Has Trump launched ill-conceived trade war?
During his campaign, Donald Trump vowed to impose tariffs on imported goods and toss aside the North American Free-Trade Agreement if he could not renegotiate for terms he felt were favorable to America.
In our estimation that was the wrong approach. Tariffs inflate prices and invite retaliation, hurting successful export businesses. Rather than a 20th century blunt object approach — tariffs — the key to winning in the new global economy involves smart investments in education and retraining, providing the workers who are necessary for a high-tech future where people will program, manage and maintain the robots that will provide much of the labor in our new century of manufacturing.
In other words, rather than erecting trade walls and retreating from global competition, America should better position itself to win in that environment.
While Trump quickly pulled the U.S. out of the Trans Pacific Partnership — opening the way for China to make side deals and seek dominance in a region that has the world’s fastest growing economies — he otherwise steered clear in his first year of picking the trade fights he had threatened.
But 2018 is starting differently.
Trump this week announced a 30 percent tariff on crystalline silicon photovoltaic cells and solar modules. The president is also imposing a 20 percent tariff on the first 1.2 million washing machines imported from abroad, rising to 50 percent for any washers imported beyond that threshold.
And indications are that these are likely only the first bricks in Trump’s trade wall.
The solar industry is a good example of how a global economy, as imperfect as it may be, can work well. Malaysia, South Korea and Vietnam are the top three suppliers of solar cells and modules for the U.S. solar industry. That industry largely takes it from there, providing the arrays and installation.
The combination of the affordable solar cell imports and the ingenuity and efficiency of U.S. installers has resulted in a vibrant and growing domestic industry, providing 260,000 well-paying jobs. While the tariffs will open the door to more domestic solar cell production, the far bigger impact will be higher prices and reduced demand from residential and commercial customers.
The Solar Energy Industries Association fears the tariffs will cost its industry 23,000 jobs.
The tariffs slapped on washing machines seemed particularly ill timed. Domestic manufacturers are moving toward greater automation and reduced labor costs that will allow them to compete on the global stage. Case in point is the $380 million manufacturing plant Samsung Electronics Co. is constructing in South Carolina, expected to create 600 jobs.
Regrettably, the Japanese-based Samsung may be forced to trim the size of its planned expansion now that it will face tariffs for its imported goods. Retaliatory tariffs could also choke off potential foreign markets for new U.S.-based, high-tech manufacturing operations.
Trump’s washing machine tariff will particularly hurt South Korea and Mexico, the top exporters of washing machines to this country.
Does the Trump administration really think it is a good idea to begin a tit-for-tat trade fight with South Korea when the U.S. is trying to work with that country to deal with a nuclear-armed North Korea?
And while undercutting an industry in Mexico might create some jobs here, such moves — because this is probably just the start — could also destabilize the Mexican economy, displace workers and aggravate an illegal immigration problem the president has said he wants to fix.
Meanwhile, Trump threatens to tear up NAFTA if Canada and Mexico don’t acquiesce to his administration’s demands. Excluding China, at $500 billion annually the two neighbors are our nation’s largest trading partners. While we run a trade deficit it is, unlike the trade deficit with China, relatively modest at $74 billion.
Ending NAFTA would be terribly disruptive to the three interlaced economies.
None of this is good news for Connecticut. The state has among the most ambitious agendas for boosting renewable power production, including solar, but the higher prices from tariffs will hinder those efforts.
Some rare good news this week revealed Connecticut’s economy expanded 3.9 percent between July and September, eighth fastest among the states, with manufacturing a leader. A trade war, particularly with our neighbor Canada, would put a lid on that potential manufacturing growth.
The president believes going 20th century with the world when it comes to trade will make America great again. Instead, it would place limits on U.S. greatness.
The editorial board is composed of the publisher and four journalists of varied editing and reporting backgrounds. The board's discussions and information gained from its meetings with political, civic, and business leaders drive the institutional voice of The Day, as expressed in its editorials. The editorial department operates separately from the newsroom.
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