    [Senate Hearing 118-596]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 118-596

                          TRADE WARS AND HIGHER COSTS:
                        THE CASE AGAINST TRUMP'S TARIFFS

    =======================================================================

                                    HEARING

                                   BEFORE THE

                            JOINT ECONOMIC COMMITTEE

                                     OF THE

                         CONGRESS OF THE UNITED STATES

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                               DECEMBER 18, 2024

                                   __________

              Printed for the use of the Joint Economic Committee

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

            Available via the World Wide Web: http://www.govinfo.gov

                                    __________

                       U.S. GOVERNMENT PUBLISHING OFFICE
    59-619                  WASHINGTON : 2025

    -----------------------------------------------------------------------------------

                            JOINT ECONOMIC COMMITTEE

        [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

    SENATE                               HOUSE OF REPRESENTATIVES
    Martin Heinrich, New Mexico,         David Schweikert, Arizona, Vice
        Chairman                             Chairman
    Amy Klobuchar, Minnesota             Jodey C. Arrington, Texas
    Margaret Wood Hassan, New Hampshire  Ron Estes, Kansas
    Mark Kelly, Arizona                  A. Drew Ferguson IV, Georgia
    Peter Welch, Vermont                 Lloyd K. Smucker, Pennsylvania
    John Fetterman, Pennsylvania         Nicole Malliotakis, New York
    Mike Lee, Utah                       Donald S. Beyer Jr., Virginia
    Tom Cotton, Arkansas                 David Trone, Maryland
    Eric Schmitt, Missouri               Gwen Moore, Wisconsin
    J.D. Vance, Ohio                     Katie Porter, California

                      Jessica Martinez, Executive Director
                     Ron Donado, Republican Staff Director

                               C O N T E N T S

                                  ----------

                         Opening Statements of Members

                                                                       Page
    Representative Donald S. Beyer, Jr., a Representative from
      Virginia.......................................................     1

                                   Witnesses

    Mr. Ed Gresser, Vice President and Director for Trade and Global
      Markets, Progressive Policy Institute, Washington, DC..........     3
    Mr. Brendan Duke, Senior Director for Economic Policy Center for
      American Progress, Washington, DC..............................     5
    Mrs. Erica York, Senior Economist and Research Director, Tax
      Foundation, Washington, DC.....................................     7
    Mr. Jeff Ferry, Chief Economist, Coalition for a Prosperous
      America, Alexandria, VA........................................     9

                           Submissions for the Record

    Prepared statement of Representative Donald S. Beyer, Jr.........    35
    Prepared statement Mr. Ed Gresser, Vice President and Director
      for Trade and Global Markets, Progressive Policy Institute.....    38
    Prepared statement of Mr. Brendan Duke, Senior Director for
      Economic Policy, Center for American Progress..................    46
    Prepared statement of Mrs. Erica York, Senior Economist and
      Research Director, Tax Foundation..............................    58
    Prepared statement of Mr. Jeff Ferry, Chief Economist, Coalition
      for a Prosperous America.......................................    64
    Questions for the Record and Response submitted by Senator Amy
      Klobuchar to Mr. Gresser.......................................    73
    Questions for the Record submitted by Senator Amy Klobuchar to
      Mr. Brendan Duke...............................................    77
    Articles submitted by Vice Chairman David Schweikert:
        https://www.goiam.org/news/iam-union-applauds-biden-
          administrations-bold-actions-to-protect-u-s-shipbuilding-
          steel-workers-from-chinas-unfair-practices/................    78
        https://aflcio.org/press/releases/steel-and-aluminum-tariffs-
          good-working-people........................................    78
        https://aflcio.org/2018/7/24/usw-house-properly-used-tariffs-
          protect-working-people.....................................    79
        https://teamster.org/2024/03/teamsters-applaud-protecting-
          american-autoworkers-from-china-act/.......................    80
        https://golden.house.gov/media/press-releases/golden-
          introduces-bill-to-restore-american-manufacturing-with-10-
          percent-tariff-on-all-imports..............................    81
        https://golden.house.gov/media/press-releases/golden-
          introduces-bills-to-protect-america-s-energy-independence-
          auto-industry-with-increased-tariffs-on-china..............    82
        https://www.whitehouse.gov/briefing-room/statements-releases/
          2024/05/16/what-they-are-saying-labor-business-and-elected-
          leaders-praise-president-bidens-actions-to-protect-
          american-workers-and-businesses-from-chinas-unfair-trade-
          practices/.................................................    83
        https://www.brown.senate.gov/newsroom/press/release/sherrod-
          brown-
          senators-push-administration-keep-301-tariffs-in-place-
          chinese-
          imports#::text=Section%20301%20tariffs%20were%20imposed,
          detrimental%20to%20the%20United%20States...................    91
        https://democrats-waysandmeans.house.gov/media-center/press-
          releases/neal-statement-biden-administrations-action-
          protect-american-workers...................................    92
        https://democrats-waysandmeans.house.gov/media-center/press-
          releases/neal-statement-biden-administrations-finalized-
          action-protect-workers.....................................    93
        https://ustr.gov/about-us/policy-offices/press-office/press-
          releases/2024/may/us-trade-representative-katherine-tai-
          take-further-action-china-tariffs-after-releasing-statutory    94
        https://www.reuters.com/business/ustr-tai-says-us-tariffs-
          chinese-goods-are-significant-leverage-2022-06-22/.........    96

                          TRADE WARS AND HIGHER COSTS:
                        THE CASE AGAINST TRUMP'S TARIFFS

                                  ----------

                          Wednesday, December 18, 2024

                                United States Congress,
                                      Joint Economic Committee,
                                                        Washington, DC.
        The committee met, pursuant to call, at 2:34 p.m., in Room
    210, Cannon House Office Building, Hon. Donald S. Beyer, Jr.
    presiding.
        Present: Representatives Schweikert, Estes, Beyer, Trone,
    and Moore.
        Senator Hassan.
        Also Present: Representatives DelBene, Schneider, and
    Panetta.
        Staff Present: Sebi Devlin-Foltz, Jessica Martinez, Hannah
    Ceja, Lia Stefanovich, Ron Donado, Jacob Rogers, Douglas Simon,
    Garrett Wilbanks, Shauna Burton, Matthew Cernicky, Jeremy
    Johnson, and Colleen Healy.
        Representative Beyer. Given that the magic hour has
    arrived, I am happy to call this hearing to order, and we will
    have more people showing up. House votes just finished. Senate
    votes are about to begin. But this hearing will come to order.
        I would like to welcome everyone to today's hearing. It is
    entitled ``Trade Wars and Higher Costs: The Case Against
    Trump's Tariffs.''
        I want to thank all of our distinguished witnesses for
    being here even though this will make the case for Trump's
    tariffs.
        The Constitution--but let me turn to my opening statement.
        The Constitution empowers Congress, not the President, to
    determine trade policy for good reason. Misusing the power to
    impose tariffs can wreak havoc on our economy.
        We are holding this hearing today because the President-
    elect has vowed to implement massive tariffs in his second
    term, wrongly, I believe, claiming that it will lower costs for
    Americans and bring back jobs. The President-elect seems to
    have forgotten the outcome the first time he implemented this:
    trade wars that raised costs for Americans, it outsourced
    American jobs, and resulted in billions of Federal bailouts to
    large corporate farms.
        This time it can be much worse. His proposed across-the-
    board tariffs would apply a 10 or 20 percent tax to all
    imported goods--all imported goods--cell phones, auto parts,
    coffees, bananas, you name it--regardless of the country of
    origin, which greatly expands the type and the quantity of
    goods subject to the tariffs.
        Experts across the ideological spectrum, both Democratic
    and Republican witnesses for today's hearing, have found that
    these tariffs drive up costs in the U.S., shrink the economy,
    and leave us worse off.
        An analysis by our witness, Brendan Duke of the Center for
    American Progress, found that a proposed 20 percent tariff on
    all imports combined with a 60 percent tariff on Chinese
    imports would mean that a typical American household pays up to
    $3900 more per year.
        I know Ed Gresser from PPI has done similar effects in his
    work which shows how tariffs harm the economy. We need only
    look back a few weeks to this last election to see how much
    Americans dislike inflation and having their costs raised.
        Separately, one of the Republican witnesses, Erica York of
    the Tax Foundation, found that Trump's proposed tariffs could
    shrink GDP by as much as 1.7 percent after factoring in
    retaliatory tariffs from other countries.
        And just this afternoon, the Congressional Budget Office
    released a report showing that a version of Trump's tariff plan
    would cut the GDP and raise prices, while failing to raise
    enough revenue to pay for things like his proposed tax cuts.
        It is always refreshing when rigorous analysis done by
    experts across the ideological and political spectrum reach
    similar conclusions. I was in New York this past week with
    another senior American economist, well known, who said 98 out
    of 100 economists who we talk to would agree that tariffs are a
    bad thing.
        We can all clearly tell China, Mexico, and Canada are not
    paying for these tariffs. I was in business for almost 50
    years, and I know that when a tariff is imposed, it is the
    purchasing business, the American importer, who pays the tax,
    who then, to the best of their ability, passes that tax on to
    the consumers.
        Tariffs of this magnitude also invite carve-outs and
    exemptions for well-paid and well-connected and well-lobbied
    corporations. In 2021, GAO report found that the Trump
    administration officials gave away exemptions to hundreds of
    importers and often failed to fully document how they reviewed
    and what they decided on in these exemption requests.
        Perhaps these exemptions were disproportionately granted to
    donors of Republican candidates, which is not my conclusion but
    one reached by an analysis of exemption data and political
    contributions. They, conversely, also found that companies'
    donations to Democrats reduced its odds of being granted an
    exemption.
        The reality of this reckless economic plan is it won't grow
    the middle class, nor will it lower the cost of groceries or
    rent. Donald Trump even wants to use these tariffs as a way to
    pay for the trillions of dollars in tax cuts for the rich that
    are in TCJA, part 2. So higher costs for you, lower taxes for
    his wealthiest friends.
        And, thankfully, it is not just Democrats calling out his
    proposal. There are economists on all sides of the political
    spectrum agree that tariffs are bad economic policy that would
    shrink the economy by billions.
        I know, folks, this is basic economics. Many people are
    calling the Trump tariffs tax hikes. In my simple word, they
    are inflation aggravators. They are a threat to the economy and
    the threat underscores the importance for Congress to reassert
    its constitutional authority over trade policy. That is why I
    am looking forward to the testimony of the witnesses.
        [The statement of Representative Beyer appears in the
    Submissions for the Record:]
        Representative Beyer. As soon as Vice Chairman Schweikert
    gets here, we can do his opening statement. But in the
    meantime, let me turn to our witnesses. Let me introduce them
    one at a time.
        First--Senator, good luck with your vote. Please come back
    if it is possible.
        Senator Hassan. I will try.
        Representative Beyer. Mr. Ed Gresser is the vice president
    and director of Trade and Global Markets at the Progressive
    Policy Institute. Prior to his current role, he worked at the
    Office of the United States Trade Representative. He has served
    as the U.S.' trade representative for Trade Policy and
    Economics.
        He began his career as a Capitol Hill staffer and later as
    head of PPI's trade and local markets. He also co-founded and
    directed the think tank Progressive Economy.
        So, Mr. Gresser, the floor is yours for 5 minutes.

