TRADE THE CASE FOR FAIR TRADE

For decades the world has struggled with a shifting maze of punitive tariffs, export subsidies, quotas, dollar-locked currencies, and the like. Many of these import-inhibiting and export-encouraging devices have long been employed by major exporting countries trying to amass ever larger [trade] surpluses.

Warren Buffett, CEO, Berkshire Hathaway1

The Chinese government is implementing a comprehensive, long-term industrial strategy to ensure its global dominance…. Beijing’s ultimate goal is for domestic companies to replace foreign companies as designers and manufacturers of key technology and products first at home, then abroad. U.S.–China Economic and Security Review Commission2

The United States of America is the world’s dominant superpower and remains the world’s arsenal of democracy. To maintain that global positioning—and thereby best protect the homeland and our own democratic institutions—it is critical that the United States strengthen its manufacturing and defense industrial base at the same time that it increases the reliability and resilience of its globally dispersed supply chains. That will necessarily require the onshoring of a significant portion of production currently offshored by American multinational corporations.

Trade policy can and must play an essential role in an American manufacturing and defense industrial base renaissance. However, several major challenges in the international trading environment are pushing America in the opposite direction. The first challenge is rooted in MFN: the “most favored nation” rule of the World Trade Organization (WTO). According to the MFN rule, WTO members must apply the lowest tariffs that they apply to the products of any one country to the products of every other country.3 However, WTO members can charge higher tariffs if they apply these nonreciprocal tariffs to all countries.

The practical result has been the systematic exploitation of American farmers, ranchers, manufacturers, and workers through higher tariffs institutionalized by MFN. In turn, this unfair and nonreciprocal trade has resulted in chronic U.S. trade deficits with much of the rest of the world. This systemic trade imbalance serves as a brake and bridle on both GDP growth and real wages in the American economy while encumbering the U.S. with significant foreign debt.

The second challenge is part of the broader existential threat posed by the Chinese Communist Party (CCP) in its quest for global dominance. That chal- lenge is rooted in the CCP’s continued economic aggression, which begins with mercantilist and protectionist trade policy tools such as tariffs, nontariff barriers, dumping, counterfeiting and piracy, and currency manipulation. However, Com- munist China’s economic aggression also extends to an intricate set of industrial policies and technology transfer–forcing policies that have dramatically skewed the international trading arena.

Both the unfair, unbalanced, and nonreciprocal trade institutionalized by the WTO and Communist China’s economic aggression are weakening America’s man- ufacturing and defense industrial base even as the fragility of globally dispersed supply chains has been brought into sharp relief by the COVID-19 pandemic with its associated lockdowns and other disruptions and by the Russian invasion of Ukraine. Russian revanchism, in particular, has demonstrated once again how bad actors on the world stage can use trade policy (for example, export restraints on natural gas) as a weapon of war.

LAYING THE TRADE DEFICIT PREDICATE

The great football coach Bill Parcells once said, “You are what your record says you are.” America’s record on trade—specifically American’s chronic and ever-ex- panding trade deficit—says that America is the globe’s biggest trade loser and a victim of unfair, unbalanced, and nonreciprocal trade. During the first year of the Biden Administration, the overall U.S. trade defi- cit, including goods and services, soared by 29 percent, from $654 billion in 2020 to $845 billion in 2021.4 Over the same time period, imports of consumer goods,

TABLE 1

America’s Trade Deficit in Goods and Services with Major Trading Partners FY 2022 FIGURES FOR SELECTED AREAS, IN BILLIONS OF DOLLARS CountryDeficitCountryDeficit Communist China-338.1South Korea-35.6 European Union-192.6Thailand-36.6 Mexico-108.2India-33.8 Vietnam-99.8Malaysia-30.9 Canada-72.4Switzerland-19.0 Japan-55.0Indonesia-21.1 Ireland-54.6TotalTaiwan-41.1 -1,138.0

capital goods, and the category of foods, feeds, and beverages were the highest on record, and imports of industrial supplies and materials were the highest since 2014. As for the U.S. trade deficit in goods, which primarily measures manufacturing output, Table 1 catalogues that deficit for the top 13 countries plus the European Union (EU) in fiscal year (FY) 2022. Note that the trade deficit in goods with Com- munist China is by far the largest: It accounts for fully one-third of that deficit and is more than twice the size of the deficit with the EU.

