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As Congress prepares to consider the Panama, Colombia and South Korea trade agreements, much of the debate will correctly focus on their substantial ability to create good American jobs.
But we should not lose sight of how liberalizing trade and removing tariffs can also substantially lower the prices of many common consumer items for families struggling to make ends meet. In these difficult economic times, the ability to reduce prices for common home goods is just another compelling reason to pass trade pacts with these countries.
Tariffs on imported goods amount to a federal tax on many basic necessities. Last year, these tariffs raised roughly $26 billion in revenue — slightly less than the gasoline tax but slightly more than the estate tax.
At first glance, the average rate at which imports are taxed — 1.7 percent — may seem low. A closer look reveals a wide and unfair disparity in how the price of essential consumer goods are affected by tariffs compared with manufactured goods and luxury items.
Most U.S. imports are permanently duty-free. For example, South Korean semiconductor chips, Colombian coffee and Panamanian fish all arrive on our shores tariff-free.
But a small slice of goods are heavily taxed, and these include basic family needs such as shoes, clothes, kitchen items and bedding. Every family in America, particularly low-income and struggling middle-class families, bears the brunt of these unfair and regressive tariffs through higher prices on essential items that working families cannot do without, while many luxury goods are tax-free.
Home products are taxed at a rate 20 times the 0.7 rate that other imports average. While home goods make up only 5 percent of imports, they account for more than half of all tariff revenues — $14 billion a year. In total, home-goods tariffs add roughly $40 billion a year to the prices of basic home goods. That amounts to a massive tax on American families who can least afford it.
At the same time, luxury clothing items land on our shores with a small tariff compared with the less expensive alternatives preferred by working families.
For example, the affordable sneakers a mom or dad can buy at an outlet are slapped with a tariff that increases their price by 50 percent. Meanwhile, a $400 pair of Italian dress shoes carries only an 8.5 percent tariff.
Thrifty cotton and polyester work shirts carry 16 percent and 32 percent tariffs, respectively, while a silk Armani shirt comes with only a 1 percent tariff. For kitchen items, the proverbial silver spoon for wealthier Americans carries only a 3.3 percent tariff but one made of less-costly stainless steel is hit with a tariff of 14 percent.
Not only do high tariffs increase the cost of basic goods, they do nothing to protect the jobs of Americans. Not a single pair of those affordable sneakers has been made in the United States since the 1970s, despite protective tariffs.
Overall, even as we have kept tariffs high on these imported goods, employment in the affected industries has dropped by almost 90 percent in the past 40 years.
The remaining jobs in these industries are now concentrated in luxury fashions and high-tech fields, not affordable goods. Tariffs aren’t protecting American jobs, but they are costing American workers billions of dollars every time they buy back-to-school clothing for their kids or basic necessities.