     STATEMENT OF MR. ED GRESSER, VICE PRESIDENT AND DIRECTOR FOR
        TRADE AND GLOBAL MARKETS, PROGRESSIVE POLICY INSTITUTE,
                             WASHINGTON, DC

        Mr. Gresser. Mr. Chairman, thank you very much. Members of
    the committee, thank you for holding this hearing on an across-
    the-board increase in U.S. tariffs next year.
        My view in brief: This would lower American living
    standards, erode our business competitiveness, and harm our
    exporters. Depending on the method used, it could also damage
    U.S. governance and the separation of powers and raise
    corruption risks.
        I might start with a definition. Since, like you, I have
    heard some puzzling assertions this year that foreigners might
    somehow pay tariffs. No. U.S. tariffs are taxes paid by
    Americans.
        A tariff is a tax on purchases of goods from overseas, paid
    to Customs and Border Protection by U.S.-based individuals or
    businesses. If the buyer is a retailer, the tariff becomes part
    of the store price. If the buyer is a manufacturer or a home
    builder or a farmer, it becomes part of production cost.
        As an example, imagine a retailer ordering 10,000 men's
    cotton shirts at $10 each. These have a 19.7 percent MFN
    tariff, so the retailer writes three checks: $100,000 for the
    shirts, $19,700 to CBP for the tariff, and $5,000 to the
    shipping company. Altogether, she has paid $124,700, $12.47 per
    shirt, including $1.97 in tariff payments. This is a landed
    cost from which she marks up to cover expenses and earn enough
    to profit. At the cash register a week later, the tariff is
    embedded in the price. The retailer has written the check, a
    shopper has borne the cost. Again, U.S. tariffs are taxes paid
    by Americans, not foreigners.
        Our tariffs last year averaged 2.4 percent. What if this
    were to spike to 10 percent or 20 percent? I suggest three
    effects. First, prices would rise for families as we add 10 or
    20 percent to today's taxation of shirts, winter vegetables,
    cars, energy, OTC medicines, salt, all 11,414 goods in the
    tariff schedule.
        Mrs. York and Mr. Duke have both done excellent studies of
    the impact this would have on families. I would only add that
    this impact falls most heavily on lower income Americans since
    more of their budgets go to goods. A single-parent family, for
    example, spends 39 percent of post tax income buying goods,
    twice as much as the 19 percent for the wealthiest households.
        Second, economywide, as we impose a tax that hits U.S.
    goods using industries--manufacturing, farming, retail, and
    construction--economy changes a bit as they shrink relative to
    nongoods users, such as, for example, real estate or financial
    services. As tariffs raise costs for energy, metals, paint,
    fertilizer, and other inputs, U.S. manufacturers and farmers
    lose ground to their foreign rivals, both here in the U.S. and
    overseas.
        As tariffs hike home and consumer goods prices, builders
    and retailers lose sales. Meanwhile, the industries which spend
    less on goods, more on investment, more on services, are mostly
    exempt and they tend to grow. In fact, since the smaller
    tariffs in 2018, manufacturing has dropped from 10.9 percent to
    10.0 percent of GDP, and manufacturing trade deficits have
    nearly doubled.
        Third, multiple harms to U.S. exporters. Countries hit with
    tariffs, especially in violation of trade agreements, often
    retaliate. Exporters are then the cannon fodder of trade wars,
    first to be pushed into the front line and first to fall. Who
    are they? American farmers earn 20 percent of their income from
    exports and are always early targets for retaliation. USDA
    believes in 2018 and 2019 they lost $27 billion to foreign
    retaliation. In the business world, African American exporters
    average 21 workers at payrolls of $75,000 each, compared to 11
    workers and $54,400 across the privately held business
    community. These are important and successful parts of our
    economy, and we shouldn't sacrifice them lightly.
        Many of exporters' losses, though, come even without
    retaliation, as friendly fire casualties of our own tariffs.
    Arizona, New Mexico, and Texas, for example, exported $141
    billion worth of goods south to Mexico last year. This included
    tens of billions of dollars in auto parts, semiconductors,
    specialized components, and other high-value things that
    Mexican plants buy to assemble into cars and appliances.
        If we put tariffs on Mexico, these plants in Mexico will
    contract, they will then buy less from their Phoenix, Rio
    Rancho, and Houston suppliers, and then the U.S. and Mexico
    both lose output in jobs.
        Finally, and apart from the economic consequences, I am
    highly concerned to read discussion of potential attempts to
    impose tariffs by decree without congressional approval. The
    Constitution gives Congress the unambiguous power to set taxes,
    duties, imposts, and excises is actually the very first
    enumerated power and is there for good reason.
        If a President or any single individual can create his or
    her own tariff system, not only do impulsive and unsound
    decisions become more likely, but all future Presidents would
    face standing temptation to use tariffs in corrupt ways to
    award supporters and cronies or to punish critics and business
    rivals. This risks systemic harm to American governance. I hope
    no administration would proceed in such a way.
        Thank you.
        [The statement of Mr. Gresser appears in the submissions
    for the Record:]
        Representative Beyer. Mr. Gresser, thank you very much.
        I now move on to Mr. Brendan Duke. He is the senior
    director for economic policy at the Center for American
    Progress. Prior to joining CAP, he worked as a senior policy
    analyst on the National Economic Council and served on the
    Biden Administration Supply Chain Disruption Task Force. He has
    also been a senior adviser to Senator Michael Bennet, worked
    for the Senate for Budget and Policy and, most importantly, in
    his distinguished background, he was part of the Democratic
    staff of the Joint Economic Committee.
        So welcome back, Mr. Duke. The floor is yours for 5
    minutes.

      STATEMENT OF MR. BRENDAN DUKE, SENIOR DIRECTOR FOR ECONOMIC
                  POLICY, CENTER FOR AMERICAN PROGRESS

        Mr. Duke. Thank you, Congressman Beyer. And thank you
    members of the committee.
        My name is Brendan Duke. I am honored to submit this
    testimony about President-elect Donald Trump's tariff
    proposals.
        Trump has unveiled several proposals to tax imported goods,
    too many for me to go through in the allotted time here. But
    his most consistent idea is a sweeping 10 to 20 percent tax on
    all imported goods, with a special 60 percent tax on imported
    goods from China.
        Taxes on imported goods can serve two purposes. They can
    promote U.S. production of the tariff products or they can
    raise revenue. It is impossible for a tax to do both
    effectively at the same time.
        A tax on imported widgets that successfully completely
    reshore production of those widgets wouldn't raise a dollar of
    revenue since nothing would be imported. Similarly, a tax that
    was maximally successful at raising revenue wouldn't onshore
    any U.S. production.
        It is clear that the across-the-board tariffs that Trump
    has proposed are a revenue-raising device that would fail to do
    much to promote U.S. manufacturing. There are three reasons for
    this.
        First, it would apply to imported goods that the United
    States does not produce and does not have any reasonable hope
    of producing, such as coffee or bananas. We will simply raise
    revenue from taxing those imported goods from abroad instead of
    producing them here.
        Second, economic theory and evidence shows that tariffs do
    not change the size of a country's trade balance since they
    also cause the currency to appreciate. This makes imports
    cheaper. In fact, Trump's Treasury Secretary nominee has
    stated, quote, Historically, 40 to 50 percent of the tariff is
    recovered in currency appreciation, end quote.
        At the same time, dollar appreciation makes U.S. exporters
    less competitive with foreign producers and causes U.S. exports
    to fall. So much of whatever increase in U.S. manufacturing we
    see from fewer imports would be offset from the reduction in
    exports.
        Third, U.S. exporters would become less competitive because
    the across-the-board tariff would raise the costs of their
    inputs for U.S.-based production. Across-the-board tariffs
    ignore many of the key rationales U.S. policymakers have for
    imposing tariffs, such as protecting or growing a key industry
    on national security or economic competitiveness grounds. It,
    instead, lets the market decide which imports and exports to
    produce, almost certainly leaving those key strategic
    rationales completely unfulfilled.
        Strategic tariffs in carefully chosen sectors can be a
    useful tool as part of a country's larger national security or
    industrial strategy. More targeted tariffs recognize the fact
    that tariffs cannot change the size of the U.S. trade balance
    but can shape its composition to fit our national security or
    economic competitiveness needs.
        The Biden administration's approach is a good template for
    how this can work: focusing on incentivizing important
    industries, like electric vehicles, with targeted tariffs and
    significant investment. This approach has resulted in a
    historic boom in manufacturing construction.
        Given that across-the-board tariffs would do so little to
    achieve manufacturing goals, we can then move to discussing
    them as tax policy. A 20 percent tax on all imported goods and
    a 60 percent tax on all imported goods from China would raise
    $4.5 trillion over 10 years.
        A wide range in researchers across the ideological spectrum
    have produced estimates of how much the across-the-board tariff
    would cost the typical family. Each of these estimates suggest
    that it would more than offset the $1,000 tax cut a typical
    family would receive from extending the expiring portions of
    the 2017 tax law. In other words, they get a net tax increase.
        The combination of the first Trump tax cuts, renewing the
    expiring provisions, and a 20 percent across-the-board tariff
    would be a tax cut for the top 1 percent and a tax increase for
    everyone else.
        Several think tanks and Wall Street banks have estimated
    that the tariffs would produce a one-time increase in the
    inflation rate of 1 to 2.5 percent. Inflation would eventually
    move back down, but families would pay those costs as long as
    the tariff is in place.
        A common argument is that inflation was low during Trump's
    first term so tariffs could not have been inflationary. But
    they did not show up in the headline inflation rate because
    they were relatively a small fraction of the U.S. consumption
    basket. The tariffs Trump has proposed are about 4 to 10 times
    larger than his first term, so we should expect effects
    something like 4 to 10 times larger than his first term's
    tariffs.
        Finally, it is likely that Trump would rely on existing
    executive authority to enact these tariffs instead of receiving
    new legislation from Congress. The executive branch has
    significant unilateral power to impose tariffs because these
    provisions were designed to be trade enforcement tools, not
    revenue raising tools.
        The 20 percent across-the-board tariff would raise about as
    much revenue as extending the Trump tax cuts would lose. This
    would present a significant shift in power over Federal budget
    authority from Congress to the executive branch, allowing the
    President with the stroke of a pen to raise as much revenue as
    the tax bill at the center of next year's fiscal policy debate.
        Using existing tariff authority as a revenue tool is an
    especially flawed idea because it would introduce executive
    branch discretion into revenue collection that is unprecedented
    in modern America. This opens the door to using that discretion
    to favor politically aligned firms, giving them a leg up over
    their competitors. It is easy to imagine a major corporation
    with access to the Trump administration petitioning for tariff
    exclusions that its competitors do not receive.
        That is the sum of my thinking on the across-the-board
    tariffs Trump has proposed: unlikely to boost American
    manufacturing, major cost for families, and opening the door to
    pay-for-play.
        Thank you.
        [The statement of Mr. Duke appears in the submissions for
    the Record:]
        Representative Beyer. Mr. Duke, thank you very much.
        Let me now yield to my friend from Kansas, Mr. Estes.
        Representative Estes. Thank you, Mr. Beyer.
        I would like to introduce our two distinguished witnesses.
    First, I would like to welcome my fellow Kansan, Mrs. Erica
    York. And she currently serves as a senior economist and
    research director at the Tax Foundation where her research
    primarily focuses on macroeconomic implications of Federal tax
    policy, including corporate income tax, individual tax credits,
    and tariffs.
        She is currently an adjunct professor at Sterling College
    in Kansas, where she earned her undergraduate degree in
    business administration and economics. She received her
    master's degree in economics at Wichita State University, which
    is in the center of my district at home.
        Also, I would like to introduce Mr. Jeff Ferry, who serves
    as the chief economist at the Coalition for--of a Prosperous
    America. Mr. Ferry holds economics degrees from Harvard and the
    London School of Economics. A former technology executive in
    the private sector, his work now focuses on the economics of
    trade, globalization, and tariffs. Thank you for joining us
    today.
        And I yield back.
        Representative Beyer. Mrs. York, the floor is yours for the
    next 5 minutes.