These trade deficit statistics implicitly measure the large amounts of Ameri- ca’s manufacturing and defense industrial base and supply chains that have been offshored to foreign lands. Such offshoring not only suppresses the real wages of American blue-collar workers and denies millions of Americans the opportunity to climb up the rungs of the ladder to the middle class, but also raises the specter of a manufacturing and defense industrial base that, unlike our experience in World Wars I and II, will not be able to provide the weapons and matériel that would be needed should America enter another major world war or seek to assist a major ally like Europe, Japan, or Taiwan. It is wise to recall Stalin’s admonition that “quantity

SOURCE: Exhibit 14, “U.S. Trade in Goods by Selected Countries and Areas: 2022,” in press release, “Monthly U.S. International Trade in Goods and Services, October 2022,” U.S. Department of Commerce, U.S. Census Bureau, December 6, 2022, https://www.census.gov/foreign-trade/Press-Release/ft900/ft900_2210.pdf (accessed March 21, 2023).

has a quality of its own.” In World War II in particular, it was not just the brave soldiers, sailors, and pilots who beat the Nazis and Imperial Japan. It was America’s factories—its “arsenal of democracy”—that overwhelmed the Axis forces. In the wake of the COVID-19 pandemic, almost certainly spawned in a CCP biological weapons lab in Wuhan, China,5 global supply chains have been under significant pressures from lockdown policies, energy price shocks, and other dis- ruptions, including labor market disruptions. At the height of the pandemic, the rising geopolitical risk associated with globalized supply chains was underscored when Communist China, which controls much of the world’s pharmaceutical pro- duction and supply chains, threatened to plunge America “into a mighty sea of coronavirus” through pharmaceutical export controls6 if American politicians dared to investigate what happened at the Wuhan lab.

Add all this up, and America’s trade situation and massive trade imbalances pose not only a severe economic security threat, but also a national security threat. As President Donald Trump indicated in announcing his 2017 National Security Strategy, “economic security is national security.”7

CHALLENGE #1: UNFAIR AND NONRECIPROCAL TRADE INSTITUTIONALIZED IN WTO RULES

Tonight, I am also asking you to pass the United States Reciprocal Trade Act, so that if another country places an unfair tariff on an American product, we can charge them the exact same tariff on the exact same product that they sell to us.

President Donald J. Trump, 2019 State of the Union Address8 The World Trade Organization, with its 164 members, governs international trade rules. Under its most favored nation (MFN) rule, each WTO member must apply the lowest tariffs it applies to the products of any one country to the products of every other WTO country. Importantly, nothing in the MFN rule requires a WTO member to provide equal—that is, reciprocal or mirror—tariff rates to its trading partners. Rather, under MFN, WTO members can charge systematically higher tariffs to other countries to the extent negotiated in their WTO tariff schedules so long as they apply those same higher tariffs to all countries.

As a poster child for the kind of nonreciprocal tariffs that American manufactur- ers often face, the MFN tariff for automobiles applied by the U.S. is only 2.5 percent. In contrast, the EU charges 10 percent, Communist China 15 percent, and Brazil 35 percent. Similarly, while the U.S. applies an MFN tariff rate of 6.2 percent on the rice it buys from Malaysia, Malaysia applies an ad-valorem equivalent tariff of 40 percent on rice from the U.S. Meanwhile, European milk producers are shielded

TABLE 2 Nonreciprocal Tariff Rates Under “Most Favored Nation” Rule Foreign Partner Applies Higher TariffU.S. Applies Higher TariffU.S. and Foreign Partner Apply Same Tariff Number of HS6 Product Lines467,015141,73687,319 Percent of HS6 Product Lines67%20%13% Tariff Differential12.3%8.7%0.0%

