Editors Note: Playing the Trump Card
Beware the pitfalls of an America First approach to trade.
March 13, 2017By Leslie Helm
With multinationals like nike capable of moving production from one cheap source to another shifting production from Japan to China and now to Vietnam and with uber-efficient importers like Costco, Walmart and Amazon bringing goods straight from factory to consumer, the United States has become the bargain basement of the world.
Meanwhile, U.S. exporters often face a tangle of barriers such as multilayered distribution systems, byzantine customs procedures and aggressive buy-local policies.
The United States also has a tax system, which, compared to other nations, is more favorable toward imports. We charge high corporate income taxes that encourage multinationals to take their profits and their production overseas while other nations focus on value-added consumption taxes that hit imports while excluding exports.
Republicans are proposing a border adjustment that would radically change that calculus to favor exporters over importers. The goal is to help shrink a U.S. trade deficit that totaled about $500 billion in 2016, and to create more jobs in the United States.
We love the sentiment. Washington state is a major manufacturer and exporter of products, ranging from aircraft and medical equipment to agricultural and high-tech products. Manufacturing constitutes a critical part of the way innovation reaches the market. New medical breakthroughs at the University of Washington, for example, often become broadly accessible in the form of medical devices that then find large markets overseas. When gourmet coffee became a big thing, Seattle was a major source of innovative new coffee machines, such as the Clover espresso maker a sophisticated machine developed in an old trolley shed in Ballard. (They sold for $11,000 each before the company making them was acquired by Starbucks.)
Now that the craft beer movement is taking off, Sara Nelson, cofounder of Fremont Brewing, wants to see local companies build fermentation tanks, helping to reduce the long lead times that force some brewers to turn to Chinese imports. Nelson would also like to see someone develop smaller versions of the equipment larger brewers use to trap carbon dioxide as well as biodigesters that capture electricity-generating methane from waste.
And our tech companies, many of which have seen their intellectual property stolen or copied or have faced barriers in Chinese markets, would like to see judicious pressure applied to encourage China to change its behavior.
But the Trump administration risks doing serious damage to the global trading system when measures to encourage fair trade are framed as America First initiatives that will be used to raise tax revenues to build a wall on the Mexican border. The administration risks undermining American strength if taxes on imports are too high or if visas for tech workers are overly restrictive.
Import penalties are a double-edged sword, says Loren Lyon, president of Impact Washington, a government-supported organization that helps manufacturers improve efficiency. He points out that such penalties can drive up costs for manufacturers and hinder creative solutions from around the world.
The United States depends heavily on growth in world trade for its prosperity and must continue to champion open trade. Certainly, make some changes in the tax system to level the playing field. But instead of turning to protectionism, support organizations like Impact Washington and the Center for Advanced Manufacturing Puget Sound (CAMPS), which offers veterans training in manufacturing skills.
Dont tweet loudly and carry a big stick; speak softly and build competitive muscle.
LESLIE HELM is executive editor of Seattle Business magazine. Reach him at [email protected].