      STATEMENT OF MRS. ERICA YORK, SENIOR ECONOMIST AND RESEARCH
                        DIRECTOR, TAX FOUNDATION

        Mrs. York. Representative Beyer and members of the
    committee, thank you for the opportunity to join you today.
        I want to begin by saying the goals of boosting U.S.
    competitiveness, increasing manufacturing productivity, and
    growing opportunities for American workers are worthy. In my
    area of expertise--tax policy--these goals are best achieved by
    reforms that enhance the simplicity and neutrality of the tax
    system, not by policy changes that introduce new distortions,
    no matter how well-intentioned.
        For our conversation, I want to focus on the U.S.' recent
    attempt to use tariffs to achieve these goals, why they fell
    flat, and how better tax policy, particularly moving to a
    consumption tax base away from an income tax base, can foster
    greater investment, productivity, and competitiveness.
        Debates about American manufacturing often focus on jobs
    rather than on output and productivity. While it is true that
    manufacturing employment has declined, that decline follows
    broad global and historical development trends where workers
    first shift from agriculture to manufacturing in early stages
    and from manufacturing to services in later stages.
        The most relevant policy question for the manufacturing
    sector is what can be done to boost productivity for the
    benefit of American workers, because without long-run
    productivity growth, we cannot get long-run wage growth.
        Now, tariffs are often presented as a tool to do such, but
    they have consistently failed. If we look at the experience of
    the 2018-2019 trade war tariffs, we see that they resulted in a
    smaller U.S. economy on net with higher prices for consumers
    and businesses as tariffs passed through to U.S. import prices;
    less manufacturing employment, both due to higher input costs
    and due to foreign retaliation; and depressed investment
    growth.
        The firms that faced tariff increases in 2018 and 2019
    represented about 65 percent of manufacturing employment, and
    one study estimated that tariffs cost firms about $900 per
    worker, creating pressure to reduce wages or reduce employment
    in that sector. And, similarly, the U.S. International Trade
    Commission found that while steel and aluminum tariffs boosted
    metals production at targeted firms, downstream industries like
    construction and equipment manufacturers experienced larger
    production declines.
        Today's interconnected economy further complicates the
    story of tariffs. Our exporters are also our importers, relying
    on a complex web of global value chains to source the parts and
    materials that they use to create jobs and produce here in the
    United States. Rather than boosting competitiveness, tariffs on
    inputs increase the cost of operating in the United States.
        The ultimate story that plays out with tariffs is one of
    redistribution and reallocation. Tariffs take income from
    unprotected sectors of the economy and redistribute it to
    targeted firms, and tariffs reallocate resources from where
    they are employed productively and reallocate them to
    inefficient producers.
        Instead of turning toward tariffs, we should address the
    biases in the tax system that disincentivize investment in
    production in the United States. Despite progress made by the
    2017 Tax Cuts and Jobs Act, the U.S. still maintains a tax
    system that places a higher tax burden on investment and saving
    than on income that is consumed immediately. The effect of this
    is that it depresses the levels of investment, capital
    accumulation, worker productivity and wages and saving compared
    to a consumption tax system.
        The tax system is also still plagued by complexity.
    Defining income, dealing with cross-border transactions, and
    limiting profit shifting require complex provisions, many of
    which were introduced in the 2017 TCJA.
        An alternative to tariffs that follows consumption tax
    principles and would be simpler and remove barriers to locating
    production and investment in the United States would be an
    earlier draft version of the 2017 tax law, the destination-
    based cash flow tax. A DBCFT would entail three primary reforms
    to our current tax system.
        First, it would permit businesses to immediately deduct
    costs for capital and R&D investments rather than depreciate
    and amortize them over time.
        Second, it would eliminate net interest deductions
    providing more even tax treatment for debt and equity financing
    at the firm level.
        And, third, it would replace international tax provisions
    with a border adjustment. The cost of goods purchased from
    foreign sellers, imports, would not be deductible, while
    revenues from sales to customers abroad, exports, would not be
    taxable. The resulting tax base would be trade neutral,
    eliminate opportunities for profit shifting, and invite
    investment into the United States.
        Transforming the current U.S. corporate tax system into a
    cash flow tax would finish the job that the TCJA started, and
    it would achieve the goals of higher investment, higher
    productivity, and a more competitive Tax Code for U.S.
    businesses that tariffs cannot.
        Thank you for your consideration of these issues, and I
    would be honored to take your questions.
        [The statement of Mrs. York appears in the submissions for
    the Record:]
        Representative Beyer. Mrs. York, thank you very much.
        And, finally, we will hear from Mr. Ferry.

