• Tariffs raise costs for American consumers and manufacturers by taxing vital imports, undermining efforts to revive domestic industry
  • Lowering the corporate income tax and repealing the Jones Act would reduce input costs and enhance the global competitiveness of U.S. manufacturing
  • A pro-growth, free-market approach — not protectionist industrial policy — is the real path to a manufacturing renaissance

If a major goal of Pres. Donald Trump’s “America First” policy agenda is to revive American manufacturing, the strategy must be clear: reduce input costs. Unfortunately, federal policymakers, including the president, continue to reach for the wrong tools, raising costs through regulation, taxation, and, once again, tariffs.

Trump’s April 2 executive order proposes sweeping “reciprocal tariffs” on nearly all imports from countries that impose duties on U.S. goods. While this approach may be politically popular, it amounts to an economically damaging tax increase on American producers and consumers.

Most Americans instinctively understand this. A national Reuters/Ipsos poll conducted just days after the executive order found that 73 percent of respondents expect prices to rise for everyday goods in the next six months. That’s because they know who pays these new taxes on imports — they do. Whether on groceries, electronics, or essential materials like steel and rubber, tariffs raise the cost of living for families and the cost of doing business for manufacturers.

If we want more manufacturing in America, we must make it less expensive to produce things in America. That means cutting — not increasing — the input costs that manufacturers face every day. Two reforms stand out: reducing the federal corporate income tax rate and repealing the protectionist Jones Act.

Cut the corporate tax to compete globally

The United States currently imposes a combined federal and state corporate tax rate of 25.8 percent—the highest in the G7 and among the highest in the industrialized world. The European average is over four percentage points lower. Countries like Ireland (12.5 percent) and Hungary (9 percent) have successfully attracted investment with lower, simpler tax structures that reward productivity.

A corporate tax burden of such magnitude discourages domestic investment, drives capital offshore, and weakens America’s global manufacturing competitiveness. While the 2017 Tax Cuts and Jobs Act (TCJA) lowered the federal corporate rate from 35 percent to 21 percent, it did not go far enough, and many of its pro-growth provisions are set to expire after 2025.

A June 2024 Cato Institute analysis outlines a path forward: Congress should reduce the federal rate to 12 percent, make full expensing permanent, and eliminate inefficient tax subsidies and carveouts to maintain fiscal balance.

These reforms would return investment to the United States.

Lower corporate taxes aren’t a handout to big business — they are a down payment on national competitiveness. They help ensure American factories compete on cost without resorting to tariffs or protectionism.

Repeal the Jones Act to lower shipping costs

The Jones Act — a 1920 law requiring that all goods transported between U.S. ports by ship must be U.S.-crewed, U.S.-owned, and U.S.-registered — is a relic of protectionism. Today, it continues to inflate costs across the supply chain.

As of January 2023, the Jones Act fleet included just 56 tankers and 23 container ships — an alarmingly small number for a country with over 12,000 miles of coastline and vast inland waterways.

The law raises prices for businesses and consumers, reduces competition, and fails even to serve its original purpose of national security. The Department of Defense routinely charters foreign-built ships for operations, and most of the Maritime Administration’s Ready Reserve Force vessels are foreign-built.

During emergencies, such as hurricanes, presidents have had to waive the Jones Act to ensure the timely delivery of vital goods — a tacit admission that the law hinders rather than helps logistics.

The economic consequences of the Jones Act are significant. According to studies by the U.S. Government Accountability Office and the Federal Reserve Bank of New York, it costs more than twice as much to ship goods to Puerto Rico from the mainland U.S. as it does to nearby foreign ports. In some cases, Puerto Rican farmers import feed and fertilizer from Canada rather than from the mainland U.S., despite the greater distance, because it’s cheaper.

Even basic commodities like rock salt — produced abundantly in the U.S. — are imported from Chile, simply because shipping them via Jones Act–compliant vessels is too costly. During a 2014 snowstorm in New Jersey, for example, state officials waited a month for U.S.-flagged shipping, while a full load of salt sat just 400 miles away on a foreign ship.

The law also drives up energy transport costs. The U.S. has only three Jones Act–compliant LNG vessels, making it incredibly difficult to ship American natural gas between domestic ports by sea. In 2014, the Heritage Foundation published estimates that suggested that foreign-flagged ships could transport oil for one-third the cost.

As a result, people living on islands like the state of Hawaii and the U.S. territory of Puerto Rico have to pay far higher electricity rates due to their dependence on petroleum shipped under Jones Act constraints.

The reality is simple: the Jones Act is corporate welfare for a shrinking domestic shipbuilding industry, costing the rest of the country dearly. Repealing it would increase competition, lower costs, and allow American manufacturers to ship more freely and affordably.

The real path to a manufacturing renaissance

Tariffs may feel like taking action, but they are just taxes in disguise — and among the worst kinds of taxes, because they hit both supply and demand. Slapping tariffs on imported components doesn’t hurt foreign manufacturers nearly as much as it hurts American businesses that rely on those inputs to make finished goods.

A strong industrial base is built on competitive costs, stable regulations, and free enterprise — not on artificial price floors and trade wars. If Washington is serious about reviving American manufacturing, it should focus on real reform: lowering corporate income taxes, modernizing the tax code, and repealing the Jones Act.

Reducing tariffs may not score political points as quickly as a tough-sounding executive order, but it will move the needle where it counts in investment, production, jobs, and affordability for American families.

This is the kind of manufacturing policy that works. It reverses the progressive industrialist policy of the Obama and Biden years—a model President Trump now seems to be flirting with—and appeals to the better angels of his administration’s free-market side.