Create a free Industrial Equipment News account to continue

Trump's Tariff Plan Hits a Hurdle: Congressional Republicans

House Majority Leader Kevin McCarthy warned Monday that the approach of using steep tariffs to punish companies that move overseas could cause a trade war.

2016 Election Economy Well 5845c79870784
AP file

WASHINGTON (AP) — President-elect Donald Trump's plan to use steep tariffs to punish companies that move overseas is running into an obstacle: Congressional Republicans.

House Majority Leader Kevin McCarthy warned Monday that such an approach could cause a trade war. A better way to achieve the goal of keeping companies in the U.S. and growing jobs would be to rewrite the tax code and lower corporate rates, McCarthy said.

"I think that's a better way of solving the problem than getting into a trade war with a 35 percent tariff," the California Republican told reporters at the Capitol. "We've got to have a level playing field, that companies in America can compete on a level playing field across the world, and right now we do not have one."

McCarthy's comments came in response to Trump's threat, made in a series of tweets over the weekend, that he would level taxes on companies that relocate overseas and then try to sell their products back into the U.S. "There will be a tax on our soon to be strong border of 35% for these companies," Trump wrote.

Republicans have typically opposed such tariffs as an intrusion on the free market, and it was just the latest example of Trump making a statement or coming up with a plan that flouts GOP orthodoxy.

But Republican leaders are proving reluctant to challenge the president-elect, and McCarthy wrangled at some length with reporters at a pen-and-pad session, disputing suggestions that he and others in the party are soft-pedaling long-held beliefs in deference to Trump.

For example, Republicans routinely criticized the Obama administration for taking steps that favored individual corporations, accusing the administration of "picking winners and losers." Yet GOP leaders applauded when Trump got involved to save hundreds of jobs at a Carrier plant in Indiana last week, even though it came with a cost to state taxpayers of about $7 million in tax breaks and grants.

"I think a president wants to get involved any time it's about jobs being created in America, and I think that's healthy," McCarthy argued Monday.

A few moments later, though, he appeared to contradict himself, asserting: "You want to know my philosophical belief? I believe in the free market, I don't think government should be picking winners or losers."

Trump would likely need congressional approval to impose tariffs on a specific company or a group of companies, trade law experts said. The president has broad authority to impose tariffs on specific categories of imported goods, but not to single out individual companies that make them.

House Speaker Paul Ryan was also asked about the tariff issue Monday, in an interview with the Milwaukee Journal-Sentinel in his home state of Wisconsin. He declined to comment directly, the paper reported, and, like McCarthy, focused on tax reform instead.

"We can get at what he's talking about through smart tax reform. What his concern is, is legitimate — American companies are moving overseas, are shifting headquarters and factories overseas," said Ryan, blaming "our terrible tax code."

Outside GOP-friendly groups, meanwhile, lined up against Trump's tariff proposal.

"Tax cuts and deregulation will make the American economy great again, but tariffs and trade wars will make it tank again," said Club for Growth president David McIntosh. "The president-elect is spot on when he calls for cutting taxes and federal regulations, but 35-percent tariffs would be devastating to consumers and businesses."

The U.S. Chamber of Commerce chief economist, J.D. Foster, called tariffs "self-destructive" in an appearance on Fox Business' "The Intelligence Report with Trish Regan," adding: "You can make companies want to come into the U.S. by making the U.S. a better place to do business."

More in Regulation