     STATEMENT OF MR. JEFF FERRY, CHIEF ECONOMIST, COALITION FOR A
                           PROSPEROUS AMERICA

        Mr. Ferry. Thank you.
        Good afternoon. I am Jeff Ferry, chief economist of the
    Coalition for----
        Representative Moore. Your mike is not working, sir.
        Mr. Ferry. Hello? Testing. Now? Okay. Could you start the
    timer again, please?
        Good afternoon. I am Jeff Ferry, chief economist of the
    Coalition for a Prosperous America. CPA is a bipartisan
    coalition focused on rebuilding U.S. manufacturing. I have
    economics degrees from Harvard and the London School of
    Economics, and I have worked as an economist in the U.K and the
    U.S.
        We have supported tariffs as an important tool to rebuild
    U.S. manufacturing; increase the share of good-paying jobs in
    the economy, especially for the lower half of the income
    distribution; and restore U.S. national security.
        The terms of this hearing focused on tariffs and prices are
    too narrow. The primary purpose of tariffs is to stimulate
    domestic production. Tariffs should be used wherever they can
    stimulate domestic production. The evidence from the tariffs of
    2018 and 2019 show many cases where tariffs did exactly that.
    In those cases, the increases in production led to more
    investment and more U.S. jobs. The benefits clearly outweighed
    the price increases, which turned out, in fact, to be very
    small.
        There are actually five significant reasons to support
    tariffs or some degree of protection for the U.S. economy.
        First, greater economic growth with less inequality comes
    from having high-growth, high-wage industries in this country.
        Second, national security requires us to reduce our
    dependence on foreign parts and components for all warfighting
    equipment and critical technologies.
        Third, economic security and resiliency requires the
    ability to increase domestic production at short notice for
    everything from medical gloves to pharmaceuticals to the copper
    and aluminum cables used in our electricity grid.
        Fourth, protective policies can and must be used to counter
    the biased, unfair, distortive economic policies of other
    nations, especially China.
        And, finally, tariffs can generate large amounts of Federal
    revenue to help reduce the Federal budget deficit, which is too
    high by any standard. Our model showed that broad-based tariffs
    can generate $628 billion a year in tariff revenue.
        Turning to the issue of tariffs and prices. In 2019, after
    the China tariffs were imposed, many economists and other so-
    called experts said that the cost of tariffs would be entirely
    passed on to U.S. consumers. So I began asking every economist
    I met, okay, most of the China tariffs were at the rate of 25
    percent. Can you name for me one product where you have
    recently seen the price rise by 25 percent? Not one economist
    could name even one product. Not one.
        The facts finally became clear in an important paper
    published by the International Trade Commission in 2023 showing
    that price increases in the U.S. market were generally on the
    order of just 10 to 20 percent of the headline value of a
    tariff. So, for example, the steel tariff of 25 percent led to
    an average steel price increase in the U.S. of 2.39 percent.
    That is 2.39 percent. That is the price increase of steel
    tariffs.
        On the production side, the steel tariffs led the major
    U.S. steel companies to build 15 brand-new steel facilities
    across the country. Those facilities employ some 5,000 new
    steelworkers at compensation which averages around $100,000 a
    year. That is a very good wage for a man or woman without a
    college degree.
        Using the CPA trade model, we recently modeled a scenario
    where the U.S. imposes 20 percent tariffs on all worldwide
    goods imported, except for China where we impose 60 percent
    tariffs. We assumed in our model that all of our trading
    partners impose reciprocal tariffs on U.S. exports matching our
    tariff rates.
        Our 10-year model found that U.S. GDP would rise by two
    percentage points more than in the no-tariff scenario in the
    first 4 years and continue to grow by slightly more in the next
    6 years, out to 2035. By 2035, an additional 5.97 million jobs
    were created, and real household incomes were up by 12 percent,
    or $10,000 per household, as compared with the no-tariff
    scenario.
        What about prices? Prices rose by 0.6 percent above the no-
    tariff rate of inflation for the first 4 years and then settled
    back to the baseline. In other words, inflation of 2.6 percent
    instead of 2 percent. But in exchange for that slight increase
    in inflation, we rebuilt the manufacturing sector, we added
    thousands of dollars to household income, and we created six
    million jobs.
        Thank you, Mr. Chairman and Mr. Vice Chairman.
        [The statement of Mr. Ferry appears in the Submissions for
    the Record:]
        Representative Beyer. Mr. Ferry, thank you very much.
        I would like to welcome the vice chair, and soon to be the
    chair, of the Joint Economic Committee.
        Vice Chairman Schweikert. I apologize for my tardiness.
        Representative Beyer. Wonderful to have you here.
        Let me first recognize the distinguished Congresswoman from
    Milwaukee, Ms. Moore, for her 5 minutes of questions.
        Representative Moore. Thank you so much.
        You know, I was thinking back to my--and, Mr. Ferry, you
    will appreciate this. You know, in my obsession with language
    and foreign languages and trying to learn them and failing
    miserably, and sort of the use of kind of superlatives like
    ``all'' and ``across the board,'' I think that is where I am
    starting to have some problems when I read the very complicated
    material and I think about--thank all of our very distinguished
    guests.
        And I guess where I want to start--maybe, Mr. Ferry, I will
    start with you since you are sitting right there and you just
    finished testifying and really claimed such great--you seem to
    be very fond of the thought of tariffs. But don't you think
    that the tariffs that President Trump provided in his first
    administration basically did nothing until there was some
    industrial policy linked with it?
        When Biden came along, many people said, well, why didn't
    he end the tariffs if tariffs are so bad, might increase prices
    and so on. Don't you think it is because the CHIPS and Science
    provisions, you know, the reduction in inflation act, that all
    these things really wrapped some policy and created a raison
    d'etre for the tariffs?
        I am thinking of my own Senator, Senator Tammy Baldwin, who
    very successfully pushed the Buy America and helped the steel
    industry, but it wouldn't have helped us very much had we not
    put some policy and stuff behind it to incent investments in
    that.
        So I am wondering if one of the mistakes that all of us
    might be making is the use of the word ``all''. I think that
    when I hear about these across-the-board tariffs, I--you know--
    and I am not an expert at these things--I wonder if that won't
    have major winners and losers, if it won't invite some grift,
    quite frankly, or it won't invite certain groups of people to,
    you know, come in and ask to be excluded versus other groups.
        And so I am wondering if--Mr. Ferry, just first very
    quickly, will you admit that you got to have some industrial
    policy wrapped around the tariffs, else they may not----
        Mr. Ferry. No, I don't agree, Congresswoman.
        Representative Moore. Anybody agree with me on the panel?
    Mr. Duke?
        Mr. Duke. Yes. So, I mean, I think the key thing is that,
    you know, the Biden administration showed that you can combine,
    you know, strategic investments in certain industries with the
    tariffs to push forward. The problem with across the board is
    you can't do industrial policy on everything, right? There is
    no industrial policy by which the United States is going to
    boost coffee or bananas. That is not going to happen.
        And so why are we taxing that? Again, tariffs lose their
    efficacy in terms of--you know, they drive production to a
    certain industry, but if we are doing it to every industry, it
    just doesn't make any sense, right?
        So I think that is the key thing is that it kind of
    devalues that. I mean, there is costs to, you know, driving
    that production in a certain industry, but they can be worth it
    on national security or other grounds. But doing it on
    everything just doesn't make any sense.
        Mr. Ferry. Can I explain a little bit my answer,
    Congresswoman?
        I think we saw very clearly that tariffs on their own
    benefited many industries. The U.S. ITC study showed that out
    of 12 industries they studied, including steel, production
    increased in all of those 12 industries, and that involved more
    jobs. They did not study washing machines, which is one of the
    best examples of success.
        Now, I agree with you that there are places where
    industrial policy can play a role.
        Representative Moore. Before my time runs out, Mrs. York,
    Mr. Gresser, let's talk about washing machines. What we have--
    has my time expired?
        Representative Beyer. No.
        Representative Moore. What we have, the makers of dryers
    just automatically raising their prices because they can, I
    mean----
        Mrs. York. Yes, that is what we observed with the tariffs.
    The price of washers and dryers both went up by about $90 each,
    and that led to billions in added costs for consumers. And if
    you look at the billions in added costs per job saved, it is
    extremely wasteful. We are paying a lot more than the people in
    those jobs are earning.
        And I would say on the U.S. ITC report, they did find
    production would increase in protected industries, but that
    came at a cost to downstream industries, like construction,
    like equipment manufacturers, who then had to pay higher costs
    for their inputs.
        Mr. Gresser. Yes. If I could add just a bit. In terms of
    home appliances, probably advantage some and disadvantage
    others, but we have fewer people making home appliances now
    than we did before the tariffs. Likewise, the ITC's look at the
    steel industry showed, yes, that it benefited them a bit as of
    2021. They had grown by 2.2 billion, along with aluminum. But
    steel users, in particular auto parts, machinery, cutlery and
    tools, shrank by 3.5 billion. So the result was a slightly
    smaller manufacturing sector with a slightly larger metals
    sector within it. And you always have to count who is the
    losers as well as the winners when you are assessing a policy.
        Representative Moore. My time has expired. Thank you.
        Representative Beyer. Thank you very much.
        I now recognize the gentleman from Arizona, Mr. Schweikert.
        Vice Chairman Schweikert. Thank you, Mr. Temporary
    Chairman. You look good in that seat.
        Sorry. He is actually one of the people I actually like,
    which is a fairly small list.
        Mr. Chairman, without----
        Representative Moore. How small is that list, sir?
        Vice Chairman Schweikert. You are way up on top of that
    one. You know, she is actually--never mind.
        Mr. Chairman, I would like to actually introduce a list
    just for--partially to help me make a point of the number of
    Members of Democrat leadership and basically national unions
    who actually support the tariff policy both in the first Trump
    administration and demanded that the continuation of those
    tariffs continue under the Biden administration.
        Without objection?
        Representative Beyer. Without objection.
        [Submission for the Record by Vice Chairman Schweikert]
        Vice Chairman Schweikert. Thank you, Mr. Chairman.
        Mrs. York, in reading over some of your testimony, can you
    help me, because I have been working on sort of a concept, and
    I don't know if I am speaking to traditional tariff models. But
    much of the world has a tax arbitrage on us. You know, you
    export to us, you get the refund of your VAT tax back. When we
    send other countries something, they attach it back. And in
    some places--and forgive me, I am a little out of date--you
    know, Germany might be 18 points, China has actually graduated
    according to industry.
        Is there a design, whether it be a destination tax or cash
    flow tax, or some of these other models, that actually at least
    would mean, from a tax arbitrage standpoint, American workers,
    American manufacturing might have a level playing field?
        So there is a hierarchy in this question. What, first,
    should I do so our manufacturing, both in and out, would
    actually have a level playing field with tax?
        Mrs. York. Yeah. Most other countries across Europe, they
    rely on value-added taxes. Those are border adjusted, which
    ends up being trade neutral, like if we adopted a value-added
    tax or a DBCFT would end up being trade neutral. The reason we
    have an impediment to manufacturing and investment and
    productivity in our Tax Code is the way we define our income
    tax base and that we would base your tax residence on being in
    the United States. We have a source-based tax system or an
    origin-based tax system.
        So because we deny full deductions for investment, full
    deductions for research and development, we increase the cost
    of capital. And because we don't have a national level
    consumption tax, we rely heavier on income taxes than many of
    our trading partners rely.
        Vice Chairman Schweikert. So, Mrs. York, what would you
    design that would be in some ways maximized productivity,
    maximized tax receipts, maximized benefit to working population
    in this country but would be as minimally economically
    distortive as possible? Is it a destination tax? And is that
    sort of, you know, an economist's vision of what a future
    tariff model would actually look like?
        Mrs. York. It would be moving toward a consumption tax.
    That can take on many different design elements. A DBCFT is one
    option. That transforms the base of our corporate tax to a cash
    flow tax. You can do that without the border adjustment if you
    do full expensing for all capital investment, plus eliminate
    that interest deduction. That gets us to a cash flow tax. That
    removes that barrier to investment that is created by long
    depreciation schedules.
        If you don't want to border adjust that tax, you could do a
    value-added tax if you want to add that element----
        Vice Chairman Schweikert. I was trying to avoid moving to a
    national VAT because----
        Mrs. York. Then I would border adjust the cash flow tax.
        Vice Chairman Schweikert. All right. Who really objects to
    a border adjustment?
        Mrs. York. What we saw in the debates in the lead-up to the
    TCJA was that the big debate occurred over whether the currency
    would appreciate. The currency appreciation is what makes it
    trade neutral because you are applying the tax on imports by
    denying that deduction and then you are not taxing exports by
    providing that exemption if you have the currency adjustment.
        Vice Chairman Schweikert. I know this is your specialty,
    but slightly more complex because you also pick up, hopefully,
    the export additional value of some of the refundability of
    things being exported out.
        Mrs. York. Yeah. You have a question if you are an exporter
    in loss position whether you get that tax refunded to you.
        Vice Chairman Schweikert. Yes.
        Mrs. York. There are design options for that that you can
    make it equivalent. But I think that was the big impediment,
    the question of whether currency would appreciate. And I think
    most models point to that it would. If you look at the
    experience of the 2018-2019 tariffs, you saw currency
    appreciation. If you look at recent tariff announcements, you
    see currency appreciation just with the threat of tariffs. So I
    think we have reasonable evidence to say that the currency
    would move.
        Vice Chairman Schweikert. We are out of time, and I really
    had something I wanted to touch on.
        Look, when this hearing was first announced, my first
