consensus, it opened the door to such trade discontents to air their views.

This is all a setup to suggest that a very illuminating discussion on trade has been going on at the Law & Liberty website. New Right trade skeptic Oren Cass, formerly of the Manhattan Institute, launched a broadside there against the very philosophical foundations of trade and comparative advantage, which (in our view) have been more than ably debunked by longtime champion of liberal trade Donald Boudreaux, professor of economics at George Mason University.

We’re admittedly biased, and IPI actually hosted Prof. Boudreaux some years ago at a trade briefing we sponsored on Capitol Hill. We think he has the better argument, but we wanted to make sure our trade-interested friends were aware of the arguments and discussion in this important policy area.

So here are the links.

First, to Oren Cass’s attack on free trade and comparative advantage.

Second, to Prof. Donald Boudreaux’s able response.

We hope you find these essays as interesting as we did, and we appreciate your interest in the work of IPI.

Switzerland recently announced it plans to eliminate tariffs on 95 percent of all imports. Donald Trump recently announced that as president he would impose tariffs of at least 10 percent on virtually all imports to the United States. The Swiss have it right on both the economics and the politics.
 
In regard to Switzerland, Bloomberg News has reported, “Starting in January, 95% of all imports will enjoy duty-free status, promising more affordable goods like cars, household appliances and clothes. That’s up from 81% currently.” Only agricultural products will retain some tariffs.
 
Why are the Swiss taking this step? Even though the country concedes it will lose some revenue, the measure is “expected to boost competitiveness and moderate the elevated prices for everyday items.”
 
Swiss consumers, like consumers in most countries, have been struggling under the rising prices associated with inflation. Eliminating tariffs will likely lead to lower prices for consumer goods and services. Not huge decreases, to be sure, but any price reductions will help struggling families.
 
That’s because tariffs are a tax imposed on individuals and companies that buy imports. Tariffs are not paid by the countries exporting the items, as Trump frequently asserts. Tariffs are paid by those in the importing countries.
 
The point is that eliminating tariffs in inflationary times is good for an importing economy like Switzerland—and the United States.
 
Which leads us to why eliminating tariffs is good politics: it’s a tax cut. Since tariffs are a tax, cutting tariffs is a tax cut that will help many businesses that import products.
 
By contrast, Trump has proposed a 10 percent across-the-board tariff on all imports. If he were to succeed—and remember, he unilaterally imposed tariffs on steel and aluminum without congressional approval—Americans would be forced to pay higher prices for imported goods. Those higher prices would trickle down through the economy, putting upward price pressure on everything.
 
And it’s Americans, not the exporting countries, who would be paying those tariff/taxes. In other words, Trump is proposing what amounts to an across-the-board tax increase.
 
Lower prices and lower taxes—the Swiss model—are good for the economy and economic growth. Higher prices and higher taxes—the Trump model—are bad for the economy and economic growth.
 
There is very little reason to think that this explanation will have any bearing on Trump’s thinking. He had several good economists around him in his first term, notably Larry Kudlow, who understand tariffs’ negative impact on an economy.
 
Yet it’s still worth pointing out: The Swiss have it right, Trump has it wrong.

You know the world has turned upside down when President Joe Biden is criticizing Donald Trump for a proposal to increase taxes.
 
Recently, Trump (aka Tariff Man) floated a 10 percent tariff on all imported goods.
 
Trump told Fox Business Network host Larry Kudlow, “I think, when companies come in and they dump their products in the United States, they should pay automatically, let’s say, a 10 percent tax.”
 
The White House responded to the proposal quickly, “President Biden strongly opposes plans to hurt hardworking families with higher prices and higher inflation—as even economists who served in the Trump White House warn such an agenda would,” according to Deputy Press Secretary Andrew Bates.
 
I don’t often agree with the Biden White House, but this is one of those times.
 
Trump opined that his tax wouldn’t really hurt trade that much, and it “would really make a lot of money.” What I think he means is that a 10 percent tariff on all imported goods would dramatically increase U.S. tax revenues.
 
How much money? The Tax Foundation provides an estimate. “Former President Donald Trump’s proposed 10 percent tariff would raise taxes on American consumers by more than $300 billion a year—a tax increase rivaling the ones proposed by President Biden.”
 
But note the Foundation’s really, really, really critical point about who pays that $300 billion tax: consumers.
 
The issue of who pays a tariff has been a perpetual point of confusion for Trump. For some reason, he thinks the country producing the products being imported by U.S. businesses and consumers pays the tax. That is not the case. U.S. businesses and consumers pay the tax.
 
It’s hard to know whether Trump is being dense on the issue of who pays tariffs, or just pretending to be dense. The interview cited above was with Larry Kudlow, an economist who served in the Trump White House.
 
Kudlow knows who pays the tax and has surely explained it to Trump, probably several times—as the Biden White House correctly points out. For whatever reason, Trump has consistently ignored that fact and continues to imply that countries producing the goods pay the tax.
 
In his 2016 presidential campaign, Trump ran on cutting taxes. Campaigning on imposing a massive tax increase on all Americans sounds more like a Democratic than a Republican plan.

