Donald Trump’s re-election assures that protectionism will become even more fashionable inside the Beltway. Trump recently declared that tariff is “the most beautiful word in the dictionary,” and the exaltation of trade barriers has become the latest political mania. Washington hustlers are loudly promising to enrich the nation by selectively blockading American ports. Unfortunately, the Trump team and the growing horde of protectionist pundits sound clueless about America’s long record of trade follies.
Instead, we are encouraged to presume that politicians merely need to issue a few commands and federal bureaucrats will instantly apply their wisdom to remedy our economic problems. But unless politicians intend to ban all imports or inflict the same tax on all imports, then government officials will need to make distinctions between products.
In the past, Customs Service employees wrestled heroically with great questions such as “Is a popcorn popper an electrothermic appliance or an electrical article?” and “Is a jeep a truck or a car?” The United States has thousands of different tariff classifications, with tariffs ranging from zero to more than 100 percent. Naturally, tariff-classification rulings are often disputed with a passion that would have made St. Thomas Aquinas proud.
Thousands of tariff categories in the past were restricted by import quotas. When Customs Service decisions change a product’s tariff classification from unrestricted to restricted, the ruling can effectively ban imports.
The absurdity of custom classifications
Customs Service officials worked overtime in late 1989 to protect America from foreign shoelaces. Customs prohibited the import of a shipment of 30,000 tennis shoes from Indonesia because the shoe boxes contained an extra pair of shoelaces. One Customs official decided that the extra laces were a clothing product that required a separate quota license for importing, and his decision set a precedent for the entire Customs Service. None of the tennis shoe importers were thinking of the extra laces as anything but part of the tennis shoe, and thus they were caught in their tracks without textile import quotas for shoelaces. (Some new tennis shoes have eyelets for more than one set of laces.)
Customs proceeded to establish intricate rules for shoelace imports. In a judicious ruling, the U.S. government announced that an extra pair of shoelaces would be permitted in a box of tennis shoes as long as the extra shoelaces were laced into the shoes and were color-coordinated with the shoes. But Customs warned importers, “We note that where multiple pairs of laces of like colors and/or designs are imported … a presumption is raised” that the shoelaces are not actually part of the shoe. Customs acted in the nick of time to prevent 250 million Americans from acquiring too many shoelaces of the same color.
Customs agents took to the ramparts to protect Americans from TV Ducks — cotton products made to sit on the arm of a couch and hold a TV remote control. Robert Capps, who owned a small company in Skyland, North Carolina, ordered a large shipment of the products from China — but the Customs Service prohibited their entry in 1995. Customs claimed that the little novelty items belonged in the same tariff category as bedspreads — and thus that Capps needed a textile import quota before he could import them. No U.S. company was making TV Ducks, but Customs officials were hellbent on protecting American consumers from the product. Capps hired a lawyer, who quickly convinced a federal judge to overturn the edict. However, the Justice Department appealed the decision and dragged the case out for a year and half, costing Capps millions of dollars in lost sales before a higher panel of federal judges again trounced the agency.
The Customs Service in 1988 boosted the tariff on a shipment of 33,000 girls’ ski jackets to 27.5 percent plus 17 cents a pound from 10.6 percent because the jackets had small strips of corduroy trim on the sleeves. Customs ruled that the strips, amounting to roughly 2 percent of the jacket’s composition, changed the tariff category from “garments designed for rainwear, hunting, fishing, or similar uses” (such as skiing) to “other girls’ wearing apparel, not ornamented.” Famous Raincoat Co., the importer, appealed the Customs ruling to the U.S. Court of International Trade. Judge Kenton Musgrave observed, “During the trial, government counsel … relied on the ‘philosophical’ meaning of the word ‘or’ … as opposed to ‘and.’ “ The judge threw out the government’s case and ordered Customs to refund the tariff surcharge.
Foreign manufacturers of ladies garments began adding a water-resistant lining to light coats; the lining reduced the tariff from 29.5 percent to 7.6 percent. Sen. Richard Shelby was outraged at this foreign conniving, declaring, “Essentially, these water resistant linings serve no practical purpose other than to qualify the garment for a 21.9 percent [tariff] reduction.” Did Shelby spend his entire life in a desert where it never rained? Shelby proposed legislation to abolish the lower tariff rate for water-resistant garments, assuring everyone that his proposal “has the interests of all American garment manufacturers in mind.”
Tariff classification ruling 89–27 may have impacted many Americans’ social lives. Customs decreed in 1989 that condoms imported from Mexico that are electronically tested must carry a higher import tax than condoms that are not tested. Customs also ruled that importers must pay more for condoms that include a spermicide than they would for condoms without spermicide. It is not known whether this decision was part of a secret plan to boost the revenues of family-planning clinics.
Judges as tariff czars
Customs Service tariff classification decisions often end up in court. In 1988, a federal judge finally resolved an age-old question that has perplexed generations of Solons: “Why do people sleep in tents?” Judge James Watson of the Court of International Trade settled the issue with a ruling that “camping out using tents is not a sport.” If a tent is defined as sports equipment, it would pay a l0 percent duty; if the tent is a textile product, it must pay a duty of 25 cents per pound plus 15 percent and cannot be imported without a special textile quota license. In 1976, the Customs Service ruled that “certain light tents used in backpacking were sports equipment because the activity of backpacking was found to be a sport.” But in the 1988 case, the tents weighed between 29 and 33 pounds. The judge pondered deeply and concluded that such tents were simply too heavy for backpacking. Apparently, someone who transports a tent in his car to a camping site is engaged in a completely different activity than someone who hikes to the same campsite with his tent. Judge Watson opined, “Although the court remains as firmly convinced as ever of the desirability of encouraging human beings to retain the skills needed to function in the natural outdoor environment, it cannot honestly say that the simple routine of setting up temporary quarter in the outdoors has the characteristics of a sport.” The court’s decision meant sharply higher tent prices — and fewer Americans going camping.
