Don’t Limit U.S. Response to Coronavirus with Knee-Jerk Trade Policies

By at 18 March, 2020, 7:50 am

by Raymond J. Keating-

The steps being taken by both the private sector and government in response to the coronavirus are unprecedented.

On the public policy front, a major emphasis should be placed on unburdening the private sector from unnecessary, costly and restrictive measures, so that the innovative powers of free enterprise can be fully engaged in keeping Americans and others all around the globe safe and healthy – that is, to save lives – and getting all of us back to normal life as quickly as possible.

However, one step apparently being considered by the Trump administration on the trade front would achieve the exact opposite.

Consider that last week, the Trump administration took a step in a positive direction by releasing a list of medical supplies that would be exempt, temporarily, from tariffs. This was in response to requests from U.S. businesses for exemptions from U.S. tariffs on imports from China, and it will reduce costs and expand access to needed medical supplies during this crisis.

Increased and threatened tariffs over the past three-plus years have raised costs for U.S. businesses – including small businesses, considering that practically all imports are inputs for U.S. businesses, from imported capital goods for U.S. manufacturers to imported consumer goods for American retailers – and reduced economic growth. Therefore, any further steps in rolling back misguided tariffs would be a welcome development for U.S. entrepreneurs and small businesses – after all, 86.6 percent of U.S. exporters have fewer than 50 employees and 86.4 percent of U.S. importers have fewer than 50 workers – during these troubled times.

Unfortunately, the Trump administration reportedly also is considering a contradictory executive order that would mandate that all federal government purchases of medicines and medical supplies must be manufactured in the U.S. This would be a recipe for increasing costs, creating shortages, and reducing access to needed medical goods in the middle of this health crisis.

The executive order would, again according to various reports, feature a mandate for the federal government to buy “American-made” medicines, vaccines and raw material, and force U.S. federal contractors to produce supplies; while also withdrawing the U.S. from parts of assorted trade agreements and thereby generating retaliation from other nations; committing U.S. taxpayers to subsidizing certain medical supply businesses (at the expense, by the way, of small, entrepreneurial, innovative enterprises), and providing some regulatory relief.

Other than regulatory relief, such an executive order would be bewildering and dangerous in an assortment of ways. Again, while the U.S. should be focused on fully engaging free enterprise to help bring this crisis to an end, this kind of executive order would raise costs, disrupt supply chains, and generate uncertainty that inevitably will put entrepreneurs, businesses, investors and workers back further on their heels; raise trade barriers and therefore limit options for battling the coronavirus; and lay the groundwork for draining innovation and creativity from the U.S. pharmaceutical and medical device industries. All of this would only hamper our ability to treat current and future health challenges, while also reducing economic, productivity, income and job growth.

In the end, U.S. policymaking needs to, at the very least, avoid self-inflicted harm when it comes to fighting through this crisis and looking ahead. This executive order would do the exact opposite, with the short-term results including shortages, increased costs, and retaliation that inflicts further economic and medical harm in the U.S. and abroad. The U.S. needs to step up and help lead the world in this time of crisis, including making clear the important role that private businesses play at home and around the world. What makes sense is regulatory relief and reducing trade barriers, not creating new ones.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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