Trump's small thinking on trade destined to cause major damage

Trump's small thinking on trade destined to cause major damage
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President Donald Trump might not like to admit it, but the man thinks small. Just look at his rhetoric on trade.

He’s been threatening to exit a trade deal with Canada and Mexico, America’s second- and third-largest trading partners. He has repeatedly threatened tariffs on goods from China, our largest trading partner.

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As one of his first acts in office, he formally withdrew U.S. support for the Trans-Pacific Partnership trade pact, an agreement between 12 countries that border the Pacific Ocean and that represent about 40 percent of the world’s economic input.

 

President TrumpDonald John TrumpTrumps light 97th annual National Christmas Tree Trump to hold campaign rally in Michigan 'Don't mess with Mama': Pelosi's daughter tweets support following press conference comments MORE wants the United States to export more than it imports, with every trading partner, without regard for the unintended consequences that could result from such moves. This is small thinking.

The global trade ecosystem is massive and complex. It requires a broad view — one that looks across regions, states, countries and sectors. It also requires a long view — one that anticipates consequences and repercussions.

The Commerce Department recently recommended countervailing duties of 220 percent and an additional 80 percent in anti-dumping duties on Bombardier C-Series jets sold in the U.S. after a complaint from Chicago-based Boeing.

The U.S. aerospace manufacturer had accused its Canadian rival of receiving unfair government subsidies from Ottawa that allowed it to sell its narrow-body aircraft below cost in the United States. In short, they claimed, Bombardier was dumping its planes here.

That may or may not be true, but those tariffs were never going to be the end of the story.

Immediately after the decision, Canada threatened to cancel its purchase of Boeing Super Hornet fighter jets. Then, the United Kingdom threatened a Boeing boycott as well, miffed about the economic impact that the U.S. tariffs could have in Northern Ireland, where Bombardier is a major employer.

Then, in a surprise move, France’s Airbus agreed to take a majority stake in Bombardier’s C-Series jet project, in a deal that would allow Airbus to move assembly of the C-Series to Alabama, effectively giving Bombardier an end-run around the tariff problem.

The deal rounds out Airbus’ already impressive fleet, giving it a smaller, narrow-body aircraft that can compete against the smaller of Boeing’s 737 workhorses and giving it a new, advanced fuel-efficient design without all the usual development costs. For Boeing, this deal is not good news, and it might not have happened, if not for the tariffs.

But forget about the Airbus deal for a moment. Bombardier already had four factories in the United States. What would those tariffs, and the higher cost of doing business, mean for jobs at those American factories? Under increased price pressures, the Montreal-based Bombardier would have been looking to cut costs, imperiling those U.S. jobs.

Beyond those repercussions, there is also the risk of retaliatory tariffs from Canada and the U.K., which could threaten jobs not just at Boeing and Bombardier, but across numerous other industries, and this could also result in net American job losses.

This situation isn’t limited to aircraft. Not by a long shot. Shortly after the Bombardier decision, the U.S. International Trade Commission invoked a rarely used Trade Act provision to limit competition from foreign washing-machine manufacturers on behalf of Whirlpool.

Michigan-based Whirlpool had complained of “serious injury” from a surge of imports from South Korean rivals Samsung and LG, and that could backfire.

In 2002, President George W. Bush’s administration used the same obscure Trade Act provision to impose temporary tariffs on steel imports. It didn’t go well. It heightened tensions with key U.S. trading partners and placed competitive strains across the industry and beyond.

Higher steel prices stemming from Bush’s tariffs, according to one study, resulted in the loss of 200,000 U.S. jobs, an unintended consequence, with spillover effects that cascaded well beyond the steel industry.

Whirlpool and Boeing represent just two individual cases. Slapping a 45-percent tariff on all goods from China, as Trump threatened throughout his presidential campaign, would be far more wide-reaching, as Beijing would likely retaliate with tariffs of a comparable scale.

Trump’s tariff threats seem to disregard the brunt that would be born by thousands of American businesses that export goods to increasingly important Chinese consumers.

Do we really want a trade war with the second-largest economy in the world, where scores of U.S. multinationals have seen a substantial percentage of their growth over the past several years? What happens to jobs at home if the China market is lost?

Withdrawing from TPP, meanwhile, strips the U.S. of an opportunity to establish a wider stronghold in the Asian market. It also adds potency to Beijing’s response, the Regional Comprehensive Economic Partnership (RCEP), which enables China to maintain strong trading power in the Asia-Pacific region.

In my role as associate dean of the University of Maryland’s Robert H. Smith School of Business, I spent a lot of time in China speaking with American expats in senior positions with U.S. multinationals. A common theme was how robust Chinese growth was driving revenue and creating jobs back home.

That’s what this globalization ecosystem can do.

As a country, our focus should be on helping U.S. companies become more innovative, more creative in their product development and positioned at the vanguard of technology in their perspective industries. This is what makes American businesses more attractive, both at home and abroad.

It is critically important to focus on fair trade practices and to address individual issues as they arise, considering the ramifications of every protectionist move we make. It is equally crucial to avoid making irresponsible decisions with widespread collateral damage.

While it might not lend itself to "rah-rah" campaign-style speeches, it’s essential to contemplate what’s at stake when we consider levying punitive tariffs on our major trading partners.

In other words, it’s important to think deeply and to think big. American business depends on it.

Gary Cohen is a clinical professor of international business and supply chain management at the University of Maryland’s Robert H. Smith School of Business.