The truth on trade

When you hear Donald Trump launch into one of his rants against the Chinese, 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 Indianapolis 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. 

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. 

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 — 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.

To underscore Adams’ truisms on trade, consider how important international trade is to 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 — 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. 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. trade, not just Trump’s side of it, the U.S. is not “getting killed” or ripped off.  

OTHER SIDE OF THE DEAL

Yes, the United States has “uge” trade deficits (we import more than we export) 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 without any government intervention, both sides win.

It’s only when governments become involved, or especially, when businesses 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. 

TARIFFS’ LOSERS

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

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. But why should American consumers pay higher sugar prices 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 U.S.? What about companies such as Carrier, which manufactures and distributes around the world? 

Isn’t Carrier the poster child of Donald Trump’s trade tirades? The loser in our trade deals?

To one extent, you can say Carrier — as are all businesses — is  simply a victim of capitalism, or what Joseph Schumpeter called “creative destruction.” To stay in business in a constantly changing environment, it must always look for ways to be more efficient.

If the cost of production in the U.S. makes Carrier less competitive, its directors have a fiduciary duty to shareholders (individuals, retirees, pension funds) to find alternatives. 

When Carrier announced it was going to Mexico, it cited the U.S. regulatory 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 cannot be 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. Jobs are growing.