Proposed Tariff Will Milk Taxpayers

We're used to hearing politicians make sweeping claims for their actions. They'll benefit children. They'll create a better country for older Americans. They'll even help your dogs.

At least, these are the things politicians say. In fact, Congress is taking steps that would cost children, the elderly and even our pets.

Lawmakers are trying to tax the very product that helps nourish a newborn, contributes to geriatric products and helps feed your dog. That's what two measures now before Congress would do if they become law. Either law would increase the overhead American food manufacturers pay while angering our trading partners.

These pieces of legislation seek to impose high tariffs on milk protein concentrates (search) (MPC), casein (search) and caseinates (search). These proteins are derivatives of milk but are not the same thing as dried milk. American dairy farmers claim these measures would improve their lot in life.

Yet, according to a recent report by the U.S. International Trade Commission, it's government policies that are troubling American farmers, not imports.

"The competitiveness of the U.S. dairy industry has been affected by the high level of government intervention, mainly through federal price support and deficiency payment programs, and milk marketing orders," the report states. Thus, government policies, not imported MPCs, are the bane of American dairy's existence.

Additionally, the report notes, the Dairy Price Support Program (search) "appears to be an important factor creating a disincentive to manufacture MPC in the United States."

In 2001, a General Accounting Office report came to the same conclusion. "Economic disincentives have prevented U.S. production of dry milk protein concentrates," it said, and these imports "have not displaced domestic milk supplies because they are filling the growing demand for new nutritional products."

MPCs ought to be safe from tariffs. A Senate "dear colleague" letter signed by Democrats Jon Corzine and Frank Lautenberg as well as Republicans Peter Fitzgerald and Jon Kyl in June 2003 noted the numerous products in which these ingredients can be found.

"These highly specialized ingredients are used in the manufacture of countless food, medical, cosmetic, animal feed, and industrial products, including sports foods and drinks, coffee creamers, dessert toppings, snack foods, nutrition bars, cereals, sauces, and gravies and geriatric and infant formulas," the letter notes. "Since MPC, casein and caseinates are not yet available domestically, users have no alternative but to import them."

The average American undoubtedly has some of these products in his pantry, and the legislation under consideration could raise prices for American consumers. Increased prices would translate into higher overhead costs for American producers and might even lead to layoffs. Take the steel tariff (search) as an example of what can happen.

Steel-consuming industries were hit hard by increased overhead costs as soon as the tariff went into effect in 2002. Many people in steel-consuming industries lost their jobs. Additionally, relationships with our trading partners were strained. That led to a dispute in the World Trade Organization, which ruled against the United States.

Something similar could happen if this legislation is passed. MPCs, after all, are imported from several areas, including Australia, New Zealand and the European Union.

Congress should be dealing with trade, but not by raising tariffs. Instead, lawmakers should focus on passing free trade agreements with Australia, Morocco and Central America. These agreements would lower prices for consumers, spur economic growth and strengthen our relationships with our trading partners.

The milk protein tariff measures, by contrast, could lead only to higher prices, increased overhead for U.S. food manufacturers, and a possible dispute in the WTO. Lawmakers would be better off leaving them on the shelf.

Sara J. Fitzgerald is a trade policy analyst in the Center for International Trade and Economics at  The Heritage Foundation.