By passing the CHIPS Act of 2022 and by imposing export controls on the export to China of certain semiconductor chips, semiconductor equipment and related technologies, the United States is continuing and expanding industrial and export control policies implemented by both the Obama and Trump Administrations—policies that encompass both industrial competitiveness and national security components. This approach is now also supported by both Japan and the Netherlands who are the dominant suppliers of lithography semiconductor equipment.
 
We’re fans of national security but generally not fans of industrial policy (industrial policy referring to government efforts to support particular industries that are considered strategically important). After all, anytime government tries to direct something as complex as the economy it runs squarely into the maw of Hayek’s knowledge problem.
 
But even though industrial and export control policies are generally frowned on from a free market economic perspective, Adam Smith himself argued that government intervention in a market is justified for national security purposes, which these policies have in large part as their objective. And it would appear that reducing our dependence on China for critical computer chips and depriving China of advanced technology are in the national security interests of the United States.
 
This is not the first time the U.S. has imposed export controls for reasons of national security. However, this time they are also being used for industrial competitiveness objectives as well.
 
Aside from the direct national security considerations behind these policies in regard to the use of semiconductor equipment and technology by the Chinese PLA is the concern that the global supply chain for computer chips is too reliant upon Taiwan and in particular Taiwan Semiconductor Manufacturing Corporation (who is a contract manufacturer for most semiconductor chips manufactured today). The obvious concern is that a Chinese blockade or invasion of Taiwan would imperil U.S. access to computer chips that our economy and military depend upon.
 
Some, however, are under the impression that the United States should not be dependent on ANY other countries for critical goods, and thus seek to move semiconductor chip manufacturing back to the United States from a reliance on semiconductor chip supply chains from Taiwan and to a lesser extent South Korea (i.e. Samsung).
 
This policy of seeking to revert semiconductor chip manufacturing back to the United States has led to the recently enacted CHIPS Act which provides financial incentives for semiconductor firms to invest in building semiconductor manufacturing plants in the U.S. Its purpose is not only to limit the national security risks of reliance on a global supply chain fraught with geopolitical tensions, but also to increase the U.S. international competitive position in that industry.
 
However, as recently pointed out in an article on the perils of attempting to create within a country a self-sufficient supply chain for semi-conductor chips, the upstream supply chain for semiconductor manufacturing is incredibly complex. To become self-sufficient where no part of a semiconductor manufacturing supply chain is global is neither feasible nor reliable, as Ricardo’s lesson on comparative advantage still works to the benefit of both supplier and consumer.
 
One solution to this reality is the somewhat novel idea of “friend-shoring,” or reorienting global supply chains away from countries that are considered risky to countries that are at least friendly.
 
Friend-shoring need not be a violation of global liberalized trade so long as it results in a short list of countries we avoid trading with rather than a short list of countries we agree to trade with. Of course, our trade with countries like Iran and North Korea is virtually non-existent, so in reality we are still talking about China.
 
While there are those who argue that friend-shoring is bad economic policy, at least friend-shoring is realistic, while attempting to create supply chains wholly within the United States is unwise and probably impossible. National security matters, but so does economic efficiency and consumer welfare.

Former President Donald Trump loved to impose tariffs on imported goods, even boasting about it and calling himself “Tariff Man.”
 
As Vox quoted him in 2018: 

....I am a Tariff Man,” Trump wrote. “When people or countries come in to raid the great wealth of our Nation, I want them to pay for doing so.” He added that it would “always be the best way to max out our economic power” and that the US is “now taking in $billions in Tariffs.

 
There is so much wrong with this assertion it’s hard to know where to start.
 
The United States didn’t take in billions of dollars from other countries. U.S. companies and individuals paid the tariffs.
 
Trump never understood this point. When the federal government imposes a tariff, it’s U.S. individuals and companies importing the items that pay the tariffs, not the exporting countries.
 
How much have U.S. companies spent of Trump tariffs? The Tax Foundation writes, “The Trump administration imposed nearly $80 billion worth of new taxes on Americans by levying tariffs on thousands of products, which is equivalent to one of the largest tax increases in decades.”
 
The Tax Foundation adds, “Based on 2021 import levels and country exemptions, the tariffs amounted to a $52.6 billion tax increase in 2021.”
 
Of course, Trump wasn’t president in 2021. President Biden has kept the tariffs because they help pay for his big-spending agenda and most Democrats and some Republicans have become mercantilists.
 
Yes, Trump signed the Republican tax reform legislation—the Tax Cuts and Jobs Act of 2017—that cut several taxes, especially the federal corporate income tax rate. That reform dramatically boosted the U.S. economy. But Trump unilaterally and arbitrarily raised tax rates—as much as 25 percent on steel—when he imposed his tariffs. And tariffs are perhaps the most insidious of taxes.
 
Most taxes are imposed to fund the cost of government. Tariffs may end up paying for the cost of government, but in modern times they’re imposed to keep Americans from buying the best products and services at the lowest price—if those products and services happen to come from the tariff-targeted countries.
 
And imposing tariffs usually results in the targeted countries reciprocating with their own tariffs. (A new report by the U.S. International Trade Commission identifies and tries to quantify these developments.)
 