    thought was, well, this is another ``got you'' hearing. But the
    reality of it is, I look at the history of my Democrat
    colleagues, and in many ways this was my brothers and sisters
    on the left side who this was what they evangelized. It is just
    that we happen to now have a more populous President who is now
    talking about it. So it is very confusing for folks.
        My hunger is to try to find a way to make it economically
    rational----
        Representative Moore. Yes.
        Vice Chairman Schweikert [continuing]. That it maximizes
    exactly, you know, what my economist friend here was saying, it
    maximizes the robustness of economic capital stock and
    productivity.
        And, Mr. Chairman, this is one of your moments to help us
    actually try to find a common economic vision instead of trying
    to wedge each other.
        And with that, I yield back and hope for another round.
        Representative Beyer. Thank you.
        And just before I recognize the gentleman from California,
    I would like to point out that I have never evangelized
    tariffs.
        Vice Chairman Schweikert. No. You are a purist. You win.
    But you are also a car dealer.
        Representative Beyer. Import car dealer.
        The gentleman from California, Mr. Panetta, the floor is
    yours.
        Representative Panetta. Thank you, Mr. Beyer. It is always
    entertaining when you have your vice chair next to you, be it
    on the Joint Economic Committee or be it on our committee in
    Ways and Means.
        But I appreciate the fact that we are actually talking
    about something that, fortunately or unfortunately, has gotten
    a lot of publicity lately. And this is a popular thing to talk
    about when it comes to tariffs. But to be honest with you, we
    need to talk about the other ``T'' word, and that is trade. And
    I can't stress that enough.
        So I understand why we are talking about tariffs,
    especially considering how kind of ``en vogue'' they are
    politically, to be frank. And what would you expect when you
    had the President-elect talking about how he wants to apply
    either 10 to 25 percent across-the-board cuts or 60 percent
    tariffs on China.
        And so you also, though, had this first Trump
    administration use tariffs accordingly, yet they were
    maintained by the Biden administration. And then with the Biden
    administration, you had them working on frameworks but really
    not leaning in to any sort of agreements. And as I like to say
    it, a framework to me is like having a hamburger without the
    beef, to be frank.
        And also, then you had a Vice President who actually voted
    against the last major trade deal we had, USMCA. And I think
    that is probably the last time we have had serious discussions
    about a trade deal was when we actually worked together,
    Democrats and Republicans, to pass the USMCA.
        So I appreciate this type of discussion on tariffs, but I
    just hope we get to a point, especially on the Ways and Means
    Committee, where we can start talking trade again. Because I do
    believe that these types of proposals that are put out there by
    the President-elect could have serious consequences on the
    American economy.
        And I mean the thing is, is that you don't know what the
    President-elect is going to do. I mean, people say, well, he is
    not going to, you know, put forward these types of tariffs. He
    is just using it for leverage.
        And, look, you are seeing, as was reported by The Wall
    Street Journal about 5 days ago, CEOs flock to Mar-a-Lago to
    either try to persuade him or talk to him, hopefully, about not
    following through with these types of policies; policies that
    could shrink the economy by up to 3.6 percent, according to
    some estimates. And part of a broader or dangerous trend where
    we are, like I said, going away from trade and talking about
    tariffs instead.
        It is an approach that, I believe, could not only harm
    businesses and workers and consumers here at home, but also
    weaken the United States leadership in the global economy. So I
    hope that we can dive more deeply into how tariffs affect
    consumers, how we can talk more about trade, and how we can
    have a sensible path going forward.
        Again, my name is Jimmy Panetta, and I represent the 19th
    Congressional District in California. We have a lot of--I have
    the southern part of Silicon Valley, I have the mouth of the
    Salinas Valley, so I have a lot of--I have a lot of
    semiconductor chips and I have cow chips; put it that way. So a
    lot of agriculture, a lot of high tech going on.
        And what we saw, though, when it comes to the agriculture,
    though, is when tariffs are levied, it is--the ag sector bears
    a brunt of the retaliatory tariffs. And during the last Trump
    administration, 30 billion of agriculture products were
    targeted by retaliatory tariffs, which represent 22 percent of
    all retaliated goods.
        The administration gave $16 billion in relief payments to
    farmers to mitigate the impacts of those trade policies. I
    understand that.
        But I guess, Mr. Gresser, if I could impose my first
    question to you, if the proposed tariffs were implemented, what
    is--what would be the impact on ag?
        Mr. Gresser. Thank you, Congressman, for the question. It
    would be quite extensive. The 2018-2019 tariffs were pretty
    limited to metals. That is about 20 billion or--20 to 40
    billion in imports, plus China. And according to the USDA,
    farmers lost more than $27 billion in export income over that
    time. And that was really for one country and small slices of
    others.
        If we have, for example, threats of tariffs on Canada and
    Mexico and China together, that is 10 percent of all farm
    income in the United States. Farmers are always the first to
    hit--be hit with retaliation. The last group went soybeans,
    sorghum, fruit, dairy, cotton, wheat, tree nuts, corn, lots of
    other things. And so I think it would be a pretty difficult
    time for American agriculture.
        Representative Panetta. Got you. And, quickly, the number
    one issue in my district is affordable housing or the lack of.
    So, Mrs. York, given that there is an estimated shortage of 7
    million affordable homes already, what would broad tariffs do
    to the cost of housing?
        Mrs. York. Broad tariffs would increase lots of the
    components we use to build housing, and so it would reduce the
    housing supply further.
        Representative Panetta. Great.
        Thank you, Mr. Chairman, again. I appreciate this
    opportunity. Thank you for having me waive on, and thank you
    for having this discussion.
        Representative Beyer. Thank you, Mr. Panetta, very much.
        Let me now recognize the gentleman from Kansas, Mr. Estes.
        Representative Estes. Well, thank you, Mr. Chairman, and
    thank you for all of your witnesses for being here today.
        You know, this Congress just has a few weeks remaining
    until the results of the November election take effect in
    Washington. Two years ago, Americans split the House majority
    from Democrat to Republican, and this year they flipped the
    Senate and the White House.
        If you ask voters across the country whether they were in
    red districts or blue districts or anything in between, many
    will say that the economy was the driving factor when they cast
    their ballot. And we know that over the last 75 years, nothing
    has lifted more people out of poverty than free and fair trade
    and an open capitalistic market society.
        And tariffs are part of that to help make--it is a tool to
    help address and make sure that we do have free and fair trade.
    A lot of times, countries, as we have seen, will have a stated
    goal of having free and fair trade, but they don't always
    follow up with the actual letter of the law in terms of the way
    they implement it; whether it is restrictions, whether it is
    licensing agreements, whether it is just flat-out rejection of
    some imports that show up on their shores.
        So today we are standing here, and we are looking at 4
    years of two different administrations to compare with. And we
    talk about the pocketbook issue is a top priority for so many
    Americans. Inflation stands out as that problem.
        Under President Biden, the average year over year inflation
    rate was 4.99 percent. Under President Trump, that was 1.91
    percent. And the truth is, if you add a cumulative amount, it
    was even worse over 4 years than what those yearly averages
    looked. During President Biden's administration, inflation has
    gone up over 20.6 percent cumulative versus only 7.3 percent
    during the entire 4 years President Trump was in office.
        Americans have felt the pain of this inflation,
    particularly after a booming economy with President Trump in
    the White House. And during that time, inflation was low, even
    with the tariffs, as we have talked about earlier today.
        So with my colleagues and some of the political pundits
    trying to scare the public into just rejecting the economic
    agenda, it is important to remember that Americans do remember
    the truth because they saw it every time they went to the
    grocery store, paid a utility bill, or filled up their gas
    tank.
        The truth is, tariffs are one of those tools that a
    President can use to help negotiate with allies and strengthen
    national security. If used strategically, they can help build
    our economic prosperity, bringing foreign countries to the
    negotiating table, creating new trade agreement opportunities,
    and prevent bad actors from manipulating our markets or
    threatening our security.
        Mr. Ferry, we saw vastly different economies and inflation
    rates under the two different Presidents--through the two
    previous--our current and former President, despite President
    Biden keeping most of President Trump's tariffs intact.
        Would you agree that the concerns raised by my colleagues
    aren't necessarily as relevant based on what we have seen in
    that the spending and poor economic agenda pose a far greater
    threat to American consumers than the tariffs that President
    Trump has talked about?
        Mr. Ferry. I would certainly agree that the inflation
    performance of the Biden administration was terrible and is one
    of the reasons why your friend to the right is about to become
    chairman of the committee. However, you know what I would say--
    and I agree with what has been said about consumption taxes,
    and I agree with some of the things Brendan Duke has said as
    well. But the overriding fact, Congressman, is that today the
    Chinese manufacturing sector is more than two times the size of
    the U.S. manufacturing sector.
        We gave some wonderful javelin hand--shoulder-resting,
    hand-held weapons to the Ukraine. Within weeks, we had run out
    of the missiles that those javelins shoot. Why? Because the
    parts come from Asia.
        And it is not true that the prosperity of this country over
    the last hundred years is due to free and fair trade. The
    prosperity of this country over the last hundred years is due
    to industries that innovate and create high-productivity jobs
    and high productivity--highly competitive products. We have
    lost a lot of that through bad policies and also just through
    the aging of these industries.
        We need to take action to get those things back. The Trump
    tariffs in the first administration were actually not
    sufficient to bring back enough of those industries, and I
    applaud President Biden for increasing them, particularly on
    EVs, because we would lose our entire automobile industry if we
    allowed China to take over the world market for EVs.
        That is a choice we have got to make today, and the choices
    we have to make are to take policies to benefit those high-
    productivity sectors which are mostly manufacturing.
        Representative Estes. And let me correct if I misspoke.
    When I talked about the last 75 years of lifting people out of
    poverty, it was around the world.
        I would agree with you that innovation in United States has
    been very important in terms of a driver and helping generate
    the U.S. economy.
        Mr. Ferry. And I would agree with you that Presidents Bush
    and Clinton did a lot to lift the Chinese out of poverty, and
    the day they invade Taiwan, we might--some people might not
    feel so good about that.
        Representative Estes. Thank you. Mr. Chairman, I yield
    back.
        Representative Beyer. Thank you, Mr. Estes. I will move on
    to my own.
        First of all, Mr. Estes, I want to agree with you the
    inflation has been terrible, but we need to compare apples to
    apples. We had Donald Trump in those 4 years without COVID,
    COVID in the last couple of months, and then President Biden
    having to put up with the supply chain shocks, with the
    tripling of profit margins from many, many different places
    with greedflation, and the fact that America did better than
    almost any other industrialized country in the world in dealing
    with the supply chain shocks in terms of inflation. And now we
    are back down to the 2 percent that we were at before. And,
    hopefully, it will stay there, unless we have these tariffs
    kicking in.
        Mrs. York, thank you for your comment about the costs of
    steel and aluminum and others on building supplies, but I would
    like to turn to Mr. Gresser too.
        Along with inflation, one of the great crisis of America
    today is housing unaffordability. They are not building new
    houses. Every housing developer I talk to say it costs more to
    build a house than they can sell it for.
        How would these potential--not the little tariffs that they
    just have on steel and aluminum, but the bigger tariffs that
    are coming, the 10 and 20 percent and 60 percent, likely to
    affect our housing supply chain?
        Mr. Gresser. Whenever we are imposing high taxes on inputs,
    that becomes part of the production cost. That becomes, then,
    part of the price that the home builder has to sell it at. So
    prices of housing will rise. It will rise at different rates
    for different types of buildings.
        But if one of our goals is to reduce home costs, make it
    easier, that would be--adding tariffs to building supplies is
    going in the wrong direction.
        Representative Beyer. Thank you very much.
        Mr. Duke, are the importers who pay the tariffs and pass on
    to the consumers the same as the people who retaliated against
    with tariffs from other countries?
        Mr. Duke. I mean, first of all, America's exporters are our
    biggest importers. So they get hit in that way, and they also
    get hit by the appreciated dollar. And then, obviously, ag is a
    whole other sector that gets disproportionately hit.
        Representative Beyer. And you mentioned that there has been
    no evidence to suggest that tariffs would change the trade
    balance. Intuitively, it seems like it should help the trade
    balance, that we would be importing less and, therefore, owing
    other countries less. Why doesn't that happen?
        Mr. Duke. Sure. The trade deficit is basically defined by
    the balance between investment and savings and the U.S.
    economy. Tariffs, if they are not going to deficit reduction--
    and Donald Trump has talked about 8 to 9 trillion dollars of
    tax cuts, so I don't think we are talking about deficit
    reduction here--don't actually increase national saving.
        And so it basically changes--it basically--what happens is
    imports as a share of the economy fall, which seems like it is
    accomplishing it. But then exports as a share of the economy
    also fall, so they net out.
        And, again, you know, what are we trying to do here, is
    that we just get a portion of the economy falling and a portion
    of the economy falling. It doesn't really actually, you know,
    meet any strategic goals that we are trying to accomplish.
        If our goal is resiliency with China, that doesn't
    accomplish it if just causing the import share of GDP to fall a
    little and the export share of GDP to fall a little.
        Representative Beyer. Thank you.
        Mrs. York, you talked extensively about the consumption-
    based cash flow tax. Let me ask you a yin and a yang question.
