I have visited the Rust Belt many times. I drove through Youngstown, Ohio, in 1970 and 2005. I have seen whole neighborhoods bulldozed. The same thing happened in Michigan and other Rust Belt states. I understand the pain and the loss. So, what happened?
America still produces lots of mechanical and industrial engineers. We still have lots of know-how to build things. However, there is one problem. A U.S. factory worker earns about $35 per hour, while the same worker in China earns about $6, and about $3 in Vietnam. Even at $35 per hour, there are over 400,000 open manufacturing jobs in the U.S. Americans can earn more pouring coffee or working at side hustles than working like a robot in a factory.
So, what is Trump’s international trade strategy? He has increased tariffs to levels not seen since the Great Depression and is twisting the arms of America’s CEOs to bring factories back to America. It sounds very noble and patriotic, but does it make any sense?
The fatal flaw in Trump’s strategy is simple math. Do Americans want to begin to pay twice as much for products like toasters, washing machines, microwaves, computers, etc.?
Aside from the cost factor, do we want to pollute our environment by building more factories? The U.S. currently has environmental laws to protect the health and safety of all Americans.
With 400,000 manufacturing jobs available, it is clear that not enough Americans want to work in an American factory.
Robotic factories are a future certainty; however, automating all manufacturing functions will not bring many jobs back to Youngstown. Robots will only make the American job situation worse.
An excellent book, Apple in China, provides a detailed example of how international trade operates. Moreover, it demonstrates the dynamics of any market exchange. The book details how Apple tried mightily for years to manufacture all its products in the U.S. However, they were forced to go outside the country unless they wished to commit corporate suicide. In fact, Apple was dangerously close to bankruptcy in 1997. China, in particular, provided not only a place to manufacture Apple products but also formed a partnership par excellence. The exchange was so favorable to Apple that this relationship enabled Apple to add an average of $700 million to its market value EVERY CALENDAR DAY FOR TEN YEARS.
International trade is both complicated and straightforward. However, to treat it simply as warfare is a mistake made by paranoid personalities. Framing international trade as warfare almost inevitably leads to an actual war. Just read about the trade conflicts between Japan and the USA before World War II.
Instead of preparing for warfare, we should consider trade to be a mutually beneficial exchange. Like any exchange, in the long run, either party can take it or leave it. I need a pound of coffee, so I go to the grocery store. If coffee costs too much, I can drink tea instead or buy my coffee elsewhere; I have the right to do so.
When we go to the grocery store, we pay about $8 a pound for ground roast coffee ($3 in 2005). Most of us do not have coffee trees in our backyard or know how to convert coffee seeds (we call them beans) into the stuff we drink. To put this in the context of exchange, we have a balance of trade deficit with the grocery store. The grocery store also has a trade deficit with the coffee importer. And so on. However, underlying the market exchange is money. The Brazilian coffee growers do not produce their product out of the goodness of their hearts. They receive money. The import company earns a profit for its work. The grocery store receives a cut of the exchange to place the product on its shelves. This is not warfare; it is a series of mutually beneficial exchanges. Having a trade deficit is not necessarily a bad thing.
The true conservative (as opposed to the fake ones in power now), George Will, says this more articulately in the following short YouTube video.
As in past administrations, there have been reasons for the nation to protect and subsidize some industries. I do not believe that the “free market” should trump every consideration. I am not a free market absolutist. We should have some tariffs and control over our industrial policies. However, the erratic approach by the President demonstrates that he is playing checkers while the rest of the world is playing three-dimensional chess. Wall Street traders and pundits have started calling him the TACO President. He blusters on about massive tariffs, sets deadlines, extends the deadlines, or lowers the tariff. Still, he has actually raised some tariffs, and to many people they seem unnecessary and wrongheaded.
Trump seems to think that tariff revenue will reduce the federal deficit. I’m no economist, but consumers in the lower and middle classes would pay the bulk of the tariffs. So, tariffs become a new regressive federal sales tax. Is that what we want? Do we want to pay $100 for a new toaster that now costs $50?
So, why is the Trump administration raising tariffs on foreign goods? Should we start growing coffee in our backyards? As coffee prices continue to increase, will we need to grow our own coffee trees? [With climate change, it might be feasible since coffee trees thrive in tropical climates.]
Should our teenagers forego college and trade schools so they can work 12-hour shifts in an Apple factory?
Maybe I am the Pollyanna for not understanding the stable genius. I welcome any clear justification for Trump’s disorganized, reactionary, and un-American tariff policy.