Much Has Changed, But the Fundamentals Have Not

June 3, 2018

 

As a consultant, I have opined on matters on which I should have just kept my mouth shut and listened. Spouting-Off Syndrome, speaking in an authoritative manner on things one knows little or nothing about, is a common affliction among consultants.

 

Those stricken with SOS feel compelled to be all knowing on subject matter that they somehow believe that they should know, whether they actually do or not. Bless their hearts.

 

With age and experience, I have come to realize that while I don’t have all the answers at the tip of my tongue, I do have a fiduciary responsibility to my clients to give them accurate information. That means listening to their concerns and finding the correct answers, so that they can make better informed decisions.

 

Lest one forget, opinions are one thing, facts are another. You will find the latter far more defensible.

 

For economic development clients, I have come to know through experience that there are various ways and means by which to improve a business climate of a community and increase the likelihood of corporate investment. For corporate clients, I have learned that a site selection process is an absolute necessity to identify best places from which to operate. The process truly is the solution.

 

But we do not live in a static world. Things and circumstances change. As one who is supposed to give expert advice, it is incumbent on me and my fellow team members at BBA to stay abreast of business news and industry trends. It’s never too late to learn.

 

Brilliant and Bonehead

 

Not long ago, I sat on a manufacturing panel of site selection consultants at an economic development conference in Dallas. In my opening remarks, I mentioned the reduction of the corporate tax rate from 35 percent to 21 percent was a huge boon to companies and would likely result in more capital investment.

 

I also said that the prospect of a trade war spawned by protectionist policies of the Trump administration was rightly a great concern for many, as it would increase production costs to manufacturers and consumer costs for the rest of us. I was not trying to be “political,” but merely stating facts.

 

But don’t you know that it just couldn’t lie there. Another consultant on the panel, who openly professed to being a Trump supporter, predicted there would be no trade war sparked by increased U.S. tariffs on imports from other countries.

 

I was dumbfounded by the comment, and thought to myself, “How on earth do you know that? Where are you getting your information?”

But I kept quiet, realizing that consultants are people, too, capable of saying brilliant and bonehead things within the same breath. SOS is a serious thing.

 

A Bad Day For All

 

The news breaking this past week -- the Trump administration is putting steel and aluminum tariffs on our closest neighbors and allies – reveals a growing rift that could stunt economic growth both here and abroad. Not surprising, Canada, Mexico and the European Union have promised to retaliate with duties of their own.

 

“Today is a bad day for world trade. We did everything to avoid this outcome," said EU Commissioner for Trade Cecilia Malmström in a prepared statement. "The U.S. has sought to use the threat of trade restrictions as leverage to obtain concessions from the EU. This is not the way we do business."

 

Ms. Malmström called the U.S. tariffs “illegal” and said the EU will take its case to the World Trade Organization. In the meantime, the EU issued a 10-page list of retaliatory tariffs on U.S. goods ranging from Harley-Davidson motorcycles to bourbon.

 

Our Closest Neighbors Respond

 

Canadian Prime Minister Justin Trudeau called the U.S. actions "totally unacceptable."

 

"These tariffs are an affront to the longstanding security partnership between Canada and the United States and, in particular, an affront to the thousands of Canadians who have fought and died alongside their American brothers in arms," Trudeau said.

 

Canada, the largest supplier of steel to the United States, said it will impose tariffs covering C$16.6 billion ($12.8 billion) on U.S. imports, including whiskey, orange juice, steel, aluminum and other products.

 

"We need to hit Trump where it hurts — in his wallet,” said Ontario Premier Kathleen Wynne. “This short-sighted decision is an attack on Ontario's steel industry and its workers. It is not the action of a friend, an ally or economic partner."

 

Mexico, another top exporter of steel to the U.S., said it would retaliate with its own “equivalent” penalties on U.S. products including pork, apples, grapes, cheese, steel and other goods. The government said its countermeasures would remain in place until the U.S. removes the tariffs.

"Mexico reiterates its openness to constructive dialogue with the United States, its support for the international system of commerce, and its rejection to unilateral protectionist measures," according to a prepared statement.

 

U.S. Against The World

 

Taken together, the responses of the EU, Canada and Mexico would appear to be more than bluster, but real retaliatory measures that they are prepared to take in response to the U.S. firing the first salvos of what could be an ugly trade war.

 

That is not to say that a trade war is inevitable. Reason can still prevail. The Trump administration could back away from the tariffs. But right now, it looks as though the U.S. has isolated itself from the rest of the world.

"This doesn't happen that often at G7 meetings, but it was U.S. against everyone else," Japanese Finance Minister Taro Aso told reporters. Japan has been paying the U.S. metals tariffs since March 23.

 

Richard Haas, president of the Council of Foreign Relations, tweeted: "The Trump administration has achieved the unthinkable: turning the G-7 into the G-6 ... with the US as the odd man out."

 

Mr. Trump contends that the newly enacted tariffs are a win for the steel and aluminum industries, with investment and hiring to follow. But history teaches us that tariffs have been largely ineffective in protecting jobs.

 

Truth and Consequences

 

The truth is that there are many more communities in this country that depend on industries that use steel or aluminum than on the industries that actually make those primary metals. In short, there are local consequences to state and national policy, something that economic developers know full well.

 

For every job producing steel or aluminum that is protected, there are many more (100 or more) at risk in the industries that use steel and aluminum as tariffs push up the prices of these metals, according to research from the Brookings Institution.

 

In short, tariffs meant to protect some businesses, ultimately damage others. And it has always been that way.

 

We’ve Seen this Movie Before

 

I do not mean to be an alarmist, but this is the third blog that I have written in recent months concerning the Trump administration’s protectionist policies.

 

Back on March 5, soon after the administration floated the idea of enacting steel and aluminum tariffs, I reported the president saying, “trade wars are good and easy to win.” I also reported that Electrolux, Europe's largest home appliance maker, would hold off on a planned $250 million investment in Tennessee in response.

 

On April 8, in a blog entitled, “A Story to Remember,” I wrote about how the farm crisis of the 1920s resulted in the Tariff Act of 1930 (commonly referred to as Smoot-Hawley), which increased duties on both agricultural and industrial goods.

 

Then as today, it was the U.S. taking the first shot. And it was Canada, our most loyal trading partner, being the first to respond with retaliatory measures. And it snowballed from there with world trade collapsing.

We’ve seen this movie before. It was a horror show.

 

Never Too Late, Mr. President

 

Back in 1930, 1,028 economists signed a letter written to President Herbert Hoover, urging him to veto Smoot Hawley. Last month, 1,100 economists signed a letter to President Trump, urging him to abandon his tariff-heavy approach to trade. The recent letter quoted many of the same passages from the 1930 letter at the start of what became the Great Depression.

 

 “Much has changed since 1930 -- for example, trade is now significantly more important to our economy -- but the fundamental economic principles as explained at the time have not.”

 

Mr. President, with all due respect, please read both letters. It is never too late to listen and learn.

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