Tariffs also prompt a flurry of efforts from affected U.S. companies and individuals, which either fight or try to be exempted from the tariffs. Those companies start making political donations to elected officials, hire high-powered lobbyists, and make multiple trips to Washington to plead their cases to bureaucrats, staffers, and members of Congress—often over very expensive dinners. All the things people hate about Washington.
 
Trump campaigned on draining the “Washington swamp.” His tariffs actually poured more water into the swamp.

Former President Donald Trump loved to impose tariffs on imported goods, even boasting about it and calling himself “Tariff Man.”
 
As Vox quoted him in 2018: 

....I am a Tariff Man,” Trump wrote. “When people or countries come in to raid the great wealth of our Nation, I want them to pay for doing so.” He added that it would “always be the best way to max out our economic power” and that the US is “now taking in $billions in Tariffs.

 
There is so much wrong with this assertion it’s hard to know where to start.
 
The United States didn’t take in billions of dollars from other countries. U.S. companies and individuals paid the tariffs.
 
Trump never understood this point. When the federal government imposes a tariff, it’s U.S. individuals and companies importing the items that pay the tariffs, not the exporting countries.
 
How much have U.S. companies spent of Trump tariffs? The Tax Foundation writes, “The Trump administration imposed nearly $80 billion worth of new taxes on Americans by levying tariffs on thousands of products, which is equivalent to one of the largest tax increases in decades.”
 
The Tax Foundation adds, “Based on 2021 import levels and country exemptions, the tariffs amounted to a $52.6 billion tax increase in 2021.”
 
Of course, Trump wasn’t president in 2021. President Biden has kept the tariffs because they help pay for his big-spending agenda and most Democrats and some Republicans have become mercantilists.
 
Yes, Trump signed the Republican tax reform legislation—the Tax Cuts and Jobs Act of 2017—that cut several taxes, especially the federal corporate income tax rate. That reform dramatically boosted the U.S. economy. But Trump unilaterally and arbitrarily raised tax rates—as much as 25 percent on steel—when he imposed his tariffs. And tariffs are perhaps the most insidious of taxes.
 
Most taxes are imposed to fund the cost of government. Tariffs may end up paying for the cost of government, but in modern times they’re imposed to keep Americans from buying the best products and services at the lowest price—if those products and services happen to come from the tariff-targeted countries.
 
And imposing tariffs usually results in the targeted countries reciprocating with their own tariffs. (A new report by the U.S. International Trade Commission identifies and tries to quantify these developments.)
 
Tariffs also prompt a flurry of efforts from affected U.S. companies and individuals, which either fight or try to be exempted from the tariffs. Those companies start making political donations to elected officials, hire high-powered lobbyists, and make multiple trips to Washington to plead their cases to bureaucrats, staffers, and members of Congress—often over very expensive dinners. All the things people hate about Washington.
 
Trump campaigned on draining the “Washington swamp.” His tariffs actually poured more water into the swamp.

Free trade has been a core policy of those who believe in limited government and free markets. Based upon the theories of “absolute advantage” and “comparative advantage” propounded by Adam Smith and David Ricardo, respectively, free trade advocates have accurately pointed out the theoretical benefits to society when a country eliminates restrictions on trade.
 
However, reality doesn’t always correspond to economic theory. Multiple exogenous factors can force countries to adjust or limit free trade ideals when formulating international trade policies.
 
“Trade realism” in trade policy focuses not on abstract theories but economic reality. What is the correct policy, for instance, when other countries engage in international political or economic behavior that distorts a market to the point where free trade policy is no longer feasible?
 
For example, China’s trade policies—e.g., forced technology transfers, intellectual property theft, etc.—demonstrates the challenges of maintaining a free trade policy. Free trade works when both countries in a trading relationship embrace such a policy. If one country does not, then the real world benefits of free trade are less apparent.
 
Ricardo’s famous model where Britain specializes in the production of cloth while Portugal specializes in the production of wine results in more total cloth and wine being produced. But it only works if both countries follow that model.

While a country’s specialization in production of items in which it has an absolute advantage is always sensible (e.g., Saudi production of oil), the reality is that few countries embrace free trade policies. A pure free trade policy without regard to a trading partner’s policies is akin to a defense policy of unilateral nuclear disarmament. The underlying logic of such a policy only holds true if all sides adopt it.
 
Further, trade policy is often a product of competing societal and state interests that vary from one industry or economic sector to another. While arguably a free trade policy should always be the default policy for any industry or economic sector, real world considerations do not always make it practical.
 
Additionally, the father of free trade theory himself, Adam Smith, recognized that national security considerations provide a legitimate argument against a free trade policy in certain instances. The recent U.S. imposition of export restrictions of advanced technology to China, especially in semiconductor chips and equipment, are an example of Smith’s argument.
 
Free trade policy is desirable as a starting point and a goal that should be pursued. A hard dose of reality, however, is necessary when navigating the contours of the international political and economic landscape. Trade realism requires a country adopt a trade policy that takes into considerations the realities of that landscape.