132-Country Sample

NOTE: HS6—Harmonized Commodity Description and Coding System. SOURCE: United Nations Conference on Trade and Development, “Trade Analysis Information System,” https:// databank.worldbank.org/source/unctad-%5E-trade-analysis-information-system-(trains) (accessed March 21, 2023).

by 67 percent tariffs while American milk producers benefit only from a 15 percent tariff on foreign imports.9

From the perspective of strategic game theory, the WTO’s MFN rule provides little or no incentive for higher-tariff countries to lower their tariffs. Rather, under these conditions, the dominant strategy of any relatively high-tariff country is simply to maintain those high tariffs while free riding off the lower-tariff countries. The U.S. is disproportionately harmed by the WTO’s nonreciprocal tariff regime. The countries that are hurt most by the WTO’s nonreciprocal tariff regime are those like the United States that charge the lowest tariffs on average. This point is illustrated in Table 2, which reports information on nonreciprocal tariffs that are applied under the MFN rule on product lines at the six-digit level of the Harmo- nized Commodity Description and Coding System (HS6).10

Table 2 presents results for a broad sample of 132 countries that account for more than 60 percent of total U.S. trade and 98 percent of U.S. trade that is not cov- ered by free trade agreements (FTAs). Within this broad sample of 132 countries, U.S. exporters face higher tariffs in 467,015 different cases compared to 141,736 cases in which the U.S. charges higher nonreciprocal rates. In other words, U.S. exporters face higher tariffs more than three times as often as the U.S. applies higher tariffs.

Moreover, when American exporters face higher tariffs, the nonreciprocal tar- iffs are typically much higher. As row 4 of Table 2 indicates, in the 467,015 cases in which foreign partners charge higher tariffs, the average rate applied by the foreign partners is 12.3 percentage points above the rate applied by the U.S. In contrast,

in the 141,736 cases in which the U.S. charges the higher tariff, the average U.S. applied rate is only 8.7 percentage points higher than the average applied tariff of the foreign partner.

Separately, Communist China levies higher tariffs on 10 products for every one Chinese product that is subject to a U.S.-applied higher tariff.11 India’s ratio is even higher at 13 to one. Further, both Communist China and India also feature significant nontariff barriers. Collectively, these higher nonreciprocal tariffs in Communist China and India block American exporters from selling goods at com- petitive prices to more than one-third of the world’s population.

Trade Deficit Impacts of the U.S. Reciprocal Trade Act. Under current United States laws and regulations, an American President has limited ability to fight back against the higher MFN tariffs now being levied against American workers, farmers, ranchers, and manufacturers. Accordingly, behind the WTO’s protective MFN shield, America’s free-riding trading partners have little or no incentive to come to the bargaining table to negotiate lower tariffs.

To address this nonreciprocity stalemate, President Trump urged Congress in his 2019 State of the Union address to pass the United States Reciprocal Trade Act (USRTA).12 Under the USRTA, the President would have the authority to bring any American trading partner that is currently applying higher nonreciprocal tariffs to the negotiating table. If that trading partner refused to lower tariffs to U.S. levels, the President then would have the authority to raise U.S. tariffs to match or “mirror” the foreign partner’s tariffs.

The USRTA was introduced on January 24, 2019, by then-Representative Sean Duffy (R–WI). The following month, a Harvard–Harris poll of 1,792 registered voters found that 80 percent of respondents supported the USRTA.13 As Repre- sentative Duffy noted at the time, the purpose of granting the President these authorities was not to raise tariffs. Rather, it was to give the President, working in close consultation with Congress, a sophisticated and targeted tool that he could use to force other countries to lower their tariffs and nontariff barriers.14 Following the introduction of the USRTA, the White House Office of Trade and Manufacturing Policy (which the author directed) ran simulations to estimate the impact that implementation of the USRTA might have on the overall U.S. trade deficit in goods and the large bilateral trade deficits the U.S. runs with many of its major trading partners. The sample consisted of the same 132 trading partners used in Table 2 above.15 The results underscore the unfair and unbalanced nonreciprocal trade the U.S. is forced to accept under WTO MFN rules.

