Industry Market Trends

Expiring Tariff Bill Could Drive Up Manufacturing Costs

Dec 20, 2012

In addition to dealing with the fiscal cliff, Congress is also faced with the question of extending tariff suspensions on certain imports that are essential for American manufacturers. If the Miscellaneous Tariff Bill is allowed to lapse, it could significantly increase manufacturing costs across a range of industries.

While the Miscellaneous Tariff Bill (MTB) isn't the primary focus of financial legislation these days, to manufacturers in the United States it's a crucially important issue. The bill eliminates or greatly reduces import customs on manufacturing inputs and products deemed "essential" but are not available domestically.

These tariff suspensions are due to expire on December 31 unless Congress acts to renew the bill. The MTB has been in place for 30 years, enjoys broad bipartisan support, has relatively no downsides and is not opposed by the Obama administration, so most observers think it will, in fact, be extended.

The additional duties that would be implemented if the bill expires would affect over 600 products, but manufacturers are asking for 2,100 new provisions in total. Under the current bill, tariffs are suspended on what are described as "noncontroversial" imports, which are those that don't face any domestic competition and that don't cost the Customs Service more than $500,000.

The sort of imports covered by the MTB include raw materials unavailable in America or intermediate goods - mainly chemicals, electronic components and mechanical parts - used by American manufacturers to produce finished products.

The National Association of Manufacturers (NAM) is urging legislators to extend the duty suspensions. In a letter to Congressional leaders, NAM explains that the MTB enhances the competitiveness of American manufacturers "by reducing the cost of production through eliminating import duties on inputs that are not produced or available domestically."

Moreover, NAM argues that allowing additional tariffs to go into effect would amount to a tax on key manufacturing materials.

There is little opposition to renewing the tariff suspensions. A House Ways and Means Committee spokesperson recently said that the committee is "in the final stages of drafting the package."

Supporters of the MTB note that there are few benefits to enforcing tariff collections of under half a million dollars, especially when this enforcement would make manufacturing in the U.S. costlier and less competitive with foreign markets.

However, the bill does have critics. Senator Jim DeMint (R-S.C.) has indicated opposition to the MTB despite his history of strong support for free trade. As Forbes explains, DeMint is mindful of the Republican Party's 2010 pledge to cut earmarks on spending bills, and "DeMint's view is that these duty suspensions provide a 'limited tariff benefit,' which is defined under House rules as benefiting 10 or fewer entities."

According to Shopfloor, it's currently 20 percent more expensive to manufacture in the U.S. than to manufacture in the home markets of America's key trading partners. The MTB provides a net positive when it comes to keeping American manufacturing as competitive as possible. If anything, the main problem with the bill is its limited scope, given the advantages that manufacturers would gain from the broader tariff reliefs that NAM and other industry groups are currently advocating.

Earlier this month, the White House dropped its opposition to eight of the import-duty suspensions in the MTB, including those on certain specialty outdoor footwear products, which outdoor business groups say would create $30 million in savings that is redirected toward jobs and investments.