Rapidly rising prices have become a huge political liability for President Joe Biden and Democrats. They thought their massive $2 trillion American Rescue Plan would inflate the public’s appreciation for Democrats. Instead, exploding inflation has deflated voters’ pocketbooks—and Democratic hopes for November.
 
Just today the Bureau of Labor Statistics announced the Producer Price Index (PPI) rose 1 percent in January, or 9.7 percent for the past 12 months ending in January.*
 
And voters ARE NOT HAPPY!
 
As a result, the Biden administration has been frantically looking for ways to lower prices. Biden has even gone so far as to entreat fossil fuel producers—both here and abroad—to pump more crude oil and natural gas in the hope of lowering energy and gasoline prices.
 
So let us make a modest proposal: End the Trump tariffs.
 
President Donald Trump loved to unilaterally—and often haphazardly—slap tariffs on friends and foes alike.
 
A tariff is a tax the government imposes on its own people. Tariffs increase the price American industries and consumers pay for products.
 
When Trump imposed tariffs, it was American companies and individuals who paid that tax, not the foreign countries—a fact Trump never seemed to understand.
 
The Biden administration has generally left those tariffs in place, so Americans are paying more for some products than they need to.
 
As this table from the American Action Forum shows, that additional upper-bound cost in 2020 is estimated to be about $50 billion.



By eliminating most or all of those tariffs (i.e., taxes), the Biden administration would be taking concrete steps to lower prices in the United States. It might help mend some strained relations with many of our allies—and even China. And it would help restore the constitutional provision that it is Congress, not the president, that decides when to raise taxes.
 
 
* From Investopedia: “The producer price index (PPI), published by the Bureau of Labor Statistics (BLS), is a group of indexes that calculates and represents the average movement in selling prices from domestic production over time. The PPI is different from the CPI in that it measures costs from the viewpoint of industries that make the products, whereas the CPI measures prices from the perspective of consumers.”

We knew President Joe Biden wanted to raise U.S. corporate tax rates. We didn’t know he wanted to raise them across the world. But Treasury Secretary Janet Yellen has now revealed that goal—a “minimum global corporate tax rate.”
 
It’s a bizarre move, to say the least. Usually it’s the high-tax government entities that want to harmonize high tax rates to discourage individuals and companies from fleeing to lower-tax regions.
 
But the United State isn’t a high corporate tax rate country anymore, as it was before President Trump’s  2017 tax reform legislation. The U.S. corporate tax rate is about average for developed countries.
 
For example, the Tax Foundation tells us, “On average, European OECD countries currently levy a corporate income tax rate of 21.9 percent. This is below the worldwide average which, measured across 176 jurisdictions, was 24.2 percent in 2019.”
 
The U. S. federal corporate tax rate is now 21 percent. Only slightly lower than the OECD average.
 
Of course, many U.S. states also impose a corporate tax, which means corporations in those states face a combined tax rate of perhaps 24 percent—which just happens to be the world average.
 
So if Yellen wants to harmonize taxes among the developed economies, mission accomplished—thanks to the Trump tax reform.
 
But in fact, Biden wants to raise the current rate to 28 percent, which would be 6 percentage points higher than the OECD average. If Biden succeeds, Yellen would have to press many EU member countries to RAISE their corporate tax rate also, which, frankly, higher-tax EU countries would love.
 
That’s because tax competition has been going on between EU countries for decades. For example, Ireland’s low corporate tax rate enticed several major companies to relocate their headquarters there. That’s what Yellen calls a “30-year race to the bottom.”
 
IPI thinks tax competition among government entities is a good thing, just as price competition among companies and workers is a good thing.
 
But the Biden administration is on a price-fixing quest. Corporate tax rates are essentially a price a company pays to do business in a country (or a state).
 
The Biden administration wants to fix prices—either a minimum or maximum—on almost every aspect of the economy. For example, it wants to set a price floor on labor—i.e., a $15 minimum wage. But it also wants to set a price ceiling on prescription drugs—perhaps some international average.
 
Now that Biden wants to significantly increase the U.S. corporate tax rate, he also wants to set a global corporate tax minimum to ensure corporations don’t try to escape to lower-tax countries—which is precisely why most low-tax countries aren’t likely to go along.

Former President Donald Trump was obsessed with the U.S. trade deficit when he entered the White House. In his mind a trade deficit meant a country was “losing” economically—and perhaps politically—and a trade surplus meant a country was “winning.”
 
Most economists disagree. They believe a trade deficit is relatively meaningless. Think of it on the individual level. As consumers, we buy lots of products and services from vendors—grocery stores, gas stations, department stores, etc.—either in person or online. We give them money and very few of them buy what we as individual workers produce.
 
Indeed, one measure of how well we as individuals are doing financially is how much we spend on goods and services produced by others.
 
In other words, as families we have a trade deficit with lots of businesses, and no one cares as long as we have the income—i.e., in economic terms, create enough wealth—to pay those bills.
 
The same is true for countries. Those doing well tend to import more because they have the wealth to buy more goods and services.
 
That’s why the trade deficit tends to rise when a country’s economy is strong and decline when an economy is in recession.
 