Two Scenarios. Scenario One in Table 3 assumes that our trading partners lower their applied tariff rates on specific products to U.S. levels in cases where their applied tariffs are higher. Scenario Two assumes that our trading partners refuse to lower their tariff rates to match those of the U.S. Instead, in order to uphold the principle of reciprocity, the U.S. raises its tariffs to mirror levels. To

TABLE 3 Trade Deficit Reductions Under Alternative USRTA Scenarios REDUCTION IN U.S. TRADE DEFICIT WITH WORLD Scenario One: Partner Countries Match U.S. Tariff RateScenario Two: U.S. Matches Partner Tariff Rates In Billions of Dollars$58.3$63.6 As Percentage of 2018 Deficit9.4%10.2% Metric NOTE: USRTA—U.S. Reciprocal Trade Act.

SOURCE: White House Office of Trade and Manufacturing Policy, The United States Reciprocal Trade Act: Estimated Job & Trade Deficit Effects, May 2029, p. 18, https://www.wsj.com/public/resources/documents/RTAReport . pdf?mod=article_inline (accessed March 21, 2023).

calculate the trade deficit reductions under Scenario One and Scenario Two, the analysis relied on the World Bank’s SMART tariff simulator. Table 3 provides the simulation results.

In Scenario One, if all 132 countries were to lower their higher nonreciprocal tariffs to U.S. levels, the overall U.S. trade deficit in goods would be reduced by $58.3 billion, or about 9.4 percent of that deficit. In contrast, in Scenario Two, if these countries were to refuse to reciprocate and the U.S. were to raise its tariffs to mirror those countries’ levels, the reduction in the U.S. trade deficit would be slightly larger: an estimated $63.6 billion, or 10.2 percent of the deficit. This suggests that implementing the USRTA would help to create between 350,000 and 380,000 jobs.

The slightly larger reduction in the trade deficit in Scenario Two as a result of the U.S. raising its tariffs to mirror those of its partners, as opposed to foreign countries lowering their tariffs to U.S. levels, may seem surprising to those who are steeped in Ricardian dogma and the textbook lessons of free trade. However, this result speaks to the fact that so many of America’s trading partners are applying significantly higher tariffs to thousands of American products. Estimated Impacts on Key U.S. Bilateral Trade Deficits. If the USRTA were enacted, a President would likely have to prioritize which countries he should negotiate with first. One way to create such a priority list would be to choose those countries that have relatively large trade deficits with the U.S. and apply relatively high tariffs. This is illustrated in Figure 1, which maps bilateral trade deficits FIGURE 1

Mapping Bilateral Trade Deficits Against Tariff Differentials ■ Largest bilateral trade deficit and/or largest tariff differential ■ Second-to-largest bilateral trade deficit and/or second-to-largest bilateral tariff differential ■ Smallest bilateral trade deficit and/or smallest tariff differential AVERAGE MOST-FREE-NATION DIFFERENTIAL, SIMPLE MEAN 10% India 8% Thailand Taiwan China 6% Vietnam 4% 2% Japan E.U.  Malaysia 0% 0 $50 $100 $150 $200 $250 $300 $350 $400 $450 BILATERAL TRADE DEFICIT, 2018, IN BILLIONS OF U.S. DOLLARS SOURCE: White House Office of Trade and Manufacturing Policy, The United States Reciprocal Trade Act: Estimated Job & Trade Deficit Effects, May 2019, p. 20, https://www.wsj.com/public/resources/documents/RTAReport.pdf ? mod=article_inline (accessed March 21, 2023).

