WASHINGTON, Dec. 5, 2016 - President-elect Donald Trump is already running into resistance from the House Republican leadership over his threat to impose stiff tariffs on companies that outsource jobs.
Majority Leader Kevin McCarthy, R-Calif., stopped short of saying the tariff would be dead on arrival, but he said Monday that Republicans were wary of provoking retaliation from other countries and that passing corporate tax reform was the better solution to outsourcing.
“History has taught us that trade wars are not healthy,” McCarthy told reporters. “We know that the size of America, with the population around the world, that we need to trade around the world. But we are currently at a disadvantage based on the tax code system we have for companies to continue to stay in America.”
Agriculture could be particularly hard hit by a trade war since many sectors depend heavily on exports to China, Mexico and other countries.
Bill Reinsch, former president of the National Foreign Trade Council, said Trump could impose the tariffs without congressional approval by using the International Emergency Economic Powers Act to declare an international economic emergency. The law has previously been used to impose sanctions on Iran and Syria. “If Congress wanted to block his action, they would have to pass a bill, which he could veto, Reinsch said.
“My view is that he intends this as a threat in the hope of intimidating companies not to move. I think inevitably someone will call his bluff, and then we'll see what he does,” he said.
Trump posted a series of tweets on Sunday reiterating his threat to impose tariffs of up to 35 percent on imports by companies that move factories to Mexico or overseas. Here was his message, delivered over six tweets:
“The U.S. is going to substantially reduce taxes and regulations on businesses, but any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. without retribution or consequence, is WRONG!
“There will be a tax on our soon-to-be-strong border of 35 percent for these companies wanting to sell their product, cars, A.C. units, etc., back across the border. This tax will make leaving financially difficult, but these companies are able to move between all 50 states, with no tax or tariff being charged. Please be forewarned prior to making a very expensive mistake! THE UNITED STATES IS OPEN FOR BUSINESS.”
Trump’s tweets followed his appearance last week in Indiana, home state of Vice President-elect Mike Pence, with Carrier Inc., after the air conditioning manufacturer announced that it would preserve 1,000 jobs in Indianapolis rather than move them to Mexico. The state provided tax incentives, and the company said Trump had promised “to support the business community and create an improved, more competitive U.S. business climate.”
McCarthy was pressed about the tariff threat at a news conference Monday morning and repeatedly said he preferred passing tax reform.
House Republicans have proposed both a reduction in the corporate tax rate as well as what is known as a “border adjustment” for imported goods to offset the absence of U.S. taxes.
According to an analysis by DLA Piper, “border adjustments would probably be achieved by denying the seller of a product sold in the U.S. with foreign components any deduction for the cost of component parts purchased from overseas.”
McCarthy said that tax reform was “a better of solving the problem than getting into a trade war with a 35 percent tariff” and would be “a cornerstone of what we do.”
McCarthy also gave a preview of the House’s early priorities in January when the 115th Congress convenes. One of the first bills that would be passed is the REINS Act, short for the Regulations from the Executive in Need of Scrutiny Act, which would require an up-or-down vote by both the House and Senate before any new rule can take effect that would have an annual economic impact of $100 million or more.
McCarthy also expects Congress to act quickly on a fiscal 2017 budget, which would set the blueprint for funding the remainder of the fiscal year, which started Oct. 1.
The government is currently operating under a continuing resolution that expires Friday, but House leaders are expected to unveil a new CR on Tuesday that would extend funding until April. The extension is designed to give time for the new Congress to work with Trump to set spending levels for the rest of the fiscal year, which ends Sept. 30, 2017.
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