The Generalized System of Preferences (GSP) is a U.S. trade program that eliminates the tariffs (i.e., taxes) paid by American companies when they import certain products from about 130 developing countries around the world. GSP was created in the 1970s as part of an international effort to promote development through “trade, not aid.”
So how does a program aimed at increasing production in poor countries abroad create American jobs? It turns out that most of the imports that benefit from duty-free GSP treatment are raw materials, components, parts, and machinery used by U.S. manufacturers in their American production facilities. Although the GSP program benefits only a small slice of the U.S. import pie, American companies used it to save more than $700 million in import taxes last year. Lower prices for these inputs reduce production costs and help keep American manufacturers competitive – and thus able to hire American workers. Furthermore, someone needs to both move the goods around the country and then sell the final product. In fact, a study for the U.S. Chamber of Commerce estimated that moving “GSP imports from the docks to the retail shelves” alone supported 82,000 jobs – a figure that did not count any jobs at companies using the program!
GSP clearly helps American workers when in effect, but has been plagued by short-term renewals and even expirations in the recent past, including a 10-month expiration from January to November 2011. That expiration period, during which importers had to pay tariffs, hit American workers hard. These unforeseen cost increases forced manufacturers such as Mullican Flooring and Besa Lighting to lay off workers.
So the next time someone says that imports cost U.S. jobs, remember all the workers using GSP to produce something new, the people responsible for moving the goods around country (both the direct GSP imports and the products using GSP components), and finally those selling the finished products. You’ll see that even a relatively small import program can have a large, positive impact for American workers.
This post is part of the Imports Work for America Week initiative, an effort by a number of organizations and individuals in the trade policy community to start talking about the benefits of imports for the U.S. economy. You can see our earlier blog post about the initiative here or visit the Imports Work website here.