Tariffs Shouldn't Penalize Companies Building American Factories

Tariffs have raised prices for consumers, increased costs for businesses, and offset part of the economic benefit of H.R. 1, the Working Families Tax Cuts. The Trump Administration now has an opportunity to correct course by pairing targeted tariff relief with the law’s strongest pro-growth provisions.

The new U.S.-China Board of Trade is a useful start. According to Skadden, the Office of the U.S. Trade Representative is seeking public input on roughly $30 billion in Chinese-origin imports that could receive tariff relief if they are considered non-sensitive and beneficial to the U.S. economy. That process should focus on goods that American companies need but cannot reasonably source at home.

Tariffs Should Not Punish Domestic Investment

The Working Families Tax Cuts created a major new incentive for domestic manufacturing by allowing full expensing for qualified production property. That means companies building eligible factories in the United States can deduct the cost up front instead of waiting decades to recover the investment through depreciation.

That policy lowers the cost of building in America. Tariffs can work in the opposite direction.

When a company decides to build a factory in the United States, it may still need imported components, machinery, parts, materials, or specialized inputs that are unavailable domestically in sufficient quantity, quality, or price. Taxing those inputs makes the factory more expensive, delays investment, and weakens the very reshoring policy Congress enacted.

The Board of Trade Should Prioritize Manufacturing Inputs

The new Board of Trade should give priority to tariff relief for goods that support American production. That includes non-sensitive inputs used to build, equip, maintain, or expand factories in the United States.

This approach would not reward offshoring. It would support domestic investment by reducing unnecessary costs for companies choosing to produce in America.

The same principle should apply beyond the China process. Any company using the Working Families Tax Cuts' full factory expensing provision should be exempt from tariffs on items needed to build or support that factory. If Congress and the Administration are encouraging companies to invest billions of dollars in new American production, tariff policy should not increase the cost of making those investments.

That would create a simple and pro-growth rule: if a company is investing in a qualifying U.S. production facility, federal trade policy should not raise the cost of that investment.

Tariff Relief Should Reinforce Tax Relief

The Working Families Tax Cuts were designed to increase take-home pay, support investment, and strengthen the American economy. Tariffs have worked against those objectives by raising costs throughout the supply chain and increasing prices for consumers.

A better policy would align taxes and trade. Full factory expensing encourages companies to build in America. Tariff relief for factory-related inputs would help those projects move forward faster, reduce construction costs, and strengthen the incentive to manufacture domestically.

The Trump Administration should use the Board of Trade as the beginning of a broader course correction. Tariff policy should protect legitimate national security interests, but it should not penalize companies for making major investments in American factories.

CFE Takeaway

The Working Families Tax Cuts created one of the strongest incentives in decades to build factories in the United States. Trade policy should reinforce that goal, not undermine it. The Trump Administration should use the U.S.-China Board of Trade to reduce tariffs on non-sensitive manufacturing inputs and exempt companies using full factory expensing from tariffs on the imported goods needed to build and operate their new American facilities.