Tariffs as anticompetitive tool
On January 4, 1989, the Customs Service stunned the automotive world with a decree that, henceforth, jeeps and vans are trucks, not automobiles. This announcement overturned numerous previous Customs rulings that declared that jeeps and minivans were automobiles. There is a tenfold difference in the tariff on cars and trucks, 2.5 percent versus 25 percent. This surprise decision bushwhacked German, British, and Japanese companies exporting minivans and/or jeeps to the United States. The ten-fold higher tariff began to be collected on the day the announcement was made, seriously disrupting American automobile dealerships selling imported vehicles.
The redefinition of jeep was largely the result of heavy lobbying by Lee Iacocca, head of Chrysler Corporation, and other U.S. auto company officials. Customs’ announcement sparked fierce controversy, and Iacocca warned, “It would be a national disgrace, and every American should feel ashamed and humiliated if [a reversal of the re-definition of jeep] takes place.”
At the same time Iaccoca sought to save the national honor, he sent a private cable to Chrysler dealers, urging them to lobby the Treasury Department and noting that the new tariff classification “translates to a $2,000 per truck cost penalty to your competitors.” The new definition of jeep was widely ridiculed; one British diplomat observed, “Who in his right mind would say that people would pay $36,000 to buy a fully loaded luxury Range Rover to haul pigs to market?” The Treasury Department eventually modified the Customs change, declaring that two-door vehicles like the Suzuki Samurai jeep were trucks and that four-door sport vehicles and jeeps are automobiles.
The feds continue to persecute common sense on this score. In March 2024, Ford paid $365 million to settle U.S. Customs claims that, 15 years earlier, it had “imported Transit Connect vans with “sham rear seats and other temporary features” from Turkey that made them appear to be passenger vehicles, for which an import tax of 2.5 percent must be paid rather than the 25 percent duty applicable to cargo vehicles.”
A triumphal federal press release declared that Ford had claimed the vehicles were “principally designed for the transport of persons.” But the vehicles’ rear seats were removed after they cleared U.S. Customs — thereby making them more of a cargo van, even though, after they cleared customs, “each of these Transit Connect vehicles was immediately stripped of its rear seats and returned to its original identity as a two-seat cargo van.” The Detroit Free Press reported that Ford argued “that the tariffs traditionally applied to vehicles based on their condition upon importation — not later modifications. Ford also said that the removable rear seats met U.S. safety standards upon importation, establishing them as passenger vehicles.” Ford struck out in federal court.
Tariff-classification disputes expose the hypocrisy of “free-trade agreements” that stretch for a thousand pages and include endless legal hair-splitting. In 1992, the Customs Service ruled that Honda violated the U.S.-Canada Free Trade Agreement (FTA) because less than 50 percent of the value of Honda Civics imported into the United States in 1989 was added to the vehicles in the United States or Canada. (Under the FTA, autos shipped between the United States and Canada are tariff-free if at least 50 percent of the auto’s cost of production is attributable to U.S. and/or Canadian materials and labor.)
Customs decreed that the automobile engine blocks, which were cast, shaped, machined, and finished at a Honda plant in Ohio, were not made in the United States. Customs issued the official regulations with this revolutionary definition of cost of production only a few days before its final ruling on Honda’s imports — and made the regulations retroactive to 1989. Honda officials complained in a letter, “Honda will be judged in the audit on the basis of acts submitted before there were any rules, and without any opportunity once the rules were made known to submit additional data to show its compliance with the rules.” Honda was forced to pay a $17 million fine. By effectively penalizing Honda for the operations of its Ohio factory, Customs’ ruling threatened the jobs of thousands of auto workers in Honda’s U.S. factories.
The Customs Service outdid itself concocting new steel products — or at least new steel categories. The U.S. government in the 1980s strong-armed 28 foreign nations into signing so-called Voluntary Restraint Agreements (VRAs) to restrict their steel exports. Each VRA specified which tariff classifications of steel would be restrained. Although happy with the VRAs, the U.S. steel industry was aghast at the prospect of any freely imported steel. The steel industry lobbied Customs to solve this problem by changing the official definition of steel products, scoring multiple retroactive wins that severely restricted imports.
Steel-import quotas spurred the biggest “wrong number” for common sense. The London Times reported on September 5, 1986, that the U.S. Customs Service invoked steel-import quotas to ban London’s red telephone booths:
All 30,000 of the cast iron booths, symbols as familiar to American as the British bobby and the London cabbie, have been purchased by the London Telephone Box Company, a firm which hopes to sell the booths [in the U.S.] for up to $3,000 each. Several of the booths … have already made their way on to the U.S. market where they were snapped up by eager Americans, who plan to use them as garden ornaments or household curiosities. Suddenly the transatlantic flows of booths … came to a grinding halt. The long arm of U.S. customs officials reached out and reclassified the booths as fabricated steel in a category called “other — other” in a complex agreement restricting European steel imports into the United States…. British officials said it is absurd to extend an agreement, meant to cover heavy steel products such as bridges and oil rigs, to an “antique” which is being sold in the U.S. as an ornament.
Unfortunately, today’s politicians are not smart or honest enough to recognize that the entire tariff code is an “antique” that America can no longer afford. Tariff-classification disputes are the ultimate “reductio ad absurdum” of enlightened “managed trade.” If the government cannot even intelligently and consistently define an athletic shoe or phone booth, how likely is it that government trade restrictions will actually benefit America as a nation?
This article was originally published in the November 2024 issue of Future of Freedom.