against tariff differentials for eight major U.S. trading partners, which account for 47.6 percent of total U.S. trade and 88.6 percent of the U.S. trade deficit in goods. Figure 1 shows that the USRTA priority list would include the countries in red—Communist China and India—along with trading partners in the yellow zone. This yellow zone includes the European Union, which features a very high deficit, along with Thailand, Taiwan, and Vietnam, which feature particularly high tariff differentials. Table 4 estimates the improvement in the U.S. trade deficit under Scenario One, in which partner countries match the U.S. tariff rate under pressure from — 772 —Trade TABLE 4 Trade Deficit Reductions for Target Countries SCENARIO ONE: PARTNER COUNTRIES MATCH U.S. TARIFF RATE SCENARIO TWO: U.S. MATCHES PARTNER TARIFF RATES Projected Change in Bilateral Trade Balance ($ Billions)Bilateral Deficit Reduction as Share of 2018 Bilateral DeficitProjected Change in Bilateral Trade Balance ($ Billions)Bilateral Deficit Reduction as Share of 2018 Bilateral Deficit India5.024%18.788% Taiwan1.06%9.259% Vietnam0.72%17.244% Thailand3.217%6.434% Country Communist China18.54%70.617% European Union8.05%25.315% Total35.44%45.65%

SOURCE: White House Office of Trade and Manufacturing Policy, The United States Reciprocal Trade Act: Estimated Job & Trade Deficit Effects, May 2029, p. 21, https://www.wsj.com/public/resources/documents/RTAReport . pdf?mod=article_inline (accessed March 21, 2023).

the American President, and then under Scenario Two, in which the U.S. matches the tariffs of partners that refuse to lower their tariffs. Columns 2 and 4 in Table 4, when the USRTA is applied first to Communist China and then to the EU, show the largest absolute dollar reductions in bilateral trade deficits. This results in bilat- eral deficit reductions in Scenario One of $18.5 billion for China and $8.0 billion for the EU. In Scenario Two, the impacts for Communist China and the EU are substantially larger: $70.6 billion and $25.3 billion, respectively. Note further that the largest relative dollar reductions in percent terms come from applying the USRTA first to India and then to Taiwan and Vietnam. For exam- ple, if India were to reduce its tariffs to U.S. levels, as in Scenario One, this would reduce the bilateral trade deficit with India by 24 percent. If the U.S. raised its tariffs to mirror India’s levels, the result would be a far more dramatic 88 percent

% Anti-monopoly Law Extortion %% Burdensome and Intrusive TestingChinese Communist Party Co- opts Corporate Governance Chinese Nationals as Non-Traditional Information Collectors %“Brand Forcing” — Forced Use of Chinese Brands Bid-Rig Foreign Government Procurement Contracts %Adverse Administrative Approvals and Licensing Processes China’s Acts, Policies, and Practices of Economic Aggression Protect China’s Home Market from Competition and Imports % % % Expand China’s Share of Global Markets Secure and Control Core Natural Resources Globally % % Dominate Traditional Manufacturing Industries Communist China’s Categories of Economic Aggression (Page 1 of 8)

