Tariffs Re-Considered
Don’t dismiss the president’s decision to impose tariffs on imported steel and aluminum as anachronistic protectionism or a rejection of the global economy. Furthermore, don’t be surprised by the firestorm created by Trump’s announcement, because many companies think they cannot survive without imports. Even though my company imports home furnishings, I still agree with the president on this small push-back on “free trade.”
There are only two economic reasons to extend duty-free status to a foreign trading partner; (1) when another nation offers something not available or abundant in the USA, or (2) when it opens a foreign market to USA producers (a reciprocal trade agreement). Both scenarios would be known as fair trade, which is preferable to the free-trade scam globalists hoisted on America’s industrial workers.
Almost thirty years ago, American politicians promised citizens the USA would be the net beneficiary of free trade. Free-trade economists argued the distributional impact of a growing global economy would eventually be solved, meaning the new “factories of tomorrow” would replace the old “shuttered factories of yesterday.” A frequently cited example was the displaced textile worker that would be retrained as a skilled technician for the so-called jobs of tomorrow. While it looked good in theory, it looked awful in practice.
One large problem should have been obvious: absorbing the workforces of China and India. It is one thing to open US markets to Taiwan (population: 23.4 million) and quite another to accommodate the populations of China and India. While Taiwan moved quickly from a low-cost producer (exporting toys) to a high-cost producer (exporting high-tech goods), China has no shortage of cheap labor to drive up the cost of wages. China now sets (low) wages for the entire world – with no labor shortage in sight – and has no plans to stop adding manufacturing jobs.
The second problem was predicted by Ross Perot in 1992: the hollowing out of “factory towns” all over America. In the real world, it is rare when a displaced automotive worker does not experience a 50% cut in take-home pay. In rural communities, regional hospitals cannot employ every re-trained worker. Sadly, many displaced workers need three jobs to now provide for the family. Forgotten Americans kept waiting for the promised trade reciprocity, which never came.
One might forgive Bill Clinton and Bush Junior for ignoring Perot’s warning, but Obama inherited the unemployment carnage and did nothing. He was all talk and no action. If Obama had worked for the under-employed (native-born) Americans as he worked for undocumented immigrants, the USA would be well on its way to solving wage stagnation. You might hate Trump the man, but the current president took it upon himself to do something.
A third problem is the rampant free-trade cheating. You’d think Hollywood, which runs those pre-movie Stop Intellectual Property Theft messages would support Trump on fair trade, because the foreign theft of US intellectual property costs the US an estimated $600 billion annually (source: USITC). The Department of Homeland Security reports 88% of the counterfeit goods come from China and Hong Kong, which the USITC claims cost the US 923,000 jobs.
Free trade is good when the goods come from friendly nations that play by the rules. However, the world’s cheaters avoid US quotas and tariffs by trans-shipping goods through almost all of our so-called free-trade friends, such as Canada, Mexico, Japan, and South Korea (source: CBP). It is wrong for Canadian and Mexican companies to profit as conduits for cheaters to ship into America’s markets. With this in mind, Trump’s NAFTA criticism is justified.
It will be a national disaster if free trade precipitates the loss of industrials arts, meaning industries also lose know-how when they lose plants and equipment. For example, there is no longer domestic mass production of gold leaf, antique mirror or hand-carved furniture in my industry. This lesson is not lost upon China, which invented gunpowder in 142AD, stopped production during the Ming Dynasty, and was later subjugated to the British empire by English gunboats. Will the USA be a superpower after it has lost the know-how to make shoes, steel, clothing, aluminum, semi-conductors, and aircraft? No way!
The sky is not falling, but your president was wise to start the fair-trade conversation. He might be wrong on aluminum and steel imports, but Trump has invited voters to challenge candidates on NAFTA and China. He might have failed to save Carrier, but he forced coastal elites to think about workers in fly-over America. The president is agitating informational sediment - and the USA should never consider free trade a settled matter, because the world keeps changing. It is a good leader that keeps stirring the “trade pot” until Washington delivers a win-win solution for consumers and workers. Help keep the conversation going.