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Business Observer Friday, Mar. 25, 2016 4 years ago

An antidote to help Trump on trade

When you hear Donald Trump launch into one of his rants against the Chi-nese, Japanese and Mexicans for “killing us” on trade and how he's going to pound them with 45% tariffs, you can imagine so many Americans cheering him on.
by: Matt Walsh Editor

When you hear Donald Trump launch into one of his rants against the Chi-nese, Japanese and Mexicans for “killing us” on trade and how he's going to pound them with 45% tariffs, you can imagine so many Americans cheering him on.

“Yeah, get those guys!”

When he rails against the executives at Carrier for shifting jobs from Indi-anapolis to Mexico and urges Americans not to buy Carrier air conditioners any more, you can imagine so many Americans cheering again: “Yeah, get those fat-cat turncoats and put them out of business!”

And when he calls U.S. trade negotiators a bunch of incompetents and brags that he will negotiate “great deals,” Americans want to believe him. After all, he is the author of “The Art of the Deal,” you know.

Unfortunately, Trump is disingenuous with these protectionist tirades. And he knows it.

He — and the mainstream media — is not telling the parts of the trade story Americans also should know. They don't fit in TV sound bites at a political rally.

Voluntary trade: win-win
The story of trade starts with the incontrovertible truth that has been in existence from the beginning of civilization: Peaceful, voluntary trade — when two sides agree and government does not intervene — is good for both sides, win-win.

In fact, two of the best explanations of trade ever written are reprinted below — from Adam Smith's 1776 classic, “The Wealth of Nations.” As Smith pointed out, what's good for one family — to buy or trade for what it cannot produce on its own and to buy whatever it wants from those “who sell it cheapest” — makes complete sense for a great country. And, as
Smith said, it would be ridiculous to try to argue otherwise.

That pretty much sums it up.

To underscore Adams' truisms on trade, consider how important interna-tional trade is to Florida (see box on page 21):

• The Business Roundtable estimates international trade, including exports of goods and services plus imports, accounts for 2.4 million Florida jobs.

• More than 61,000 Florida companies export — the second-largest number of exporters in the U.S. And they account for roughly 20% of all U.S. exporters.

• Florida ranked sixth in the U.S. in exports, at $58.3 billion, exporting more than the industrial states of Michigan, Ohio and Pennsylvania. Texas and California were first and second, respectively. Altogether, goods worth more than $147 billion flowed through Florida's airports and seaports in 2015.

And by the way, if you look at the entire picture of U.S. international trade, not just Trump's side of it, the U.S. is not “getting killed” or ripped off.

Yes, the United States has “uge” trade deficits (we import more than we ex-port) with China ($365 billion), Mexico ($58.1 billion) and Japan ($68.6 billion). And China and Japan, especially, resist opening their markets to U.S. goods, which restricts the growth of U.S. companies. Or, as Trump alleges, it means those countries are stealing our jobs.

But Trump never mentions the other side of the trade deal. In fact, U.S. consumers overall are winners. When U.S. consumers can buy what they want — imported cars, irons, TVs, refrigerators, clothes and computers — at low prices, they are able to raise their standard of living. Those low prices leave more money in their pockets to save or invest or buy other goods and services, which in turn creates more jobs and more wealth elsewhere, much of it in the U.S.

There isn't just one winner. In fact, if left alone, without any government intervention on either side of international trade, both sides would win. Think of it this way: When you buy groceries from Publix, you have a trade deficit with Publix. But you don't mind, because you are able to buy what you want with the capital you earned by applying your labor elsewhere.
And Publix in turn benefits from its sales to pay its employees, shareholders and tax man; to invest its capital in new enterprises in Florida and elsewhere; to continue serving its customers. Everyone wins.

Such is the case with unfettered international trade.

It's only when governments become involved, or especially, when business-es seek favors from their government, that international trade creates losers.

Take Trump's 45% tariffs that he would impose. He wants to punish the Chinese and others — governments and specific companies — for not opening their markets to U.S.
competition; for dumping goods at below-market costs on the U.S.; and for lowering the value of their currencies to make their goods less expensive and ours more expensive.

He sounds tough and appealing. But there are significant costs.

For starters, if he punished all three actions, the big losers would be the American consumers. The prices of what we wanted and liked from China and Japan would go up, lowering American consumers' spending in those countries and on other goods and services they might otherwise have purchased here in the U.S.