        Number one is, whenever Democrats always hear that, they
    think regressivity. That the people at the bottom end who spend
    almost all their income are going to pay a much greater share
    of their income than the people that can save a third, a half,
    whatever.
        On the other hand, I would love your input on what that
    will mean for tax avoidance, since we know that 99 percent of
    people that have 1099s or 401--or W-2s pay the taxes and that
    something like 650 billion to--650 billion to a trillion
    dollars a year is missed in taxes not collected from people
    that don't get their things that way.
        Mrs. York. Consumption is much more observable than income.
    So it is much easier to administer and enforce a consumption
    tax than it is an income tax.
        And then on the question of regressivity, I would point to
    ideas like Senator Cardin's progressive consumption tax. There
    are a number of design options that you have with a consumption
    tax that can avoid a regressive impact, whether it is a rebate,
    whether it is a large exemption or other design elements.
        The DBCFT in particular is less regressive or has a more
    progressive distribution than a value-added tax because a DBCFT
    allows for a deduction of payroll expenses. So you are not
    actually hitting consumption that is coming out of wage income.
    You are hitting consumption that is coming from existing assets
    and current future--or future super normal returns to capital.
    So because of that payroll exemption, it has a more progressive
    distribution than value-added taxes used in Europe.
        Representative Beyer. Great. Thank you very much. My time
    is up.
        I would like to announce that, if you all are game, we will
    do a second round of questions because there is much to talk
    about, and you guys are--I know you guys are all--you are so
    lucky that every member here is a member of the distinguished
    Ways and Means Committee, the only committee mentioned in the
    U.S. Constitution.
        And with that, let me recognize the gentleman from
    Illinois, Mr. Schneider.
        Representative Schneider. Thank you.
        Mr. Chairman, I think you also forgot, we are under
    contract to say the very important, very powerful Ways and
    Means Committee. But thank you all for being here.
        And I want to thank the chairman and ranking member for
    calling the hearing and you witnesses for sharing your
    perspectives with us.
        Being a member of the Ways and Means Committee, Trade and--
    Subcommittee, but also on the House Foreign Affairs Committee,
    I am proud that so much of our work is focused on international
    leadership. The world is better, I think, when the United
    States leads in, when we are at the table, we help establishing
    the standards and help defining the rules.
        We are strongest when we work with our international
    partners and allies, and we should do well to remember this as
    we move into the next Congress.
        In recent months, as was probably already discussed,
    President-elect Trump has made a number of statements regarding
    his trade priorities for his incoming administration. He has
    proposed, for example, a 10 percent tariff on all products
    imported into the United States, a 60 percent tariff on all
    goods imported from China. And looking at our two largest
    trading partners, Canada and Mexico, a 25 percent tariff there.
        The threats will raise prices on everyday items for
    consumers, will directly impact small- and medium-sized
    businesses that have worked so hard to adapt and adjust and
    ship their supply chains away from China, and has a potential
    to drastically reshape the global economy.
        We saw the chaos President Trump's trade war created during
    his first term. During that administration, I met with
    manufacturers and businesses throughout the Illinois 10th
    Congressional District, my district, and heard directly from
    constituents about the impact tariffs were having on their
    businesses and how employers had to quickly adapt to a
    challenging trade environment.
        They talked about having to make hard decisions not to make
    certain investments, having to make decisions about whether to
    hire or expand. And while each business was distinct, they all
    had this same common message: Tariffs create uncertainty, raise
    the cost of doing business, and make it harder to hire new
    people and expand their operations.
        So looking towards the next Congress, we have to ensure
    that our trade rules work for American workers, for businesses
    and consumers.
        Mr. Duke, I will start with you. President Trump's recent
    threats to put tariffs on goods coming from China and Mexico
    have caused a lot of uncertainty among small- and medium-sized
    businesses. Can you discuss the lasting impact that the last
    administration's agenda had--last Trump administration's agenda
    had on businesses in the U.S. during his first term and how you
    see those businesses and really businesses of all size
    preparing for what is ahead?
        Mr. Duke. Sure. So the United States actually was in a
    manufacturing recession right before COVID. We were actually
    shedding manufacturing jobs while they were happening, in part
    because of the trade war--the retaliation and trade wars that
    were occurring, because of U.S. dollar appreciation, which,
    obviously, the Taxes and Jobs Act helps fuel with the higher
    deficits that that caused. So that is what we saw then.
        Obviously, we hit COVID. You know, obviously, a very weird,
    difficult period, and we are coming out. But I think the key
    thing is that, just out of uncertainty, that the President can
    just rage post a trillions of dollars tax increase, and what
    are businesspeople supposed to do about it, putting it through
    an administrative process that they don't understand.
        The idea that a, you know, small Illinois business is going
    to have to follow the ins and outs of Politico Pro's trade
    newsletter is just not good policy. It is not what we should be
    doing here in Washington, D.C.
        Representative Schneider. Great. Thank you.
        Mr. Gresser, it can take years to move supply chains, to
    rejigger your entire value chain. Can you share steps Congress
    should take, in your mind, Congress should take, to identify
    the products that are wholly manufactured in China and to work
    to shift--help businesses make the shifts necessary in the
    future?
        Mr. Gresser. Well, the one thing I would say right away is
    that a policy of making threats and picking fights with our two
    large neighbors is directly against that.
        The auto industry has spent tens of billions of dollars and
    moved mountains to reshape its North American supply chains,
    and if we are now going to put tariffs on Mexican cars and
    Canadian auto parts and Canadian crude oil, that will wreck a
    lot of their work.
        So what we need, the first thing I would say is, solidify
    and calm our relationships with allies and neighbors and
    friends, and then we can turn to China. But if we are
    disturbing those, you know, core relationships, then we are
    going to be in a much worse position for leadership and
    economically and in almost any way you could think.
        Representative Schneider. Yeah. I am almost out of time,
    but it is not just crude oil. Canadian timber----
        Mr. Gresser. Timber----
        Representative Schneider [continuing]. Is important. If you
    want to decrease housing costs, increasing the raw materials
    that go to frame those houses doesn't make a lot of sense.
        Mr. Gresser. That is well put.
        Representative Schneider. Yeah.
        I yield back.
        Representative Beyer. Thank you, Mr. Schneider.
        I again recognize the incoming chair of the Joint Economic
    Committee, Mr. Schweikert.
        Vice Chairman Schweikert. I hope that had the tone of you
    being happy.
        Representative Beyer. Yes.
        Vice Chairman Schweikert. Thank you, Mr. Chairman.
        Mr. Ferry, CBO, a little while ago, put a letter--I mean,
    hours ago, I think. And one of their numbers was a dynamic
    score, that a 10-percent across the board would, static,
    decrease deficits by about $2.2 trillion; dynamic, about $2.1
    trillion.
        But if it is a broad-based, are you someone, as--you know,
    because you have pretty impressive economic credentials--do you
    also see the currency adjustment within a broad-based sort of
    flat model tariff like that?
        Mr. Ferry. Our own model shows with a larger tariff, 20 and
    60, roughly $6 trillion of Federal income over 10 years. So
    that is considerably more, okay? And that is because we assume
    the economy will grow more than I suspect the CBO does,
    although I haven't read the CBO's----
        Vice Chairman Schweikert. Well, but--yeah, the CBO letter
    was just--I don't think--they did a 60-percent tariff, but some
    of the numbers in there were solely focused, it looks like, on
    China.
        But have you ever run the 10-percent model?
        Mr. Ferry. Yes, we have run a 10-percent model and
    published it, and it was somewhat consistent with what you are
    asking about.
        Let me answer your question directly.
        Vice Chairman Schweikert. Well, because----
        Mr. Ferry. Currency is what you are interested in?
        Vice Chairman Schweikert. Yeah, currency is one of my--
    because there is a reason for that.
        Mr. Ferry. Right. And most of these models do not include
    currency, because currency is a nominal variable, a monetary
    variable, not a real variable. So you have to take a position
    on what you think would happen in the currency.
        And my view is that the currency value of the dollar is not
    determined by the trade balance. And I think there is 50 years
    of evidence to show that.
        I would have supported the DBCFA if it had included a
    proposal to manage the currency. The U.S. needs to manage the
    dollar to a competitive level.
        So what I am saying is, the currency is completely
    unpredictable. I actually agree with the incoming Treasury
    Secretary that governments in certain advanced countries,
    particularly the Anglo-Saxon countries, will typically allow
    stupid things to happen to their currency.
        So what we would need to do to achieve what you are talking
    about is manage the dollar, hold it at a competitive level, and
    say we are going to allow those tariffs to increase the size of
    the productive sector of the economy.
        Vice Chairman Schweikert. Okay. And----
        Mr. Ferry. Does that answer your question?
        Vice Chairman Schweikert. It does.
        Look, I don't have a Ph.D., but I always am worried about
    nominal interest rates' effects on the selling of debt. A good
    example, I mean, look what happened to Brazil yesterday and
    other countries that have also tried to do some of the
    management of the currency value. You know, the debt mark--
    particularly a country like ours--we brought, what, $10
    trillion to market last year? And with our demographics, it is
    going to get worse.
        As a matter of fact, a couple minutes ago, the 10-year went
    over 4\1/2\ percent, even though the Fed reduced interest
    rates. And I think that is partially future expectations of our
    demographics and our binging on debt.
        So I am trying to work with my brothers and sisters on this
    committee and Ways and Means on, how do we maximize economic
    productivity and growth, tax receipts, as an offset to a debt
    where--you know, we have a CR heading to the floor that may be
    about to have another $140 billion of un-offset debt. So that
    means our baseline now is already, what, $2.3 trillion debt
    this coming year? Maybe with some of the other economic
    factors--if interest rates stay this high--you are going to
    2.6? That means you are borrowing $80,000 a second. We have a
    math problem.
        And so, is a tariff destination tax choosing those who we
    like and incentivizing trade with them and punishing those we
    don't? I mean, somewhere here there has to be a unified theory,
    both receipt stabilization, economic growth maximization, and
    accepting the reality of our demographics.
        Remember, 100 percent of the debt, basically, from today
    through the next 10 years is interest and demographics. It is
    healthcare costs. We got old. That is not Republican or
    Democrat; it is math.
        But it is so hard, because we are so busy beating the crap
    out of each other partisan-wise that we don't actually pull out
    things called--what are they called? Oh, calculators.
        Mr. Ferry. Well----
        Vice Chairman Schweikert. And sorry for the preaching, but
    I am frustrated.
        Mr. Ferry. No, you are right; this is a serious problem.
        What we have to do is get the budget deficit down, which
    involves cutting spending. We can, as you say, increase tax
    receipts by growing the productive sector through tariffs and
    industrial policies. And we can hold interest rates down in
    doing that. We could----
        Vice Chairman Schweikert. And I hope there is actually even
    a third round, because there is a difference between industrial
    policy and subsidized industrial policy. Because across the
    world, now, we have set off a cascade where China, I think, has
    put 30, 36 billion into their chip sector. Europe just did
    almost the same thing. Taiwan is about to do it.
        So all we did is now create rent-seeking around the world
    when it is industrial policy with cash. And there becomes the
    problem. We didn't actually gain, really, that much true
    productivity, because we just set off a subsidization cycle
    around the world.
        So, with that, I yield back. Thank you for your patience.
        Representative Beyer. Thank you, Mr. Schweikert.
        I will recognize again the gentlelady from Milwaukee.
        Representative Moore. You know, Mr. Schweikert, you always
    give a great jumping-off point.
        Vice Chairman Schweikert. I do it just for you.
        Representative Moore. You do it just for me, I think.
        You know, I have been listening very carefully to folks and
    listening to how the farmers really caught hell. I am from
    Wisconsin; we have soybeans. That is in the mix of stuff that
    really took a beating. But the strategy was just to subsidize
    them.
        I want to know, number one, from people how sustainable
    that is and is that worth it, if we had across-the-board--if we
    did the across-the-board tariffs. You know, we could just keep
    on subsidizing the losers.
        And, you know, the $6 trillion, Mr. Ferry, are you
    suggesting--you have been suggesting that this could pay for
    the tax cuts. You mean all of them? The whole TCJ--FJ?
        Mr. Ferry. It could, yes.
        Representative Moore. It could pay for all of them, without
    raising prices.
        And so I find that--you know, the $6 trillion, we didn't
    find that the tariffs really trickled down to people that much.
    And I guess I am wondering, your model, you know, how you got
    to the $6 trillion.
        Mr. Ferry. Well----
        Representative Moore. In a couple of seconds.
        Mr. Ferry. The first thing I want to say is that, when I
    was a kid in the 1970s, my dad was a union print worker in New
    York City earning $200 a week, okay?
        Representative Moore. That was good money.
        Mr. Ferry. That was very good money. And on a part-
    scholarship I went to Harvard. And the reason why a lot of the
    kids from my neighborhood went to Ivy League schools was
    because their dads were working in jobs that had high
    productivity and they were able to get good money in those
    days. Today, we are in a completely different economic mess.
        Now I will answer your question.
        Six trillion dollars comes from $600 billion a year. Our
    model suggests that if you have $3 trillion of imports and you
    tariff them at 20 percent, that is $600 billion a year.
        The difference between my model and--one difference--there
    are many differences. One difference between our model and
    other models is that other models assume imports will decline.
    Brendan Duke and I actually agree that imports are only going
