Tariff Equity Would Grow State’s Exports

Port competitiveness is another concern. Delays and uncertainty on export facility improvements could repel investors.

Tariff Equity Would Grow State's Exports
Washington apples are one of the state's most prominent exports. Photo: Washington Apple Commission.

In February, a Moses Lake manufacturer with about 720 employees halted production. A 57 percent tariff on polysilicon has deterred Chinese companies from purchasing the solar panel component from the U.S. China implemented the policy in 2013 in response to a U.S. tariff on Chinese solar panels, which was added after China allegedly dumped the panels on the U.S. market below cost. REC Silicon said this trade war forced it to shutter the plant, which may not start operations again until June.

Washington is the most trade-dependent state, with about 40 percent of jobs related to global commerce. China is the state’s number one trading partner, with more than $14 billion of Washington-produced goods exported to the country last year. The country’s also the source of the most international students and foreign tourists to the state.

But the relationship has sometimes been fraught with tension. Microsoft has continued to fight software piracy in China. In the late ‘90s there were reports of Chinese-grown apples labelled and sold as Washington’s. And as Boeing sells one out of every five commercial airplanes it manufactures to China, it’s also required to help the country develop its own aerospace industry, a potential competitor.

Washington Council on International Trade President Eric Schinfeld said China needs to be as welcoming to Washington exports as the state is to Chinese imports.

China Needs To ‘Truly Open The Market’

“China is a very important trade partner for Washington state, but I think they could be a much better trading partner for Washington if they’re willing to truly open the market and create a level playing field,” Schinfeld said.

A level playing field for Asian trade is a concern for Washington state officials, particularly as the International Monetary Fund expects half of the world’s projected $20 trillion economic growth over the next five years to be in Asia.

Washington State Sen. Sharon Brown (R-8), chair of the senate’s committee on trade and economic development, said China’s respect for intellectual property was a concern.

“We need to work with China to resolve some of those problems,” Brown said. She said the country needed economic reform to encourage domestic spending, and also a bilateral investment treaty.

The pending Trans-Pacific Partnership (TPP) includes rules for protecting intellectual property, and limiting state-owned enterprises like China’s, that may be subsidized by the government and can be difficult for U.S. companies to compete with.

“Given the dominant relationship Washington has with China, there’s a strong need to diversify trading partners and exports,” Brown said.

Washington state shipped about $19 billion worth of goods (both made in and out-of-state) to China in 2015. It exported $8 billion to Canada, and $6 billion to Japan.

Robert Hamilton, trade adviser to Gov. Jay Inslee, said the governor has not taken a stance on the TPP. But he said the agreement would be a way to restore balance between competing nations.

“The main issue in Asia is trying to create a level playing field for Washington/U.S. exporters,” he said.

U.S. Needs Tariff Equity

The U.S. exports more than any other country except China but faces more tariffs than 129 other nations when doing so.

The average tariff charged by the U.S. on imports is 1.4 percent, but the average tariff it faces when exporting to other countries is 5.9 percent, according to the World Economic Forum.

“No one wants to go into a basketball game down by a dozen points from the tip-off, but that’s exactly what American exporters do every day,” wrote the U.S. Chamber of Commerce in a 2015 report on free trade.

Japan is the third largest market for Washington state exports. But it charges an average 19 percent tariff on agricultural goods from the U.S.

The TPP would remove or reduce 18,000 such restrictions with Japan and the other 11 countries included in the agreement. Sen. Brown said the state could especially benefit as 74 percent of Japan’s tariffs on beef would be phased out. The trade agreement would also eliminate Japanese taxes on wine imports, which can reach 58 percent.

The agreement is highly controversial however, with presidential candidates declaring their opposition.

Trade Agreements A ‘Lighting Rod’ Presently

“There’s a lot of concern out there…with trade agreements, with economic uncertainty. Inequality has increased,” Hamilton said. “Trade has become the lightning rod for that.”

Hamilton said there’s a question of how to better distribute the benefits of trade. There are costs to trade agreements, particularly for low-skilled workers, like downward pressure on wages and lost jobs, he said.

A differing perspective comes from economist Jon Hartley. He writes that outsourcing of low-skilled labor has already peaked as globalization unfolded in the last 15 years and isn’t likely to ramp up any further under TPP. He adds that U.S. companies that employ many low-skilled workers, such as pharmaceutical firms, would gain intellectual property rights under TPP from Asian nations where knock-offs of their products are currently sold with relative impunity, and this would protect low-skilled jobs.

Critics of the TPP have questioned the secrecy of the deal, and said it would reduce labor and environmental protections. They also criticize a section giving multinational corporations the ability to sue countries when they find regulations too cumbersome.

But supporters say the agreement would help open foreign markets to businesses large and small in the trade-dependent state.

“TPP would assist in so many areas, it’s really great for Washington,” Brown said.

Competitiveness Of Region’s Ports A Priority

Washington has competition close by. U.S.-bound imports sometimes come through Canadian ports instead of the west coast. Hamilton said Canada has been aggressive in addressing infrastructure and transportation issues.

“Canada’s the envy of our ports,” he said.

David Matsuda is a former maritime administrator to the Obama administration. He’s working on a report on how to increase the competitiveness of Washington’s ports. He’s heard concern from the state’s maritime industry that state permit rules are moving in the wrong direction.

“The federal government’s trying to move in a direction where the permitting process is more transparent and moves along a little more quickly,” he said.

Meanwhile, an expanded State Environmental Policy Act requires examination of infrastructure projects’ impact on global environmental concerns instead of just local ones.

Matsuda said Canada had a “shot clock approach” with a set time limit for examining environmental impact. Otherwise, he said, delays and uncertainty could repel investors.

“The money will go elsewhere….Jobs will go elsewhere, entire supply chains can go elsewhere,” Matsuda said.

He also cited the federal harbor maintenance tax as a reason business could choose to use Canadian ports instead of Washington. A letter from the ports of Seattle and Tacoma stated the tax “is responsible for approximately half of the U.S.-bound cargo that passes through Canadian ports” and that the U.S. is expected to lose several hundred million dollars over the next decade to cargo diverted to Mexico and Canada.

Surplus funds from the harbor maintenance tax on imports have been used by Congress to help balance the budget, but ports haven’t received enough for dredging. Only 35 percent of the full depth and width of U.S. ports are available, according to the American Association of Port Authorities.

The naturally-deep ports of Seattle and Tacoma said they use only one cent for every dollar of HMT tax paid at those ports, with about 20 percent of HMT fees being used for maintaining Louisiana harbors.

Seattle recently hosted the largest container ship ever to dock at a U.S. port, at 1,310 feet long, twice the length of the Space Needle and wider than a football field.

The state needs to be sure its port infrastructure keeps up with ever-larger container ships, Matsuda said, as the Panama Canal is widened and companies could choose that route to the East Coast over stopping at Washington ports. The canal’s expansion is scheduled to be completed this summer.

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