As this St. Louis Federal Reserve Bank graph shows, the U.S. trade deficit declined significantly during the Great Recession, from about $60 billion in November 2007 to $26 billion in May 2009. (Note: a falling line indicates an increase in the deficit.) 
 
 

That decline wasn’t because the United States was “winning,” but because so many Americans were in financial distress and thus reduced their spending. However, the trade deficit grew after the recession came to an end.
 
The trade deficit moved mostly sideways through the Obama years and then began to grow when Trump entered office in January 2017.
 
There was a brief period toward the end of 2019 when the trade deficit decreased, but then it grew dramatically as we entered the pandemic in February 2020.
 
That pandemic trade-deficit growth was important to the U.S. economy and highlights the importance of having access to foreign-made goods and services.
 
As states locked down, domestic production and distribution of many products declined immediately—hence, the empty store shelves. So consumers—whether individuals, businesses and even states—began buying from other countries.
 
And no one seemed to care about the growing trade deficit, which hit a 14-year high last November.
 
The Biden administration will likely return to the more traditional economic view of trade deficits, which, if Biden’s tax-and-spend policies don’t push us into a recession, will likely also grow if the economy does.

President-elect Joe Biden won by running as the antithesis of President Donald Trump. But that doesn’t mean that everything Trump did was bad. Prior to the pandemic, the U.S. economy was experiencing solid growth and record low unemployment, especially for minority populations. And Team Trump had made diplomatic progress in the Middle East that most thought could never be achieved.

As the anti-Trump, Biden will take steps to put lots of daylight between his and the Trump administration’s policies. But there are at least four Trump initiatives that Biden should retain, which would help the country, both domestically and internationally. 

Tax reform — Trump’s biggest success was his tax reform legislation. Democrats have railed against this legislation both before and after it passed, claiming, as they always do, that it benefits the rich. That accusation is false – just look at how many high-income Americans want to eliminate the state and local tax, which limits certain personal income tax deductions – but that’s not the primary reason for leaving the law alone.

Its key feature was reducing the corporate income tax from 35 percent to 21 percent. That wasn’t a sop to big business; it simply lowered the corporate tax rate to the level of most countries in the European Union. In other words, it made the U.S. corporate tax rate competitive. 

That one change made the U.S. a more attractive place to locate, or relocate, a company’s corporate headquarters. It’s one of the reasons behind several companies announcing they would be “reshoring” to the U.S. 

Biden campaigned on bringing companies back to the U.S., and yet he wants to raise the corporate income tax rate to 28 percent. Doing so would undermine his goal.

No Democratic politician would have campaigned on a 21 percent corporate tax rate, but now that Biden has it, he should leave it alone. It will help jumpstart the economy once we beat the pandemic, and he’ll be able to take credit for a strong and growing economy.

Moving the U.S. embassy to Jerusalem — As a presidential candidate, Bill Clinton said he would do it. He didn’t. Ditto with presidential candidates George W. Bush and Barack Obama. 

As a candidate Trump also promised he’d do it, and he did move the U.S. embassy in Israel from Tel Aviv to Jerusalem.

If Biden is looking for a way to justify his decision, he could point to the words of President Obama on December 17, 2014. “To those who oppose the steps I’m announcing today, let me say that I respect your passion and share your commitment to liberty and democracy. The question is how we uphold that commitment. I do not believe we can keep doing the same thing for over five decades and expect a different result.” 

That was part of Obama’s justification for taking a new diplomatic stance with Cuba. While Obama’s Cuba outreach didn’t work as well as some hoped – it’s hard to extract serious concessions when one spends so much time apologizing for America – the sentiment was right. 

For 70 years U.S. policy has been to placate Palestinian grievances. That hasn’t worked. Time to try a new approach and let the sovereign country of Israel determine where its capitol should be.

Building on the Abraham Accords — They said it couldn’t be done. In fact, former Obama Secretary of State John Kerry was a leader of the it-can’t-be-done naysayers. But Trump, Secretary of State Mike Pompeo and Trump’s son-in-law, Jared Kushner, did it: The Abraham Accords. 

Several Muslim nations have normalized relations with Israel, and more may join, including Saudi Arabia — if Biden embraces the efforts and builds on it. 

Checking China — We are approaching the 50^th anniversary of then-National Security Adviser Henry Kissinger’s secret trip to China, which led to the opening of relations between the two countries. China wanted to open that door both to boost its impoverished economy and because the Soviet Union was encroaching on its turf.

But today’s China is fundamentally different, especially since the rise of Xi Jinping in 2013. Now China and Russia are both on the move, and the U.S. has become their mutual foe.

Trump changed the U.S. attitude toward China. His primary concern was the trade deficit between the two countries, whereas most economists were more concerned with the intellectual property theft and forced technology transfer.

But China is becoming more aggressive economically, militarily and diplomatically. And the next president will have to address those moves.

At this point, we don’t know everything about Hunter Biden’s ties with China, and how they may come back to haunt the new president. 

But a President Biden can’t be squishy on China, as he has been in the past. He will have his hands full containing the country that seeks to become the future world leader.

Dear President Trump:

On behalf of the undersigned federal and state-based organizations, we write to express our grave concerns with the “most favored nation” (MFN) executive order to impose foreign price controls on American medicines.

