The Snuggie—a warm, fuzzy blanket with sleeves to make lounging even more comfortable—has become a shining example of how convoluted America’s trade structure is.
This might surprise you, but the Snuggie’s unique design makes it a target of the federal government. You see, the government categorized the Snuggie as “pullover apparel,” even going so far as to compare it to a “priestly garment” because of its robe-like appearance.
The problem with the categorization, though, is that as clothing, it was hit with a 14.9 percent import tax—known as a tariff—rather than the much lower 8.5 percent import tax it would have faced if it were considered a blanket. To the benefit of American consumers, the company that makes Snuggies challenged the categorization in the U.S. Court of International Trade and won its quest to be classified as a blanket just last month.
But the Snuggie isn’t the only product to face these types of trade problems. Import taxes are applied to all products that cross our borders, and the rate varies by product category. Even temporary tariffs are often applied as punishment when the U.S. is in a trade dispute with another country or company.
Supporters of import taxes argue they’re needed to help domestic companies compete by making foreign goods more expensive. But in reality, financial penalties on imported goods just end up hurting American consumers.
You see, companies hit with these import taxes have to absorb the increased costs somehow or they will go out of business. They therefore pass the costs down to consumers through higher prices. What’s more, tariffs also encourage companies to lobby the government for special treatment, resulting in corporate welfare. This keeps competition out of the market, limiting consumers’ choices.
There’s another consequence that comes from our country’s convoluted trade structure. In an effort to have products classified in a certain way, many companies engage in “tariff engineering.” There are people whose job it is to slightly redesign products to avoid higher tariffs. This tariff-work-around dates back to 1882 when a sugar importer dyed its produce with molasses because sugar duties were based on its color. This isn’t the market giving people the products and services they want, it’s the market working to avoid government barriers.
Adding to the trade complexity is a component of the House Republicans’ tax reform plan. While much of the plan is focused on lowering rates and simplifying the code, unfortunately Congress is considering a border adjustment tax (BAT), which would add a 20 percent tax to all imported goods—that’s on top of any existing import taxes. BAT would increase the price of items we use every day, costing households an estimated $1,700 more in the first year alone! Check out a list of common products that’ll be affected by the BAT here.
Most Americans don’t realize how many products that they use on a daily basis that have been imported. Just think about driving to work—even if your car is an American brand, the metal, upholstery, wires, and hundreds of other components were probably imported. And that’s not even taking into consideration the tools used to make the car or the gasoline used to fuel it.
That’s why Congress should focus efforts on making our trade and tax structures simpler and fairer. Under the current system, it’s consumers who pay the price. Eliminating policies and special treatment that benefit a few at the expense of many is the best way to improve the quality of life for all Americans.