Thursday, April 26, 2012

Import tariffs inflate the cost of cheap shoes in the US

The Affordable Footwear Act (AFA) if successful will repeal many of the disproportionately high tariffs on shoe imports and save American families as much as $3 billion a year. The AFA was first introduced in 2009, but three years later, Americans continue to pay more than they should for footwear. Many bleive it is now time for the US Congress to reduce tariffs on shoes and help all Americans save a few dollars on their next pair of work boots, pumps, or sneakers. The big but little-known shoe tax has its roots in the early history of American trade policy. A hundred years ago, tariffs raised half of the government’s money. Tariff rates peaked in 1930 with the Hoover-era Smoot–Hawley Act. But after seven decades of trade liberalization, the tariff system is now a tax backwater. Most U.S. tariffs are low, with no tariffs on a wide range of goods, such as toys, furniture, natural gas, semiconductor chips, coffee, aluminum, airplanes, computers, birdseed, or cell phones. Still there is a few goods remain subject to tariff rates almost as high as those of the 1920s. Shoes are the extreme case. Shoe tariffs are 10 times higher than the average U.S. tariff rate. In 2011, shoes accounted for just 1 percent of merchandise imports, but they provided 7.9 percent of U.S. tariff revenue. In 2010 Americans bought about 2.3 billion pairs of shoes with many designed in the US , but stitched and glued overseas. The value of these shoes at the border was $22.6 billion, and the U.S. government collected footwear duties amounting to $2.3 billion. Tariffs vary from 8.5 percent for leather dress shoes, to 20 percent for running shoes and peaking at more than 60 percent for some grades of cheap sneakers. This is the highest tariffs imposed on any manufactured good. For a pair of canvas sneakers with rubber soles that costs $10 to import, the government charges an additional $2.90 in import taxes. Free trade agreements (FTAs) and trade preference programs for developing countries provide little relief. This is because almost all of America's inexpensive shoes come from countries that are not FTA partners, in particular China. In addition, most footwear products are excluded from the U.S. Generalized System of Preferences (GSP) program, which reduces tariffs on many goods from developing countries. Many are now concerned at the consequences for low incomes families, who can ill afford to even cheap shoes. Tariffs inflate the cost of the cheapest shoes by about one-third. As the sneakers travel through the supply chain on the way to the retailer’s shelf, the tariffs may be magnified by retail markups and state sales taxes. The $10 pair at the border is a $30 pair in the store, with the tariff now accounting for as much as $8.70, even though the original tariff provided the federal government just $2.90 in tariff revenue. In larger terms, these markups mean the tariff that raises $2.3 billion may cost shoppers billions of dollars more. Footwear tariffs are a hidden, regressive tax on a household necessity. They reduce the amount of income families have to spend on other goods and services. This expense is most onerous for low-income families with children, who spend the largest share of their income on shoes and other necessities of life. Such a tax is a problem to which the Affordable Footwear Act provides one solution. By eliminating tariffs on many low-price sneakers and children’s shoes, it would have an immediate and meaningful impact on household budgets. As the cheapest shoes face the highest tariffs, the effective tax cut would be highest for the poorest families. Many supporters of tariffs view them as necessary to protect American industries and jobs from international competition. But the shoe tariffs that would be eliminated by the Affordable Footwear Act support no domestic shoemaking jobs, because America’s footwear manufacturers largely produce specialty and high-value footwear, not the kinds of inexpensive shoes that make up the bulk of imports. The United States has fewer than 12,000 shoe manufacturing jobs. These are mostly in design, research, marketing, or specialized production of sophisticated gear for workers in hazardous jobs, rather than mass-market shoe production. The inexpensive shoes and sneakers with the highest tariffs have not been made in the United States since the 1970s.

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