This proposal will impose an “International Pricing Index” on drugs in Medicare Part B, tying the U.S. prices for these medicines to the prices in foreign countries, most of which have government-set prices established in socialized medicine systems.

Adopting these price controls will slow medical innovation, threaten American jobs, and undermine criticism of single-payer systems. In addition, a United States embrace of price controls will make it immeasurably more difficult to get foreign countries to pay their own way in the development of new medicines.

Your administration has repeatedly stood strong against a government-takeover of healthcare. In fact, in your 2020 State of the Union Address, you promised

that “we will never let socialism destroy American health care.”

We applaud your strong stance – socialized healthcare policies proposed by some leading presidential candidates would require trillions of dollars in tax increases, would destroy medical progress, and would end healthcare plans used by 180 million Americans.

Unfortunately, an MFN policy would adopt the same socialist healthcare policies that you have promised to fight against.

Not only does this undermine the broader effort to fight against the government takeover of health care, it will also have disastrous consequences to the economy and healthcare system.

The U.S. is the best in the world when it comes to developing innovative, lifesaving and life preserving medicines. Because of this, the U.S. is leading the

way when it comes to developing COVID-19 vaccines, with several promising candidates entering the final stages of testing and clinical trials.

In contrast, foreign countries have been free riding off this American medical innovation for decades through crushing price controls and other market-distorting government rules and regulations.

Adopting foreign price controls will result in the same negative outcomes to our healthcare system as those overseas—less medical innovation leading to fewer cures and healthcare shortages for American patients.

Adopting price controls through an MFN will also harm the U.S. economy because of a decline in American research and development. Medical innovation directly or indirectly supports 4 million jobs and $1.1 trillion in total economic impact, which will be threatened by importing price controls.

An MFN does nothing to fight foreign free riding of American innovation. Although supporters of MFN have claimed the concept will incentivize manufacturers to negotiate better deals, this theory is based on the flawed assumption that American manufacturers were not fighting as hard as they could against foreign price controls in past years. In addition, an American adoption of these same policies renders any future criticism of them incredibly challenging.

Moving forward, we need policies that further encourage American innovation through tax and trade policies, such as renegotiated trade deals, a competitive business tax system and a more competitive environment.

As President, you have championed vital changes in tax and regulatory policies that have allowed free market innovation to flourish. We believe a market-based approach like those that your administration has consistently supported in other policy areas will lead to economic growth and promising new treatments but adopting price controls through the MFN plan would undermine rather than build on those successes. In short, if the MFN executive order is implemented it will have disastrous consequences for both American healthcare and the American economy.

It’s one thing to encourage Americans to “Buy American,” it’s something else to compel it—and to spend hundreds of billions of taxpayer dollars to try to make it happen. 

After decades of a general consensus that international trade is good and benefits both the buyers and sellers, President Donald Trump changed course. He stressed encouraging U.S.-based companies to re-shore manufacturing and Americans to buy U.S.-made products. 

That emphasis caught on with millions of Americans, and now Joe Biden has made it a central theme of his campaign. 

But there’s a difference: Trump encouraged companies to re-shore by: 

• Signing a major tax reform bill in 2017 that lowered the corporate income tax to 21 percent, making the U.S. tax competitive with other developed nations; and 

• Reducing regulations that made it easier for companies to make decisions and act on them. 

Biden, by contrast, wants to increase taxes and regulations on business—and everyone else, for that matter—and throw hundreds of billions of strings-attached dollars to make it happen. He proposes: 

• $4 trillion in new taxes over 10 years by raising the corporate income tax to 28 percent—which isn’t as high as the 35 percent it was, but still much higher than the average EU country; and 

• Putting $700 billion (for now) in the federal government’s hands to buy American products and services and to fund certain types of research. 

In other words, Trump made it attractive to re-shore by leveling the playing field. Biden’s plan would make it less attractive to re-shore, and so Washington will have to take steps to force companies to return if they won’t. 

But that’s not all. He intends to use the $700 billion in new federal spending to promote social justice issues. That means the money will go to politically favored individuals, companies and organizations rather than the most efficient businesses. 

Strangely, Biden thinks his measures will strengthen international relations. But how does it enhance foreign relations with a country when the U.S. is subsidizing or compelling U.S.-based companies to close up their foreign factories and come home? 

Put it like this: All of the major foreign car manufacturers make some of their vehicles in the U.S., and we’re glad they make those investments and employ American workers. Would Americans appreciate it if those foreign manufacturers closed their U.S. factories because those countries wanted all of the vehicles made at home? 

For all Democrats’ whining about “failed Trump economic policies,” their thinly veiled effort to co-opt part of the Trump economic blueprint tells a different story. The problem is they want to embrace the least efficient parts of the Trump approach and eliminate the most effective.

If there were one idea that most developed economies embraced after World War II, it’s that free trade—or, at least, as free as politically possible—was an economic good. While most economists still defend that position, it is increasingly being challenged by governments around the world. 

