Trading Down: Recent Trade and Tariff Decisions Hurt America’s Largest Manufacturing Sector

Acknowledging that tariffs are taxes, the intent of tariffs is to protect domestic manufacturers. Intent and impact, though, are different – and for America’s largest manufacturing sector, a recent decision by the Biden administration will only contribute to cost pressures facing U.S. companies and consumers. It also highlights a fundamental need to ensure U.S. policymakers better understand the companies and supply chains they allege to support.

In March, U.S. Trade Representative Katherine Tai announced her recommendations on existing “Section 301” tariffs on China “to confront the [People’s Republic of China’s] unfair policies and practices,” and “promote American jobs and investments.” But the long-awaited statutory review, which took four years to complete, missed the mark. Rather than using the review period to readjust and employ more strategic tariff approaches to counter Chinese expansion, the U.S. Trade Representative (USTR) and the Biden administration opted mostly to maintain existing tariffs with a few additions.

In doing so, Biden’s USTR failed to heed the suggestions of U.S. manufacturers, including America’s food, beverage, household and personal care manufacturers, who had suggested a “scalpel, not a sledgehammer” approach. The existing tariffs on China, first imposed under President Trump, included a broad swath of products and manufacturing inputs, some of which aren’t even available in the U.S. or from other countries. As a result, even industries like the CPG industry – which vastly sources, manufactures and distributes its products domestically – have faced higher costs and supply chain constraints as a result.

Tariffs can be beneficial when used in the right circumstances, but harmful when applied without a certain due diligence. Wide-reaching, unfocused approaches are likely to have unintended consequences, which is why the CPG industry previously called for the review to include reductions or eliminations of the tariffs for certain imports that do not pose an unreasonable threat to U.S. commerce, and for the Biden administration to establish a more transparent and functional exclusions process.

USTR’s review is reflective of Washington’s increasingly protectionist perspective on both sides of the aisle. But while tariffs and talking tough on China are in vogue, what is missing is a more thoughtful and informed discussion about how supply chains actually operate and what will benefit U.S. manufacturers. Imposing tariffs to protect one industry at the expense of others does not make sense, nor does imposing tariffs on obscure ingredients or manufacturing parts that aren’t commercially available in the U.S.

As Consumer Brands highlighted in its separate comments to USTR on how to build supply chain resilience (LINK), the Biden administration should more thoughtfully consider the needs of different manufacturing sectors and the different role trade plays across supply chains. A similar missed opportunity was the recent issuance of USTR’s National Trade Estimate Report on Foreign Trade Barriers, which indicated USTR’s lack of engagement or unwillingness to engage on issues impacting U.S. manufacturers. Reticence and reductionism are not normally traits prized in leading federal agencies, especially those at the forefront of defending U.S. economic and trade interests.

Fundamentally, these concerns can be summarized as trade policymakers needing to better account for variation across manufacturing sectors, and to take the time to understand what makes the CPG industry unique. Our operations, and the overall competitiveness of our industry, require longstanding ties to domestic farmers and workers as well as complementary relationships in the international community. CPG companies generally manufacture products in-country, for that country, but still depend on access to global markets both to grow their business and to source key ingredients that aren’t available in the U.S., like cocoa, spices, coffee, etc. As a result, CPG supply chains operate differently than those for apparel, critical minerals, high tech components like solar panels or semiconductors, automobiles, or other sectors. Not only is the CPG industry America’s largest manufacturing sector, but it is comprised of brands known and loved around the world – a true domestic powerhouse.

Seen through this lens, it’s easy to envision a different kind of role for USTR to play, if it wanted to better protect and deliver results for CPG manufacturers. Rather than extending tariffs of questionable strategic value or shying away from removing non-tariff barriers to trade, a Biden or Trump administration could champion policies rooted in a more nuanced understanding of manufacturers’ needs. It shouldn’t take much – if the United States Trade Representative doesn’t have the back of America’s largest manufacturing sector, who does?