Be careful about imposing trade sanctions | Don Brunell

On March 1, the Wall Street Journal carried a sobering editorial that ought to force us to look behind the toxic presidential campaign rhetoric and ask two very important questions about how we position our nation to compete internationally.

On March 1, the Wall Street Journal carried a sobering editorial that ought to force us to look behind the toxic presidential campaign rhetoric and ask two very important questions about how we position our nation to compete internationally.

First, what really happens when our leaders impose punishing trade sanctions?

Second, why are companies leaving America?

Specifically, when Donald Trump “threatens to endorse 45% tariffs on Chinese and Japanese imports and promises to punish U.S. companies that make cookies and cars in Mexico,” as the Journal reported, those threats hurt us.

Here’s the problem. In high school physics, we learned that for every action, there is an equal and opposition reaction. That axiom applies to tariffs and sanctions.

In 1930, President Herbert Hoover reluctantly signed the Smoot-Hawley international trade sanctions legislation. Its high tariffs were intended to protect American jobs and farmers from foreign competition. It backfired and triggered retaliatory measures. Trade volumes shrank and it deepened the Great Recession.

Consider what is going on today. The pace of world trade continues to plummet. Internationally, trade volumes are shrinking and China, the world’s second largest economy, is struggling with overcapacity and anemic demand.

In Washington, 40% of our jobs are tied to international trade and our state has the nation’s highest per capita income coming from exports and imports.

To see a glimpse of how devastating interruptions in international trade can be, the Washington Council on International Trade reports the West Coast port labor dispute last year cost Washington State $769.5 million.

Imagine the impact on our state if Congress and our new president revert back to the Smoot-Hawley approach?

Over the years our state’s congressional delegation, both Republican and Democrat, have thoughtfully developed and supported free and fair trade policies even when some of their strongest supporters urge them not to.

There is no doubt that American job growth is inadequate and the unemployment rate does not reflect the millions who are unable to find work. There is nothing more demoralizing to a family than a mom or dad coming home with a pink slip because their factory is relocating to another state or country.

To reverse that trend, politicians must thoughtfully layout plans which will help our nation’s employers add jobs by reinvesting in factories here. They must look carefully at what caused Ford and Nabisco (Trump’s examples) to move to Mexico.

While the simple answer is “it costs too much to manufacture here;” specific solutions are far more complex and don’t lend themselves to irresponsible campaign sound bites.

Nabisco is closing nine production lines at its mammoth Chicago bakery and moving those jobs to Salinas, Mexico. The combination of high labor costs, excessive corporate and property taxes, and arduous government regulations were key deciding factors.

It is interesting to note that, as the WSJ reports, while Illinois, a notoriously highly taxed and regulated state, lost 56 manufacturing jobs per day last year, employment in neighboring states (Michigan, Indiana, Wisconsin and Ohio) grew.

Ford is joining foreign automakers and General Motors in building new plants in Mexico. Lower production costs are necessary as car manufacturers retool to make advanced hybrid and electric cars that buyers can afford.

Besides lower labor costs, Mexico’s major free-trade agreements with 45 countries including Japan and the European Union, gives its producers access to 60% of world markets. By contrast the United States has deals with only 20 nations, WSJ reports.

There are better, more thoughtful ways, to protect jobs and for products “Made in America” to compete globally. But tearing up trade agreements and recklessly imposing punishing sanctions on our trading partners is not one of them.

 

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