It won’t spur U.S. manufacturing and it won’t help countries like Costa Rica and Uruguay modernize their economies.
A new bill, titled the Americas Act wants to bring U.S. supply chains home from China. But its cosponsors, who include Sens. Michael Bennet (D-Colo.), Bill Cassidy (R-La.) and Marco Rubio (R-Fla.), along with Reps Adriana Espaillat (D-N.Y.) and Maria Salazar (R-Fla.), have concocted a legislative mess that wouldn’t do anything to achieve their stated goal.
Using assorted financial incentives, the bill’s cosponsors hope to entice American companies to “re-shore” their operations back home, or “near-shore” them to countries like Costa Rica and Uruguay. These and other eligible “Americas partner countries” would be invited to join the US-Mexico-Canada Agreement (USMCA) so that their firms can export more cheaply to the U.S. than Chinese suppliers can.
But there’s a problem. To work, the bill would require the U.S. to renegotiate its tariff limits, or “bound” rates, at the World Trade Organization. That’s because these rates aren’t much higher than USMCA’s zero tariffs and don’t burden exporters with costly rules of origin, which can erase the value of a preferential duty.
The point is that, unless U.S.-bound rates are redone, USMCA’s preferences are probably not worth the candle.
The bill’s cosponsors plan to use Article 28 of the General Agreement on Tariffs and Trade to get the job done. This isn’t going to happen. The U.S. would have to compensate affected trade partners, which is why the handful of countries that have ever entertained doing this never followed through. Washington would spark economic and political havoc at home and abroad even if it just hinted at the prospect of invoking Article 28.
The bill’s cosponsors are also sorely mistaken in thinking that the WTO’s national security exception in Article XXI can help them hike these tariffs. It can’t. An oversupply of cheap Chinese goods doesn’t constitute an “emergency in international relations,” just like a glut of steel on world markets didn’t clear the bar in the U.S. Steel and Aluminum dispute. If the cosponsors have a different definition of national security in mind, they should delete their references to Article XXI.
The bill further explains that “the trade representative is not required to raise applied duty rates” The applied rate is the duty a country actually levies, given competing political pressure for and against tariffs. The cosponsors don’t want to tie the hands of an administration and thus aren’t demanding that applied rates go up.
The problem is that a yawning gap between bound and applied rates — called “tariff overhang” — deters trade because it raises concerns about duty rate volatility.
Then there’s the rules of origin. To prevent the transshipment of goods from non-members of USMCA to members, rules of origin qualify goods for zero tariffs. They do this by setting a percentage of the inputs by value that must be sourced in the exporting country, or requiring that a finished good go through a fundamental change that merits a new tariff code.
The bill pays no real attention to rules of origin, saying only that these should be “aligned” across U.S. trade deals, and that members of the Central American Free Trade Agreement-Dominican Republic (CAFTA-DR) are stuck with what they got for 10 years.
Rules of origin matter because supply chains are complex webs of upstream and downstream firms. In the case of semiconductors, for example, certain inputs travel tens of thousands of miles around the world before final assembly. The bill has no grasp of this complexity.
It banks on an outdated view in which a U.S. company owns a subsidiary taking advantage of cheap labor in China, and that it can be incentivized to near- or re-shore two-thirds of its operation. To reach this arbitrary threshold, the U.S. company would have to be a near monopsonist of the requisite inputs or outright own most of these upstream vendors.
But the bill isn’t about semiconductors. It’s about textiles. And it’s not about creating more trade with the Americas. It’s about growing USMCA so the U.S. can impose higher labor standards on textile exports from developing countries, and threaten them with punitive tariffs if they don’t comply.
Chapter 3 provides details on textiles, and it’s a dizzying read. The cosponsors concede that “considerable financial resources” are needed to “expand and modernize” these supply chains. The fact that their proposed accounting methodologies are so complicated speaks to the depths of the challenge.
But what really stands out is the proposal for so-called “permanent textile production verification teams to ensure the integrity of the textile supply chains of those countries.”
These teams are undoubtedly meant to monitor compliance with labor standards. But if the U.S.’s experience with the Indo-Pacific Economic Framework Agreement is an indication, countries in the Americas like the Dominican Republic and El Salvador won’t agree to this intrusive scrutiny in exchange for no meaningful market access. And that’s exactly what the bill offers them, short of the U.S. increasing its bound rates, and redoing the rules of origin on textiles under USMCA and CAFTA-DR, neither of which is going to happen.
The Americas Act does not tackle serious questions about China or supply chain resiliency. It won’t spur U.S. manufacturing and it won’t help countries like Costa Rica and Uruguay modernize their economies.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, and a Global Fellow at the Wilson Center’s Wahba Institute for Strategic Competition.