Singapore and Hong Kong have historically been the purest examples of free trade economies, imposing virtually no tariffs on imports regardless of what their trading partners imposed. And the United States may have been the best example of a major economy, generally imposing lower or no tariffs on its major trading partners than they did on the U.S., according to the World Trade Organization.

As a presidential candidate, Donald Trump argued that other countries were taking advantage of the U.S. and promised to change the U.S. policy from free trade to “fair trade.” He began implementing his vision in early 2018. 

It’s probably fair to say that the road to achieving his goal has been bumpier than he anticipated, especially with China. 

Now, with the economic turmoil created by the coronavirus pandemic, it’s anybody’s guess how trade will look in the future. 

For one thing, developed economies are funneling massive economic aid to most of their major industries just to help companies survive the government-imposed lockdowns. While understandable, that’s a problem for a free trade vision, since the goal has been to eliminate all such state-sponsored subsidies in order to create a level playing field. 

There is also a growing effort by governments to limit or prohibit foreign-based companies from buying domestic companies. The Wall Street Journal reports that in addition to Great Britain, “The European Union has also signaled its own clampdown, announcing plans last week to tighten its defenses against subsidized foreign companies, as part of its effort to assert ‘strategic autonomy’ from China and the U.S., while defending its economic interests.” 

Not to be out-protected, Bloomberg quotes U.S. Trade Representative Robert Lighthizer as saying, “I am a firm believer that the things we need to fight the pandemic should be made in America. … I’m not in favor of reducing tariffs on the things we need. I would be far more in favor of increasing tariffs on the things we need.” 

Of course, President Trump successfully renegotiated a U.S. trade deal with Canada and Mexico, which should mean those countries are off the trade-war hot seat. But Bloomberg says, “The Trump administration is considering re-imposing tariffs on aluminum imports from Canada and an announcement could come by the end of the week.” 

Surprisingly, the trade and pandemic challenges haven’t had that big of an impact on U.S. trade flows so far. As the U.S. Census Bureau shows (here), U.S. exports of goods have remained relatively consistent for several years. Imports, by contrast, have declined recently, but not by that much. 

What will come of all this trade turmoil is anybody’s guess. Perhaps the only thing that can be said with certainty is the post-war vision of a world of free trade is on hold—perhaps permanently.

“You can catch more flies with honey than vinegar” is a truism, and a variation on the carrot-and-stick bit of wisdom we’ve all heard over the years. It also happens to be true: Rewards are more effective than threats, and rewards also have the virtue of giving the participant freedom and choice. It’s always better for someone to choose to do what you want them to do, rather than being forced to do so. 

In policy and law, this is doubly true. In the American free market system, we can force people to do things, or we can offer them incentives. Lovers of liberty should always be uncomfortable with the use of government force. If through our political process we decide we want to encourage certain behaviors, it makes much more sense to offer incentives rather than mandates. 

A consensus seems to be forming that it would be better for critical medical manufacturing to be based here in the United States, as opposed to overseas, and especially as opposed to being located in countries with potentially hostile regimes, such as China. 

I’m a free-trader and a believer in comparative advantage. I don’t think we should fall under the delusion that we should or even can “make everything we need right here.” Adam Smith proved the foolhardiness of such sentiments in 1776, and global wealth has increased dramatically since as nations have more or less adopted trade liberalization. 

But that’s not to say that we shouldn’t use access to U.S. markets as an incentive toward good behavior, and national security demands that we not be dependent upon a potential enemy state for anything deemed critical to health, safety or security. 

President Donald Trump has a habit of thinking that the presidency has more power than it actually does, and often talks as if he can force businesses to do what he wants them to do. But most of the time there is no actual legal authority for the executive branch to deliver on such demands, unless Congress has unwisely delegated such powers to the executive branch. In our constitutional system, almost all policymaking rightfully occurs within the legislative branch, which more closely approximates the considered will of the governed. 

That’s why proponents of bringing critical American manufacturing home should be cheered that U.S. Rep. Chip Roy, a Republican from Hays County, has introduced creative legislation designed to encourage medical and pharmaceutical manufacturing to relocate to the U.S. by providing potent tax incentives instead of threats of government force. Roy’s “BEAT CHINA Act” (H.R. 6690) would allow companies to fully expense their relocation of plant and equipment in the first year, instead of having to depreciate such investments over a 39-year timeframe. As research by my organization, the Institute for Policy Innovation, has demonstrated, such long depreciation requirements raise the long-term cost of capital and are a disincentive to investment.

 Most tax reformers would like all business investment to be deductible in the year it is made. The 2017 tax reform included a welcome but limited expensing provision, but there’s still a long way to go toward full expensing. Roy’s bill would at least extend this ideal tax policy to the relocation of medical and pharmaceutical manufacturing, which continues tax reform in the right direction while also encouraging the reshoring of medical and pharmaceutical manufacturing. 

Roy’s BEAT CHINA Act is thus a “two-fer” — a major move toward a more pro-growth tax code and a carrot rather than a stick approach toward bringing critical manufacturing home. It’s a great policy move and I hope it gains support.

Dear Secretary Mnuchin, Director Kudlow, Leader McConnell & Leader McCarthy: 

 We write in opposition to any proposal to impose “Buy American” mandates on medicines.

