President Donald Trump’s view of international trade as a war, a competition – something to be won or lost by nations and negotiated through agreements to receive the most benefit for the collective “me” that is the United States – is a skewed view of the industry, according to experts.
(Port of Los Angeles photograph)
“The idea that you want to focus on deficit and use that as a scorecard of the prowess of your economy and its ability to compete around the world is absurd,” Jock O’Connell, international trade adviser at Beacon Economics, said. “It completely ignores the way the global economy is structured.”
O’Connell explained that the United States has been running a merchandise trade deficit consistently since the late 1960s and, in general, has done well in the years since. Michael “Mickey” Kantor, former U.S. secretary of commerce (1996-1997) and trade representative (1993-1996) during the Clinton administration, took it one step further and said trade deficits have and always will be a sign of a strong U.S. economy.
He explained that international relationships are much more complex than just deficits. To illustrate his point, Kantor, a partner with the law firm Mayer Brown in Los Angeles, noted the $60 billion trade deficit the U.S. has with Mexico. Despite the deficit, Kantor said Mexico is the second-largest export market for the U.S., larger than the entire European Union. Throw in Canada, the other third of the North American Free Trade Agreement (NAFTA), and Kantor said the combined export market dwarfs all other U.S. markets.
“We are a consumer nation. We have a very low savings rate, a very high consumption rate and large incomes. That’s a formula for increased imports,” Kantor told the Long Beach Business Journal. “So if you put charts up on the wall of the rise of the American economy, you would see the rise of the American trade deficit at the same time.”
Due to the country’s focus on consumerism, Kantor and many other trade experts and economists said the Trump administration’s proposals for tariffs, border taxes on imports and “ripping up” trade agreements such as NAFTA would only hurt everyone involved, especially the consumer.
Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation based in Washington, D.C., said the border tax adjustment is basically a 20% tax on all imported goods to be passed on to consumers. Gold noted that the GOP does not have a fully drafted bill but rather a blueprint which lays out the plan.
“We’ve had some members look at the blueprint and run their numbers, and they basically said that . . . the border adjustment tax is going to wipe them out,” Gold said. “They said their taxes could be three or five times their profit margins, which would essentially put them out of business. As we are looking at it now, that is our biggest concern.”
Of course, President Trump’s main objective with these taxes and tariffs is to bring manufacturing jobs back to U.S. However, Kantor explained that taxes and tariffs would hurt overall trade and, therefore, have a negative impact on manufacturing, as other nations impose tariffs on U.S. goods or lessen U.S. imports in general.
In addition to hurting trade, Kantor and Gold agree that the decline of manufacturing jobs is not a result of trade deficits or agreements, or really trade at all. Rather, the U.S. has seen a steady increase in productivity.
“We’re still making a lot of things in the U.S. We’re just making them with a lot less people,” Gold said. “You’re seeing better efficiency and productivity with less people. Part of that is because of automation, which is probably a bigger threat to jobs than trade is.”
A decrease in trade would also have an added negative impact on shipping and logistics industries in the U.S. If imports were reduced, even if manufacturing jobs were to experience an upswing, shipping and logistics would take a hit, essentially moving the problem to another sector rather than solving it, according to O’Connell.
He went on to say that the most difficult aspect of dealing with Trump’s trade policy proposals is the extreme uncertainty. The change in tone from the campaign to current discussion regarding NAFTA has been the most jarring, experts said. On the campaign trail and even after being elected, Trump has routinely referred to NAFTA as “the worst deal in history,” saying he would rip up the “catastrophic” agreement. Most recently, however, Trump has reigned in his rhetoric by saying modest changes would be made and promising “pleasant surprises.”
“The caution is a function of the administration becoming better informed about the realities of the world of international trade,” O’Connell said. “When he was on the campaign trail, he was almost totally clueless about how trade was really conducted. He had an almost cartoonish idea of international trade and the role of foreign trade agreements in trying to promote a better, more equitable world.”
Regarding NAFTA, John Husing, private senior regional economist at Economics & Politics Inc. in Southern California, noted that while multilateral deals do create winners and losers, there are more winners. He explained that the reason it seems off balance is because the winners are typically consumers who do not even realize the benefits they are reaping, while the losers are often specific sectors that can see their injury.
However, despite the obvious benefits of NAFTA, Husing, Kantor and Gold noted that the agreement is nearly 25 years old and could do with an update to put it in line with the needs of a more modern world.
“When you look at things like digital commerce, that wasn’t part of the NAFTA 20 years ago because it didn’t really exist,” Gold said. “Looking at how we modernize trade facilitation and trade enforcement, again [that is] something that we think is important to look at. So I think there are some areas that we all agree need to be looked at.”
According to Gold, some of the alterations and additions needed within NAFTA were already included in the Trans-Pacific Partnership (TPP), which Trump withdrew from in January. Many economists and trade experts, including Husing, were in support of TPP and are at a loss as to why Trump followed through with this decision.
“It would have actually helped our ability to compete. Except you’ve got the urban myth that it was somehow going to send jobs overseas,” Husing said. “That is not what I’ve seen any analysis say would have happened. But, excuse me, the people who were at [Trump] rallies aren’t exactly experts on international trade.”
Gold said that he hopes the U.S. will get to a point where it can begin negotiations with these nations again, including Japan and Vietnam. He said China is already in discussions with several strategic U.S. trade partners, which only adds to his disappointment over Trump’s withdrawal from TPP.
Though Trump has not made many moves regarding trade policy and immediate effects cannot be determined, O’Connell said the uncertainty and rhetoric are concerning to industry experts. Kantor noted that the U.S. does not spotlight the trade industry as much as it should, which leaves many Americans ignorant of the facts.
“We are the only developed country in the world where trade is not a front-page issue on a daily basis,” Kantor said. “Therefore, Americans don’t know a lot about trade, trade agreements and their impacts. And we all need to learn more about it.”