    to decline for a short period of time. The trade deficit will
    remain. So imports move up again. You are tariffing them at 20
    percent. The net result is those 6 trillion dollars.
        Now, what you do with those 6 trillion is critical. And I
    wrote a paper----
        Representative Moore. That is right, because if it is just
    CEO pay, then that is going to be a problem. And that is what
    we have been experiencing.
        Mr. Gresser, pick up from where he left off, the $6
    trillion and how it circulates in the economy.
        Mr. Gresser. For sure. A couple of things.
        One, if we are taxing 3 trillion in imports and getting
    $600 billion out of it and the imports don't decline, one, that
    is not realistic; two, it would mean there is no effect on the
    employment mix that Mr. Ferry is talking about. So that is not
    a realistic assumption.
        Representative Moore. It doesn't create jobs.
        Mr. Gresser. Not in the outcomes that he is discussing.
        There have been very serious criticisms of this model, done
    by, for example, Robert Koopman, the former USITC director who
    oversees the USITC modeling. So I would be very careful about
    accepting these figures at face value.
        What we are talking about in a tariff of 20 percent on
    imports is a 20-percent tax on crude oil, $250 billion worth of
    crude oil; we are talking about a tariff of 20 percent on
    clothes; we are talking about 20 percent on appliances. Most of
    these things will bring in some money and raise prices.
        I did look at one appliance, toasters. In order to make
    toasters in the United States, and pop-ups, based on the
    experience of Japan and Italy and U.K., they have to cost about
    $300 each. You are talking about big, big impacts on middle-
    income and low-income families, with very little return in the
    economy and probably negative----
        Representative Moore. And then how much do the subsidies
    cost to save soybeans and farmers? Is that worth it?
        Mr. Gresser. The subsidy for ag, I believe, is about $28
    billion for lost exports. So you are essentially paying people,
    who were making good livings and honest livings and doing very
    well, because they are now kind of on their backs.
        The U.S. Government, we spend $7 trillion a year; we can
    afford to spend $28 billion a year. But why? You know, why not
    let people keep winning, rather than subsidizing if we are
    losing?
        Representative Moore. Well--so little time, so many
    questions.
        I yield back.
        Representative Beyer. Thank you.
        I want to recognize the gentleman from Kansas again, Mr.
    Estes.
        Representative Estes. Well, thank you, Mr. Chairman. I
    hesitate to jump into the give-and-take you and Mr. Schweikert
    had. I don't know whether I should call you ``Acting Chairman''
    or----
        Vice Chairman Schweikert. ``Lord Chairman.''
        Representative Estes. ``Lord Chairman''? Okay, sure.
        Representative Estes. This is a----
        Representative Moore. ``Current Chair.''
        Representative Estes. ``Current Chair.'' Excellent.
        Well, great. This is great opportunity to be able to get
    together and talk and have another round of questions. There
    are so many good things we want to talk about.
        I think so much of what we are all trying to look at is,
    how do we get a good, strong growing economy which ultimately
    provides good jobs for Americans and ultimately helps with
    raising tax revenue to help support the government functions
    that we want to have? And trying to figure out what the right
    policy decisions are for all of those implementations.
        There are a couple of questions I wanted to ask just as a
    followup.
        And, Mrs. York, one of the things, going back into the
    testimony that you had, a question I had--I was trying to
    follow through the thought process on the double taxation of
    savings as it relates to a decision that somebody makes to
    consume today versus invest.
        Because, to me, if they make that decision, consume today
    after you are paid the payroll versus investing it, the tax
    would be on the earnings of the investment--yes, it is delayed,
    but it wouldn't be on the original investment itself.
        So I was trying to follow that double-taxation process.
        Mrs. York. Yeah. We have a handy chart on our website if
    you want to see, like, some number examples.
        But, essentially, when you pay tax when you earn your
    money, that reduces how much you have able to put into savings,
    and then when you pay tax again on the return to that, it
    further reduces it; compared to a tax where you either, like a
    401(k), you get to deduct that saving upfront and then pay tax
    on the total withdrawal at the end, or, like a Roth IRA, you
    have already paid tax on your income, you save it, and then you
    don't pay tax again when you make your withdrawal.
        In that system, you are neutral between when you are
    consuming your money, because you are not facing that
    additional layer of tax for delaying your consumption. But if
    we do put that additional layer of tax on the returns when you
    have already paid tax on your principal, that is further
    reducing what you would be able to consume in the future, so it
    discourages that saving activity.
        It is similar to what we see under the corporate tax, where
    you don't get to fully deduct the cost of your investment
    immediately, so the tax falls on that investment and increases
    the cost of capital. Very similar to double-taxing saving at
    the individual level.
        Representative Estes. All right. Thank you.
        Mr. Ferry, at the end of my previous round of questions,
    you had made a comment that really stood out, in terms of that
    China's manufacturing base is double the United States.
        And that goes to highlight a lot of what I was trying to
    highlight as we are talking about how do we incentivize free
    and fair trade and making sure that we have, you know, open
    markets that people can engage in and a capitalist society
    moving forward.
        One of the things I wanted to talk--I had a question in
    general about for you is that, you know, one aspect of tariffs
    is to help protect the United States against some of these
    abusive practices by other countries. We have had major concern
    about the Chinese Communist Party stealing intellectual
    property for decades.
        And now, as Mr. Schweikert pointed out, we have started
    this round-robin of multiple subsidizing. China is doing a
    super-deduction for research and development expensing, which
    makes the United States even more vulnerable.
        How do you think tariffs or other trade tactics can be used
    to protect United States' intellectual property in future
    years?
        Mr. Ferry. It is very difficult to protect intellectual
    property from such a resourceful, secret service and a huge
    operation that the Chinese run. I, myself, worked for
    technology companies that were victims of Chinese intellectual
    property theft.
        I don't think tariffs are the central weapon to protect
    against that. There are export controls, and there is better
    security.
        But what you have to understand--and I think we sometimes
    don't take a strategic enough view. We have to step back, and
    we have to say to ourselves: In a world like this, where we run
    a trillion-dollar trade deficit, China runs a trillion-dollar
    trade surplus, and you have other countries also exploiting our
    propensity to consume rather than produce, how do we rebuild
    our economy?
        And the way we do that is, we rebuild sectors that are
    strategic. And semiconductors are one sector. There are many,
    many sectors that are strategic.
        And, yes, there will be duplication. China will be doing
    its own, as they are. And it is mostly--to an incredible
    extent, it is based on technology that was developed here,
    often in Silicon Valley, and stolen. But we have to accept that
    duplication if we want to maintain our country as a free
    country.
        Representative Estes. Yeah.
        Well, thank you. Thank you for all the witnesses for being
    here today.
        I yield back.
        Representative Beyer. Thank you, Mr. Estes.
        I will go to my second round of questions.
        I first want to make the point that, on the deficit
    reduction that the tariffs generate, that is only deficit
    reduction if we don't use it to pay for tax cuts, which is, I
    think, the intention right now. So we would anticipate that
    deficit, much to our consternation, will continue to go up
    greatly in the next 4 years.
        Mr. Duke, Mr. Ferry said they want to manage the dollar to
    a competitive level, which is easy to say. I think Milton
    Friedman is probably rolling over in his grave, which is okay
    with me. But I would love to get your take, as a competing
    economist, on capital and the idea of managing the dollar to a
    competitive level.
        Mr. Duke. Sure thing.
        So, you know, our trade partners, they can manipulate their
    currency, they divide into teams. But I think, fundamentally,
    the reason why the dollar would appreciate from this is because
    we are taxing imports, right? And that just causes the dollar--
    like, there is no distortion to fix here. Like, that is just
    what we would expect to happen.
        And I think, fundamentally, like, I think the reason why we
    have a trade deficit--a big part of the reason why we have a
    trade deficit is because we have a fiscal deficit, because we
    don't save enough. If we want to address the dollar, the
    simplest way to do that is to reduce the deficit.
        I think a really good way to reduce the deficit is to take
    the $5 trillion of tax increases on the wealthy and
    corporations that President Biden put out, put that toward
    deficit reduction, you know, not just put the Trump tax cuts on
    the credit card, causing the dollar to appreciate, but, you
    know, bring down the deficit. It is about 7 percent of GDP
    right now.
        That strikes me as a way easier way than getting into
    managing the dollar, which I don't--you know, I mean, Mr.
    Buffet made a lot of money off, you know, speculating for a
    hedge fund. I don't think, you know, we should exactly be doing
    that, though, with the U.S. Treasury.
        So I think there is a simple way to deal with an overvalued
    dollar, if we think that is the case, that hurts our, you know,
    exporters, which is to reduce the deficit. There are ways to do
    that without harming Americans.
        Representative Beyer. Great. Thank you very much.
        Mr. Gresser, in your stated remarks and even at more length
    in your written, you talk about the constitutional challenges,
    that Article I, section 8 of the U.S. Constitution gives
    Congress the ability to set tariffs, trade policy.
        Over the years, Congress has passed at least six bills that
    I know of--201, 302, you know, the IEEP that my friend Ms.
    DelBene has a very good bill on right now--that basically give
    this power back to the President.
        Why is that a bad thing? And why is it especially a bad
    thing in light of our inability to pass a continuing resolution
    this afternoon? When Congress does things so very slowly, why
    not defend the President's right to manage trade policy all on
    his own?
        Mr. Gresser. Well, I think the most direct answer is,
    respect for, you know, the Constitution and its text and what
    powers it gives to the Congress and what powers it gives to the
    President.
        But in terms of the laws you are mentioning, there are
    definitely some that I think are responsible and useful
    delegations. If you create a Trade Promotion Authority bill,
    that says negotiate trade agreements, here is what we want it
    to look like, if you succeed and you satisfy us, you have
    proclamation authority to lower tariffs. Or, on the other side,
    anti-dumping law. You know, we think, the Congress, this is
    what dumping is, this is what we would like you to do with
    petitions, here is how we would like you to investigate it,
    here is what we would like you to do.
        What concerns me is an open-ended right for the President
    to create any new tariff he wants, to cut any tariff he wants,
    to do whatever product, whatever country. I that is a recipe
    for very bad government, for very bad choices.
        And, going back to my first point, Congress should exercise
    its responsibility. The Constitution says Congress has the
    right to--or has a responsibility to deal with foreign--
    regulate the commerce of foreign countries, and it has the sole
    right to lay and collect taxes, duties, and posts and excises.
    And I think that there is good reason for that, and if laws
    like IEEPA or Section 301 have gotten away from that, then I
    think Congress should think about dialing them back.
        Representative Beyer. Thank you very much.
        Mr. Gresser, one more relevant question--because I read
    your trade remarks every week.
        Mr. Gresser. Uh-huh.
        Representative Beyer. We are losing Earl Blumenauer, who
    has been the champion for getting rid of the $800 de minimis
    exception for all these goods coming in from China. I forget
    what it--it is a big, big number, a billion dollars a day or
    something like that.
        What is your perspective on de minimis, especially in light
    of the conversation about tariffs? Because it is closely
    related.
        Mr. Gresser. In terms of de minimis, I believe there are
    about--you know, when Congress passed this law, there were
    about 100 million packages coming into the U.S. Now there is
    about a billion. That does raise interesting questions, and it
    does put American retailers in a difficult position, where they
    are paying the full tariff and individuals buying online are
    not.
        So I think there is some--you know, Congress has some good
    reason to rethink some of this. I would like to think that
    there are some ways to do it without raising prices on
    individuals and families. So that is where my starting points
    are.
        Representative Beyer. Okay. Great.
        Mr. Ferry, did you have any input on de minimis?
        Mr. Ferry. Yes. I----
        Representative Beyer. I saw your eyes twinkle over there.
        Mr. Ferry. Yes.
        I think de minimis is effectively a free-trade agreement
    with China. It has enabled them to ship billions of dollars of
    goods into the U.S., putting thousands of manufacturers out of
    business. Now, as it accelerates, it is putting retailers out
    of business. And I am hearing from businesspeople that if we
    lose our retail channel to the consumer, then we lose the
    ability to sell.
        So it is hurting both manufacturers and retailers, and I
    think we ought to put a stop to it immediately by abolishing it
    entirely. And, remember, we are the only country in the world
    with an $800 limit on de minimis.
        And, you know, I will say it again very briefly. We have to
    decide whether we are a country that consumes or produces. Too
    much of what I have heard today is about how wonderful
    consumption is. If you look in history, the decline of empires,
    like the Spanish and Dutch and the British, come about because
    the ruling class gets obsessed with consumption and does not
    produce enough and then a crash comes. We need to produce more
    of all the goods that we are now buying through de minimis.
        Representative Beyer. Thank you.
        My research assistant from Arizona has just pointed out
    that de minimis went up 209 percent in the----
        Vice Chairman Schweikert. Since----
        Representative Beyer [continuing]. Last 6 years.
        And I would recognize my friend from Illinois, the
    distinguished Congressman, Mr. Schneider.
        Representative Schneider. Thank you.
        And I will go to Mr. Gresser.
        And this may or may not--looking at your testimony, this
    may or may not be a fair question, but, you know, as I study
    history a little bit, you know, in the 1980s we had imposed an
    embargo on shipping grain to the Soviet Union. And I have
    looked at reports that show, in Illinois, we never really
    recovered from that. The high point was 1979. And we lost those
    markets because people went to other places.