 A Buy American mandate would place unnecessary sourcing requirements on medicines and medical inputs purchased with federal dollars. 

If implemented this proposal will disrupt existing supply chains, invite retaliatory actions from trading partners, and threaten timely access to medicines. During this unprecedented health crisis, a Buy American policy could even threaten our ability to adequately respond to the pandemic.

To be clear – increasing diversity in the supply chain should be encouraged. However, mandating production in America is the wrong way to do this.

The proposal risks upending the complex medical supply chain. This supply chain incorporates numerous inputs from across the world including raw materials, active pharmaceutical ingredients (APIs), and high precision analytical tools.

These supply chains frequently contend with a number of challenges including transportation and logistical obstacles, ensuring supply and demand are met, and alleviate stress caused to the chain due to region-specific disruptions in manufacturing or shortages. The ability of private industry to utilize a diverse global supplier base is essential to creating a healthy competitive advantage and mitigating risk.

Forcibly localizing this supply chain would be a substantial undertaking which would require finding new sourcing in the U.S. If there is no existing alternative, it would be a long process to set up an alternative.

Rather than restoring U.S. jobs, the proposal would likely lead to higher prices and reduced access. While proponents of a Buy American mandate have claimed the proposal is a way to bring back jobs to the U.S., it would almost certainly do more harm than good. 

Under a Buy American mandate, some estimates show that the costs of manufacturing could be up to five times higher. 

This is not unique to medicines. Buy American policies have increased prices for Americans whenever they have been tried. History shows that they restrict choices for consumers and manufacturers requiring inputs leading to higher prices or lack of access.

It is also important to note that the American pharmaceutical industry already contributes over $100 billion to the U.S. economy every year, directly supporting over 800,000 jobs. When indirect jobs are included, this innovation supports 4 million jobs and $1.1 trillion in total economic impact. 

 Pharmaceutical jobs are also high paying – the average compensation is over $126,000 – more than double the $60,000 average compensation in the U.S. Instead of destabilizing our innovation ecosystem with price controls, burdensome regulations, and heavy-handed government directives, we need to encourage advanced manufacturing capabilities with less government interference, lower taxes, and other incentives to maintain America’s global leadership in biomedical innovation.

A Buy American mandate could lead to retaliatory actions. Rather than mandating local sourcing requirements in the U.S. that could harm friendly countries and invite retaliatory actions, a better policy would be to seek the abolition of rules and requirements overseas that compel local sourcing to the disadvantage of U.S. manufacturers. Triggering a global reaction would stifle the pharmaceutical supply chain at the very moment where demand for medical innovation is most needed. Instead of warping the supply chain further, this would do more to level the playing field between regions.

We urge you to reject any Buy American policy on medicines. This protectionist proposal has no place in our healthcare system and will upend complex and efficient supply chains, leading to higher prices, threatening access to medicines, and opening the U.S. to retaliatory measures from other countries. 

Sincerely, 

Grover Norquist 
President, Americans for Tax Reform 

Jim Martin
Founder/Chairman 60 Plus Association

Saulius “Saul” Anuzis
President, 60 Plus Association

Dee Stewart
President, Americans for a Balanced Budget

Phil Kerpen
President, American Commitment

Steve Pociask
President / CEO, The American Consumer Institute

Ryan Ellis
President, Center for a Free Economy

Andrew F. Quinlan
President, Center for Freedom and Prosperity 

Jeff Mazzella
President, Center for Individual Freedom

Ginevra Joyce-Myers
Executive Director, Center for Innovation and Free Enterprise

Peter Pitts
President, Center for Medicine in the Public Interest

Gregory Conko
Senior Fellow, Competitive Enterprise Institute

Matthew Kandrach
President, Consumer Action for a Strong Economy

Fred Roeder
Health Economist/Managing Director, Consumer Choice Center

Yaël Ossowski
Deputy Director, Consumer Choice Center

Thomas Schatz
President, Council for Citizens Against Government Waste

Hance Haney
Senior Fellow, Discovery Institute

Katie McAuliffe 
Executive Director, Digital Liberty

Adam Brandon
President, FreedomWorks

George Landrith 
President, Frontiers of Freedom

Mario H. Lopez
President, Hispanic Leadership Fund

Tom Giovanetti
President, Institute for Policy Innovation

Charles Sauer
President, Market Institute

Pete Sepp​​​​​​​
President, National Taxpayers Union

Sally Pipes
President and CEO/Thomas W. Smith Fellow in Health Care Policy
Pacific Research Institute

Wayne Winegarden, Ph.D.
Sr. Fellow Business and Economics/Director, Center for Medical Economics and Innovation
Pacific Research Institute

Lorenzo Montanari 
Executive Director, Property Rights Alliance

Paul Gessing ​​​​​​​
President, Rio Grande Foundation

Karen Kerrigan
President & CEO, Small Business & Entrepreneurship Council

David Williams
President, Taxpayers Protection Alliance 

Sara Croom​​​​​​​
Executive Director, Trade Alliance to Promote Prosperity

Amy Noone​​​​​​​
​​​​​​​Chairman and CEO, United Seniors for America