Leveling the trade playing field

By UYLESS BLACK

Special to The Press

President Trump has hit a bull’s-eye with his approach to international trade agreements. To see why, I use a consumer product, the kitchen toaster, to illustrate my point.

Taking inflation into account, Americans purchase their consumer items at lower prices than in the past. The availability of inexpensive goods, such as toasters, is often lauded as the result of trade agreements (tariffs) with other countries.

The idea of imposing a tariff is for a country to protect its workers from foreigners who are exporting the same goods — say, toasters for this analogy — into the country and competing with the market for local toasters. An import tariff is essentially a tax that raises the cost of the foreign toaster.

It is a delicate and complex balance: How to attract consumers in the foreign country, yet protect consumers in one’s own country.

In the past, toasters have been churned out by people in other countries who work for lower wages, resulting in a cheaper foreign toaster than a locally manufactured toaster. Yet America has done little to protect its toaster industry and its manufacturing base in general.

Thus, in relation to trade imbalances, the American toaster has become toast to the Chinese toaster. Most consumers do not care. A toaster by any other manufacturer is still a toaster. The toaster shopper looks at the price and functions of the machine, typically not where it is made.

Beyond wages and prices

However, wages of toaster makers and their associated prices for toasters are not the entire picture. Many people are under the illusion that lower wages in countries such as China is the sole reason for the decline of jobs (especially in manufacturing) in the U.S. That is certainly one factor and a major one.

But there are others: (a) increased automation of formerly manual jobs, (b) loss of interest (and honor) in blue collar employment, (c) over-emphasis on young people acquiring a four-year college degree on a general subject, instead of a shorter period to learn about specific occupations, (d) America’s de-emphasis on trade schools, (e) marginal pay that discourages potential workers from entering low-wage jobs, and (f) America’s low tariffs.

These issues are discussed in this two-part series.

Leaving the trade agreement sandbox

President Trump signed an executive order in April directing his administration to review all trade contracts for possible abuse. He has withdrawn from the Trans-Pacific free trade deal. The upshot is that Mr. Trump is not in favor of the present arrangements.

The initial reactions to these orders were mostly negative. The criticisms focused on two arguments. First, America was abandoning its role as the world’s leader of free trade and of leadership in general. Second, international trade agreements benefited the American consumer, and therefore, the American economy.

Referring to the figure accompanying this article: Granted, America has been leading the world in international trade agreements, but this figure shows these agreements have not been in America’s interests.

It is reasonable to question how a country that has experienced decades of trade imbalances is benefiting from this arrangement.

I am told by advocates of international trade that these agreements form the lynchpin of happy Walmart customers. Perhaps. But a cheap toaster in Walmart means little if the American citizen has no job or insufficient income to make the purchase.

The second article in this series explores the other reasons for America’s international trade deficit. In the meantime, the table in this article can give the reader some food for thought. It reflects this year’s U.S. trade in goods with China (figures are in millions of dollars).

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During part of his career, Uyless Black served as a senior officer at the Federal Reserve Board in Washington, D.C., and the senior vice president of the Federal Reserve Bank in Dallas. Later, he founded three companies dealing with computer networks and the emerging internet. Mr. Black resides in Hayden.