Report to CPA Members: CPA Testifies on Section 301 China Tariffs

July 03, 2019

Editor’s note: CPA’s Chief Economist Jeff Ferry testified on Friday June 21st at the International Trade Commission in support of expanding Section 301 tariffs against China. This is CPA’s written testimony.

On June 21st, at the US International Trade Commission headquarters, I testified on behalf of CPA in favor of maintaining Section 301 tariffs on China. I also said that the CPA, which represents the interests of 4 million American workers, manufacturers, farmers, and ranchers, favors extending the tariff to all $540 billion of Chinese imports with the minimum of exclusions.

By Jeff Ferry, Chief Economist

It was an important event for CPA, putting our economic analysis in front of a panel of government officials which included representatives from the Departments of State, Labor, Treasury, Commerce, Agriculture, the ITC, and the US Trade Representative.

In my testimony I explained that using the CPA economic model of the US economy (which is based on the widely-used REMI model), we forecast that a permanent, across-the-board tariff of 25 percent on all China imports would lead to growth in the US economy, with an additional $125 billion of GDP and 721,000 additional jobs by 2024.

The government officials were genuinely curious about how I could forecast economic growth from tariffs. This was obviously not an analysis they had heard before. In the question-and-answer period that followed, I was asked more questions than any of the other five witnesses on our panel. The questions tended to revolve around a belief (or fear) that low consumer prices were the most important issue for the economy and tariffs endangered low prices. I explained that a successful economy is determined by its ability to produce, not its ability to consume. I pointed out that in the 1960s, the real price of most consumer goods was higher, but we had faster economic growth, more good-paying jobs, less inequality, and more broadly-shared prosperity. I believe I gave the officials something to think about. You can read my testimony here.

Looking at the list of witnesses, I was the only one speaking on behalf of tariffs and economic nationalism from an economy-wide perspective. For example, my panel included two executives from the chemical industry. Both of them argued that Chinese dumping had injured their business and said anti-dumping duties had affected but not stopped Chinese dumping in the US market. They favored tariffs on their products, but each was careful to say they were not in favor of tariffs on any other products. The vast majority of witnesses during these seven days of testimony, many of them retailers or branded companies that shut their US production years ago, were aggressively anti-tariff and often outspoken in favor of cheap Chinese imports.

CPA is the only organization that is challenging the mainstream economic consensus on its own turf. We argue that when economic analysis takes into account the effects of “free trade” on the volume of employment and production in industries affected by imports, excessive trade, especially when accompanied by sustained trade deficits, reduces national income.

In addition to my oral testimony, we submitted written testimony to the USTR’s office and we’ve written a number of articles for the media about our China import model and the impact of tariffs. On the same day that I testified, I spoke to an economists’ conference hosted by REMI. Although most of the economists in the audience were state and local officials, with the usual left-leaning perspective, I was very pleased that there were no attempts to reduce the discussion to a debate about Trump or politics. Instead, they asked probing questions about how we built our model and appeared to accept the idea that tariffs can stimulate economic growth.

I’d like to thank our Senior Economist, Steve Byers, for his support on the China import model. Early in June Steve had a hip resurfacing operation, a relatively new high-tech advance on traditional hip replacement surgery. There were complications following the operation and Steve made several return visits to the hospital. Throughout this time, he continued to tweak and refine our model, often working on his computer in his hospital bed. Thank you Steve.

Looking ahead, we are continuing to improve and expand our model. We’re aiming to add a financial sector, endogenous determination of exchange rates, more granular capabilities for both exports and imports, and more. At the same time, we are reaching out to tell the stories to more and more people in Washington. We’ve presented various versions of the CPA economic model to Democrats and Republicans in the House and the Senate, officials at the Department of Commerce, trade associations, and others. Next month we have a meeting with a commissioner and two economists at the ITC who are frustrated with the internal ITC economic model and want to understand how we go about customizing economic models to produce more accurate and balanced results.

That’s CPA working for you.

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