TABLE 5  % % % % % Acquire Key Technologies and IP from Other Countries and the U.S. % % % % % % Capture Emerging High-Tech Industries that Drive Future Growth and Advancements in Defense Industry — 775 — “Debt-Trap” Financing to Developing Countries Data Localization Mandates Cyber-Enabled Espionage and Theft % % % Currency Manipulation and Undervaluation % %Counterfeiting and Piracy Steals Intellectual Property% Consolidate State- Owned Enterprises into National Champions % % Expand China’s Share of Global Markets Claim Sovereign Immunity on U.S. Soil to Prevent Litigation China’s Acts, Policies, and Practices of Economic Aggression Protect China’s Home Market from Competition and Imports  % % Secure and Control Core Natural Resources Globally % % % % Dominate Traditional Manufacturing Industries Communist China’s Categories of Economic Aggression (Page 2 of 8) TABLE 5 %% % % % %%% Acquire Key Technologies and IP from Other Countries and the U.S. Capture Emerging High-Tech Industries that Drive Future Growth and Advancements in Defense Industry Trade— 776 — % % Export Restraints Restrict Access to Raw Materials % %% % % Acquire Key Technologies and IP from Other Countries and the U.S. Expert Review Panels Force Disclosure of Proprietary Information % % Dominate Traditional Manufacturing Industries % % % % Expand China’s Share of Global Markets Secure and Control Core Natural Resources Globally Evasion of U.S. Export Control Laws % % Discriminatory Patent and Other IP Rights Restrictions Dumping Below Cost Into Foreign Markets %Discriminatory Catalogues and Lists Delays in Regulatory Approvals China’s Acts, Policies, and Practices of Economic Aggression Protect China’s Home Market from Competition and Imports Communist China’s Categories of Economic Aggression (Page 3 of 8) TABLE 5  % % % % % % % Capture Emerging High-Tech Industries that Drive Future Growth and Advancements in Defense Industry — 777 — Lack of Transparency % % Indigenous Technology Standards “Junk Patent” Lawsuits % % Government Procurement Restrictions Foreign Ownership Restrictions Force Technology and IP Transfer Forced Research and Development (“R&D Localization”) Financial Support to Boost Exports and Promote Import Substitution China’s Acts, Policies, and Practices of Economic Aggression Protect China’s Home Market from Competition and Imports % % Expand China’s Share of Global Markets  Secure and Control Core Natural Resources Globally % Dominate Traditional Manufacturing Industries Communist China’s Categories of Economic Aggression (Page 4 of 8) TABLE 5 %% %% % % % % Acquire Key Technologies and IP from Other Countries and the U.S. Capture Emerging High-Tech Industries that Drive Future Growth and Advancements in Defense Industry Trade— 778 — %% Price Controls to Restrict Imports % Physical Theft of Technologies and IP Through Economic Espionage Placement of Chinese Employees with Foreign Joint Ventures%Overcapacity Drives Out Foreign Rivals Open Source Collection of Science and Technology Information

% % % % % Acquire Key Technologies and IP from Other Countries and the U.S. Move the Regulatory Goalposts % Dominate Traditional Manufacturing Industries

% Expand China’s Share of Global Markets Secure and Control Core Natural Resources Globally Monopsony Purchasing Power Lax and Inconsistent Labor Laws China’s Acts, Policies, and Practices of Economic Aggression Protect China’s Home Market from Competition and Imports Communist China’s Categories of Economic Aggression (Page 5 of 8) TABLE 5

% % % % Capture Emerging High-Tech Industries that Drive Future Growth and Advancements in Defense Industry

Reverse Engineering % Retaliation and Retaliatory Threats

Quotas and Tariff-Rate Quotas %%%Promise Cooperation on Regional Security Issues as Bargaining ChipRecruitment of Science, Technology, Business, and Finance Talent% Expand China’s Share of Global Markets “Product Hop” and “Country Hop” to Evade Antidumping and Countervailing Duties China’s Acts, Policies, and Practices of Economic Aggression Protect China’s Home Market from Competition and Imports

Secure and Control Core Natural Resources Globally %%% %% %

Acquire Key Technologies and IP from Other Countries and the U.S. Capture Emerging High-Tech Industries that Drive Future Growth and Advancements in Defense Industry % % Dominate Traditional Manufacturing Industries Communist China’s Categories of Economic Aggression (Page 6 of 8)

TABLE 5 Trade— 780 — Tariffs % % % % % Acquire Key Technologies and IP from Other Countries and the U.S. Subsidized Factor Inputs — Capital, Energy, Utilities, and Land % Security Reviews Force Technology and IP Transfer Dominate Traditional Manufacturing Industries %%Secure and Controllable Technology Standards Expand China’s Share of Global Markets Secure and Control Core Natural Resources Globally Structuring Transactions to Avoid CFIUS Review of Chinese Investment in the U.S.%Sanitary and Phytosanitary Standards Raise Non- Tariff Barriers China’s Acts, Policies, and Practices of Economic Aggression Protect China’s Home Market from Competition and Imports Communist China’s Categories of Economic Aggression (Page 7 of 8) TABLE 5

