This Election and Trade

With the pep rallies concluded, Democratic and Republican captains and their teams are charging onto the field to commence a battle for the White House unlike any other. The game plans couldn’t be more different on issues like immigration, regulations and taxes, but on trade there doesn’t seem to be any line of scrimmage at all. But on this one, Trump is on offense and Clinton, defense.

The reason: swing states in the ‘rust belt,’ like Michigan Ohio, Pennsylvania, and Indiana are in play because workers who historically vote Democratic are being swayed by Trump’s arguments that Democrats are to blame for bad trade deals that have demolished manufacturing and eliminated hundreds of thousands of jobs.

Free global trade, ideally speaking, is a good thing. The more freely goods and services, and the currencies that buy them, flow across borders, the more commerce occurs and all economies win. But unfortunately, that is not what happens. The field is not level; people, companies, and countries cheat and legal recourse moves too slowly to prevent the company and job losses that cheating causes.

Some countries cheat by manipulating their currencies. A country that devalues its currency relative to others is able to sell its goods and services for less than comparable products from higher-currency countries. As a result, the offending country builds up huge surpluses of higher valued currencies leaving little chance for those countries to even the score.

Other countries cheat their own workers to make their manufacturing costs cheaper than those of developed countries that regulate protections for their workers and environments. A country that promotes a balance of profitable production with responsible employee practices has no chance of competing against countries that turn corners to cut costs.

But the US is no model of success in manufacturing. Trade aside, federal and state taxes, burdensome regulations, and restrictive unions have all played a powerful role in chasing manufacturing jobs away from the rust belt.

There are some bright spots however. Manufacturing-friendly southern right-to-work states like South Carolina have benefited significantly from manufacturers’ flight from taxes, regulations, and unions. In 2009 Boeing rolled politicians from Washington state to Washington DC when they announced their plans to open a second 787 ‘Dreamliner’ production facility in South Carolina. Among other things, management cited SC’s non-union proclivity as a major reason. Since then, offshore companies like Volvo and Daimler have found the state to be exceptionally accommodating to business, which ultimately benefits all with more and better paying jobs.

That the US has lost much of its once mighty manufacturing dominance is inarguable. And the individual extent to which trade, regulations, taxes, and unions have each played their part is debatable. But together they have destroyed countless jobs which are not being replaced under current policies.

Much of the damage of lost industry and jobs was not directly due to free international trade, but rather to the growing non-competitiveness of US manufacturers. Blame for these trends rests squarely on greedy governments – both federal and state, as well as unions and managements that grew fat, lazy, and self-focused.

One has to believe that both Hillary Clinton and Donald Trump appreciate the value of trade as long as it is fair and as long as countries play by the rules. If they cheat, remedies are sufficiently swift and effective to prevent damage to domestic companies and jobs.

We simply can’t play all of our games at home. The US economy is too big and dependent on global trade. With more countries bringing their ‘A’ Game,’ dirty or otherwise every day, we’d better get fit and start playing as a team with a coach that can call the plays, governments focused on equipping rather than punishing, and managers and unions pulling in the same direction to win the game of trade, or we will be bowled over by it.

 

Author Sam Bass Jr.

Sam founded Beacon Wealthcare in 1998. He has thirty five years' experience investing money for his clients. In 2006 he changed the focus of his firm from asset/return to a client/goal-centered and adopted state-of-the-art planning and management systems to deliver the best fully integrated planning service available. Sam holds a BA in English Literature from Hampden-Sydney College, 1975 and an MBA from Wake Forest University, 1981. He concentrated in International Finance, and did research for an International Finance textbook which included a summer at the London School of Economics. He is married to Sharon, a talented pleinAir oil painter, They enjoy being with their three children, their spouses, and five beautiful grandchildren as often as they can. Sam loves Jesus, sailing, cycling, and writing.

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