This is a story with a good beginning, if not — so far at least — a happy ending. The good beginning stems from an obviously sensible economic idea aimed at creating and preserving American jobs. That it has been shot down — again, at least for now — illustrates the enduring power of entrenched lobbies in Washington, D.C., where politics so often trumps economics. For Obama watchers (and who isn’t, these days?), the story is especially revealing.
Let’s take it from the top.
Last year Rep. Bill Pascrell, a Democrat from New Jersey who sits on the Ways & Means Committee, enthusiastically sponsored legislation to help safeguard American jobs by liberalizing trade. Pascrell’s so-called Trade Agreement Parity bill was aimed at giving US-based manufacturers that operate in so-called “foreign trade zones” within the US the same zero-duty economic benefits — that’s the “parity” part — now enjoyed by manufacturers that make their widgets in countries that have preferential trade agreements with the US. For example, thanks to the North American Free Trade Agreement, manufacturers that set up shop in Mexico can import all the components they need to make their widgets without paying tariffs, and then can export their finished goods duty-free to the United States.
Pascrell’s legislative proposal — called by its acronym, TAP — was based on creating the same economic incentive to keep manufacturing operations in foreign trade zones within the US. Such zones — there are now nearly 500 of them, involving roughly 2,600 US-based manufacturers in all 50 states, according to the most recent publicly available figures — date to the 1930s Depression era. Then, lawmakers looked for ways to keep Americans working by getting around the crippling Smoot-Hawley tariffs that hovered in the 50-plus percent range. The manufacturers inside these zones are allowed to import their raw materials into the US duty free: think of components that go into electronic products made by companies like Intel and Hewlett-Packard; or drugs made from chemicals imported by companies like Merck; or refined oil products made by crude-oil importers like Exxon and Chevron. The finished products can then be “exported” from within the duty-free zone into the US proper. Instead of paying US Customs officials the higher duty of the imported raw materials, the manufacturers pay only the lower duty that is assigned to the finished product. Some of those final products like electronics and pharmaceuticals aren’t subject to US tariffs, so are not taxed at all when they officially enter the US. Other manufactured products, automobiles, for example, still are subject to US tariffs. A US automaker that operates inside a foreign trade zone can import various parts — screws, for example, which would otherwise be subject to a 7% tariff — without paying the duties. As it passes through US Customs, the finished US-made automobile is subject to a duty of only 2.5%.
That’s a pretty good deal — but remember, thanks to Nafta, a car that is made in Mexico can enter the US duty free, which gives the Nafta-made car a 2.5% price advantage. Pascrell’s legislation was simply aimed at keeping jobs in the United States by giving the US-based manufacturers that operate in foreign trade zones the same duty-free privileges as their competitors that operate in places like Mexico. “This is all about keeping American jobs in America” explains Will Berry, the president of the National Association of Foreign Trade Zones, which strongly supported Pascrell’s bill. In a July 12, 2008 editorial, the Wall Street Journal enthusiastically agreed. The editorial — headlined “A Democrat’s Good Idea — praised Pascrell for his good economic sense to propose cutting tariffs by way of “boosting US competitiveness and creating American jobs.”
That was last year.
This year, Pascrell has not re-introduced his proposal, and declined to be interviewed on it for this article. No other lawmaker has yet stepped forth to take Pascrell’s place. And even the Obama administration — famously headed by a new president who has vowed that he will do everything he can to keep American jobs at home — has shown no interest in doing anything to help preserve these particular American jobs.