% % % % Capture Emerging High-Tech Industries that Drive Future Growth and Advancements in Defense Industry %% Value-Added Tax Adjustments and Rebates Subsidize Chinese ExportsWeak and Laxly Enforced Environmental Laws Secure and Control Core Natural Resources Globally % % % Dominate Traditional Manufacturing Industries SOURCE: White House Office of Trade and Manufacturing Policy, How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World, June 2018, https://trumpwhitehouse.archives.gov/wp-content/ uploads/2018/06/FINAL-China-Technology-Report-6.18.18-PDF.pdf (accessed March 21, 2023). % % Expand China’s Share of Global Markets

Transship to Evade Antidumping and Countervailing Duties Traditional Spycraft Technology-Seeking, State-Directed Foreign Direct Investment China’s Acts, Policies, and Practices of Economic Aggression Protect China’s Home Market from Competition and Imports Communist China’s Categories of Economic Aggression (Page 8 of 8)

TABLE 5 % % Acquire Key Technologies and IP from Other Countries and the U.S. A heritage.org % % Capture Emerging High-Tech Industries that Drive Future Growth and Advancements in Defense Industry Trade

reduction in the U.S. bilateral trade deficit with India. Similarly, if Taiwan were to reduce its tariffs to U.S. levels, the size of the U.S. bilateral trade deficit with Taiwan would fall by 6 percent. If the U.S. imposed a mirror tariff, its bilateral trade deficit with Taiwan would fall by 59 percent. These results again underscore the high degree of unfair, unbalanced, and nonreciprocal trade that currently exists between the U.S. and much of the rest of the world, which penalizes American farmers, ranchers, manufacturers, and workers because of the WTO-MFN conundrum. These simulations also demon- strate that implementation of the USRTA most likely would substantially reduce the U.S. trade deficit while creating hundreds of thousands of new jobs. These benefits notwithstanding, however, the U.S. would still face a substantial over- all trade deficit and substantial bilateral trade deficits with many of its major trading partners.

Why might this be so? Because under WTO rules, America still faces numerous nonreciprocal nontariff barriers around the world. For example, one of America’s largest trading partners, Japan, runs a significant bilateral trade surplus in goods with the U.S.—more than $70 billion a year. While Japan has relatively low tariffs, it ranks high on the nontariff barrier scale. In such cases, which are numerous, pas- sage of the USRTA would likely also be very helpful in reducing nontariff barriers. This is because under the powers provided by the USRTA, if a foreign country imposes significantly higher nontariff barriers, then the President has the authority to “negotiate and seek to enter into an agreement” that “commits the country to… eliminate [its] nontariff barriers.”16 If the country refuses to come to the negoti- ating table and lower its nontariff barriers, the President has the authority to levy reciprocal duties to offset or mirror those barriers.

In summary, passage of the USRTA would go a long way toward leveling the playing field for American farmers, ranchers, manufacturers, and workers who are now forced to compete in an intrinsically unfair, unbalanced, and nonreciprocal WTO-MFN system.

Nor is the USRTA necessarily the only possible legislative way to address this issue. In 2017, then-House Speaker Paul Ryan (R–WI) and then-House Ways and Means Committee Chairman Kevin Brady (R–TX) proposed a “border adjust- ment tax.” The proposed border adjustment would have eliminated the ability of corporations to deduct the cost of imports while eliminating the tax on income attributable to exports. This border adjustment tax would have shifted the U.S. corporate income tax from an origin-based tax applying to the production of goods and services in the United States to a destination-based tax applying to the con- sumption of goods and services in the U.S. This tax—strongly opposed by American multinational corporations and big- box retailers—not only would have leveled the playing field with respect to WTO rules, but also would have provided an innovative alternative to the application of tariffs.17 A conservative Administration might do well to look at such a tax as part of its trade agenda.