Trump believes the tariffs would shift manufacturing jobs back to the U.S. But in all likelihood, even if manufacturing shifted back to the U.S., the shift would not cause the prices of those goods to be as low as they were when manufactured in China. That's why the manufacture of those goods shifted to China to begin with — the cost of manufacturing in the U.S. caused prices to be too high. Indeed, which is the root of the issue (more on that below).

Altogether, Trump's tariffs would create a lot of losers. Not only U.S. con-sumers, but also all of the employees at the targeted Chinese manufacturers, whose orders would shrink, and all of the businesses from whom those employees purchased their own goods and services.

In fact, seldom does anyone discuss — especially in China and Japan — how damaging those governments' policies are to their own people when they protect their businesses by closing markets; when they subsidize manufacturers; or when they lower the value of their currencies.

Those governments are enacting those policies with the intent of keeping people employed. But those are the classic policies of benefiting the few at the expense of the many. We have our own instance of that here in Florida with sugar.

The U.S. government imposes quotas and tariffs on foreign sugar to keep the Florida sugar industry in business. It makes no economic sense: Why should American consumers pay higher sugar prices than they otherwise would to misallocate consumers' and taxpayers' dollars in an uncompetitive business?

That's what China and Japan are doing to their own people.

But what about all those manufacturing jobs lost in the United States? What about companies such as Carrier, or even Sarasota-based Sun Hydraulics, which manufactures and distributes hydraulic products in the U.S., Europe and Asia?

Aren't they the poster children of Donald Trump's trade tirades? The losers in our trade deals?

To one extent, you can say they — as are all businesses — are victims of capitalism, or what Joseph Schumpeter called “creative destruction.” To stay in business in a constantly changing environment, they are always looking for ways to be more efficient.

If the cost of production in the U.S. makes Carrier or Sun less competitive, they have a fiduciary duty to their shareholders (e.g. individuals, pension funds of retirees, etc.) to find alternatives. At one time Sun had a Taiwanese partner manufacturing in China to be competitive.

When Carrier announced it was going to Mexico, it cited the U.S. regulato-ry environment. Trump never mentioned that.

Indeed, if there is an antidote to the loss of jobs to foreign manufacturers, Trump should turn his attention first to what is happening here at home. We have lost manufacturing jobs in America in great part because government regulations have driven up the cost of production and cost of labor to the point our companies here are no longer competitive in the global marketplace.

Perhaps Trump should look at what's happening in his second home state. Gov. Rick Scott has spent much of his two terms tearing down the state's regulatory regimes. And it's working.


The following two passages are excerpts from Adam Smith's 1776 classic on free enterprise, “The Wealth of Nations:”

“What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.

“If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. ...

“In every country, it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest.

“The proposition is so very manifest, that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common sense of mankind.

“Their interest is, in this respect, directly opposite to that of the great body of the people.

“It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy.

“The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers.

“All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbors, and to purchase with a part of its produce, or what is the same thing, with the price of a part of it, whatever else they have occasion for.

“What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.”

Florida & Trade
Dollars in billions
1. Texas $251.1
2. California $165.3
3. Washington $86.3
4. New York $80.5
5. Illinois $63.4
6. Florida $53.8
7. Michigan $43.1
8. Ohio $50.7
9. Louisiana $49.2
10. Pennsylvania $39.4

1. Brazil $18.6
2. China $9.2
3. Colombia $8.2
4. Japan $6.9
5. Chile $6.7

International trade and investment in 2015 accounted for about one-sixth of the state's economic output.

Enterprise Florida estimates that international trade — primarily exports of goods and services, along with employment by foreign-owned companies — supports more than 1 million jobs in Florida.

The Business Roundtable estimates international trade, including exports of goods and services plus imports, accounts for 2.4 million Florida jobs.

More than 61,000 Florida companies export, accounting for roughly 20% of all U.S. exporters. This is the second-largest number of exporters in the U.S. after California.

More than 95% of Florida exporters are small and medium-sized enterprises with 500 or fewer employees.

The U.S. Department of Commerce reports that, on average, companies that export grow 15% faster, pay 15% higher wages and are 12% more profitable than those that do not export.

Employment in the seaport industry is one of the fastest growing sectors in the U.S. with a projected growth rate of 20%.

The average annual wage nationally for seaport-related jobs is $54,400 per year.

Florida has 15 seaports: Canaveral, Citrus, Everglades, Fernandina, Fort Pierce, Jacksonville, Key West, Manatee, Miami, Palm Beach, Panama City, Pensacola, Port St. Joe, St. Petersburg, Tampa.

Sources: Enterprise Florida, Florida Ports Council

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