        What I am wondering is: You look at the last 4 years of the
    last administration and the embargoes. Have industries
    recovered from the impact of the trade war, or are American
    industries still struggling?
        Mr. Gresser. That is a great question.
        There is, I think, strong evidence that agriculture has not
    recovered from that, that we have lost market share for the
    long run.
        One thing that is interesting to me, on the manufacturing
    side, is that, over these past 4 years, the use of steel in the
    United States has declined pretty sharply. So we are importing
    a lot less steel than we did before, but we are not making any
    more steel than we did before. And capacity utilization is
    below what it was before the tariffs. What that suggests to me
    is that construction and auto businesses, big buyers of steel,
    are figuring out how to make do with less.
        So they may be recovering over time the losses they got
    from that. But that, overall, means a contraction in the U.S.
    manufacturing sector, which is being overcome over time, but
    not because we are making more steel over time; it is because,
    you know, people learn from scarcity and they can adjust
    sometimes.
        So your question is right-on, that these things have long-
    lasting effects and they sometimes rebound on the people or
    industries they were meant to support.
        Representative Schneider. Yeah. I mean, expanding on your
    comment about necessity, necessity is the mother of invention.
    It is not just that they make do; it is, they find alternatives
    or innovation comes and it accelerates that replacement of one
    product for another.
        Mr. Ferry, I want to pick up on what you said, the loss of
    retailers. When we were talking about supply chains, value
    chains, whatever, it is a chain, and--I guess I am into the
    aphorisms right now, but--a chain is only as strong as its
    weakest link. And for a manufacturer to get its products
    ultimately to a consumer, there are a lot of links in that
    chain, but the last one is the interface where the consumer
    actually can see, touch, and acquire the product.
        What do you see as the long-term impact of a decline in
    retail because of inability to, you know, address the de
    minimis issue?
        Mr. Ferry. The impact of the decline in retail is, among
    other things--well, it is serious at several levels.
        First of all, it is a decline in tax revenue for State and
    local governments, which depend dramatically on retail revenue.
    And Congressman Beyer and I live in the same district, and a
    lot of the revenue for the city of Alexandria comes from the
    retail community. And the more they buy from machine (ph) and
    the other off--you know, the other de minimis China sellers
    that are selling tax-free, the more that tax revenue declines.
    That is number one.
        Number two, retail provides a lot of jobs. Even though they
    are not high-paid jobs, they are jobs for a certain type of
    person. A person who loves fashion works in a fashion retailer.
    A person who loves bicycles works in a bike shop. And those
    jobs are in decline, which adds to the problem of mediocre jobs
    and more and more people working in temporary jobs, working in
    warehouse- or delivery-type jobs, which are unfortunately two
    of the main growth sectors for people without college degrees
    or without high school degrees.
        So it is a serious issue.
        Representative Schneider. Thank you.
        And let me close--Mrs. York, I will turn to you. You had in
    article in Tax Foundation last month talking about the
    inflationary impact of tariffs. Can you describe some of the
    other effects tariffs will have on the economy, both short- and
    long-term?
        Mrs. York. Yeah. The big long-term effect is that they
    reduce the real value of after-tax incomes by increasing prices
    that we pay in the United States.
        And they also lead to a less efficient allocation of
    resources by transferring income, transferring jobs,
    transferring production to the targeted firms and away from
    where it is currently employed.
        And we have evidence from 2018 and 2019 that that is what
    happened. If you look at the U.S. International Trade
    Commission report, if you look at studies by academics, they
    found that decreases in manufacturing employment net decreases
    in manufacturing production because of these downstream
    effects.
        Yes, tariffs can create benefits in the protected industry,
    but you have to weigh those against the downstream costs, as
    well as against retaliation. And the net impact for the U.S.
    economy is very clearly negative.
        Representative Schneider. Great. Thank you.
        With that, I yield back.
        Representative Beyer. Thank you.
        We are honored to be joined this afternoon by the
    distinguished lady from the State of Washington, former chair
    of the New Democratic Coalition and many other honors.
        Ms. DelBene, the chair is yours--or, the floor is yours.
        Representative DelBene. Thank you, Congressman Beyer.
        Thanks, all of you, for joining us and for sharing all of
    your thoughts.
        I am joining today's committee hearing because my
    constituents in Washington have a lot of questions and concerns
    about the incoming President's new, sweeping tariff proposals.
        I serve on the Ways and Means Committee, on the Trade
    Subcommittee, because trade is very, very important to my
    State's economy. More than 40 percent of jobs in Washington are
    tied to trade, ranging from technology products to aircraft and
    trucks, as well as billions of dollars of agricultural products
    like seafood and dairy.
        Our port workers serve as a gateway to the rest the world,
    bringing in energy products and semiconductors that fuel our
    economy and exporting American wheat, corn, soybeans, and much
    more.
        People in my district generally benefit from lower tariffs,
    which are just another word for taxes that Americans pay on
    imported goods, because the costs of these taxes are mostly
    passed along to consumers in the form of higher prices.
        To be clear, sometimes using tariffs as a targeted tool can
    be helpful. Tariffs can be part of a holistic strategy to push
    back against unfair trade practices of another country and to
    reduce dependency within our supply chains or to protect
    American industries that are important for our national
    security or fighting climate change.
        I have introduced legislation that would impose a tariff on
    certain goods that are produced in carbon-intensive ways. But
    sweeping tariffs, like the ones that President Trump has
    proposed, can damage communities across the country and raise
    prices of everyday goods like groceries, gas, and prescription
    drugs.
        Economists, including several of our witnesses today, have
    estimated that if these proposals aren't tempered, the average
    American family will pay thousands of dollars more per year
    because of increased prices. And the last thing Americans need
    right now is higher prices.
        These estimates don't account for retaliation, which can be
    devastating for American industries. In my State of Washington,
    in 2019, apple growers across our State lost millions of
    dollars in market share in India when they retaliated for
    tariffs that Trump imposed on steel and aluminum. It took 5
    years for India to drop those tariffs, and during that time
    many multigenerational family farmers left the industry.
        So these kinds of sweeping tariffs could fundamentally
    reshape our economy and risk sending us into a recession or
    sending our communities into economic hardship.
        So Congress needs to have a say in major economic decisions
    like this that affect our districts. As Congressman Beyer
    talked about, I have introduced legislation, called the Prevent
    Tariff Abuse Act, to prevent any President, Democrat or
    Republican, from imposing sweeping tariffs under the guise of a
    national emergency without a vote in Congress.
        I know we talked about this a little bit earlier, but, Mr.
    Gresser or Mrs. York, do you think the President should be able
    to raise taxes on Americans by billions of dollars without
    consulting Congress?
        Mrs. York. I think it is very clear that broad, sweeping
    tariffs would have a negative effect on Americans. We have also
    estimated tax increases on U.S. households exceeding $2,000
    with universal tariffs.
        Congress very clearly has the authority here, whether that
    is repealing a tariff that has already been imposed or whether
    that is adding some checks to the tariff powers that have been
    delegated to the President.
        Representative DelBene. Mr. Gresser.
        Mr. Gresser. I think, almost anytime, anywhere in the
    world, where a President or Prime Minister declares states of
    emergency and tries to rule by decree, it is not a positive
    sign.
        In the case of the U.S. tax and tariff system, the
    Constitution is very clear, this is a congressional power. And
    so, no, I don't think it is appropriate for a President to
    declare a state of emergency and then use it to do whatever he
    likes, especially if there is no emergency.
        And I applaud you for the bill you have introduced, IEEPA
    in particular.
        Representative DelBene. Thank you.
        Mr. Duke, how could sweeping tariff increases on Canada,
    Mexico, and other trading partners impact export-focused
    industries and jobs like those in Washington State?
        Mr. Duke. Yeah. I can think of four ways--I can think of
    three ways.
        First of all, as we discussed, tariffs cause the dollar to
    appreciate. So, all of a sudden, they are less competitive
    abroad. The Indians, the Washington apple costs more to them in
    the Indian rupee. And that is what happens.
        I think a second part is that U.S. exporters are our
    biggest importers. They rely on imported goods to stay
    competitive. There was a study that showed Trump's first round
    of tariffs was equal to a 2-percent tariff on U.S. goods abroad
    because of those higher costs that they bore.
        The third part is obviously retaliation, just as you said.
    And, again, for no appreciable gain. It is just to do a sales
    tax on coffee and bananas. That doesn't make any sense to me.
        Representative DelBene. And lots of times, the retaliation
    is on industries that have nothing to do with what the original
    tariffs are, so it makes it even more complicated now.
        Thank you.
        I have gone over my time. Thanks. I appreciate it. And I
    yield back, Mr. Beyer.
        Representative Beyer. Ms. DelBene, thank you very much.
        We are almost done, but I have a couple quick questions.
        First of all, Mr. Schneider said that necessity is the
    mother of invention, and I wanted to point out that Thorstein
    Veblen said that invention is the mother of necessity too.
        Second, I am concerned about how, in the last round with
    Trump, our office, among many others, was deluged with
    businesses applying for tariff exemptions and wanting us to
    write letters and intervene with the administration and the
    like.
        I mentioned earlier that--at least somebody had done
    research that showed that firms favorable to the administration
    get better treatment than firms unfavorable to the
    administration.
        Mr. Gresser, could you talk at all about how corporations
    could game this system? Or is there an opening for corruption
    because of who gets to pay the tariffs and who doesn't.
        Mr. Gresser. Yes. Tariff systems are--going back 200 years,
    former Treasury Secretary, Mr. Gallatin, for Jefferson and
    Madison, wrote that tariffs are very opaque and nontransparent
    in comparison to other sorts of taxes and relatively easily
    manipulated by wealthy and connected businesses.
        The problem I saw with the exclusion system you mentioned
    was that they were asking about 30 or 35, you know, trained and
    talented people to handle 53,000 applications for relief. The
    GAO found that each of these petitions got, on average, 10 to
    15 minutes' review from a frontline staffer and then 7 minutes
    from a supervisor. So it was a generator of random outcomes; it
    wasn't a real process.
        And I could easily imagine that businesses which are larger
    or older or for whatever reason more tied into the political
    system would have been better at getting these petitions in
    front of a political person who could say, ``Oh, actually, this
    one looks kind of meritorious. Let's give it another thought.''
        So, yes, a system of this sort is going to attract so many
    applications it will overwhelm the people working on it, and
    the outcomes from that level will be unpredictable. And those
    which are better connected for whatever reason are probably
    more likely to get a better read on their petition. So I think
    you are spot-on.
        Representative Beyer. Great. Great. Thank you very much.
        One last question for Mrs. York.
        Thank you for educating us all to--I don't know all the
    initials, but--the cash-flow tax system.
        There are many things that I would love to see, you know,
    when falling asleep at night--you know, getting rid of the
    electoral college, or meaningful immigration reform, or, you
    know, getting our budget deficit down from $37 trillion.
        When you talk about what sounds like a wholesale change of
    the way we tax in America, a completely different vision, how
    do you see overcoming, you know, 125 years or 140 years of
    history? What are the steps between where we are and the Erica
    York vision for tax policy?
        Mrs. York. So the first two steps were fairly
    straightforward, and we have already taken steps toward them.
        Full expensing for capital investment, that has had
    bipartisan support in the past, like expensing research and
    development costs, doing bonus appreciation, improving the tax
    treatment of structures. So that's fairly familiar policy.
        And, then, in the TCJA, there was also introduced a
    limitation on interest deductions. So it is going further in
    that direction and fully moving the tax treatment of interest.
        So both of those are within the political realm of things
    that have already been enacted.
        The big change is, of course, the border adjustment. And I
    do think that is more novel to the policy community, who hasn't
    been in the weeds of what tax economists have been writing
    since, like, the 1970s. So this isn't a new idea when it comes
    to academics who study tax policy and who study what is the
    most efficient way to structure taxes.
        But, again, even if you just do those first two steps--full
    expensing and offset some of the cost of that by reforming the
    tax treatment of interest--you eliminate many of the
    impediments in the Tax Code right now that discourage
    investment and discourage production. So you go a long way, and
    you don't even have to do the border-adjustment side of it to
    get that benefit.
        Representative Beyer. By the way, the--I rarely defend the
    TCJA, and I am not going to now. But full expensing is the one
    thing that I have seen has a significant impact on investment.
        So, with that, thank you all very much for joining us.
        This probably won't be the last you hear of tariffs in the
    coming weeks and months. But we have--we just want to say again
    that economists on the left and right fear that President-elect
    Trump's tariffs risk shrinking our economy and harming
    Americans. We have emphasized again and again that the
    Constitution says this is our responsibility, not the
    President's.
        And I want to thank all of you for participating so nobly
    in this.
        And thank you to my colleagues. And thank you for letting
    our fellow Ways and Means members waive on to this discussion.
        Questions for the record may be submitted after the
    hearing, and the record will remain open for 3 business days.
        [The information follows:]
        Representative Beyer. And the hearing is now adjourned.
        [Whereupon, at 4:14 p.m., the committee was adjourned.]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                               [all]