President-elect Donald Trump campaigned on staunch opposition to global trade expansion, threatening among other things tariffs of 45% on U.S. imports from China. Yet his emerging team of economic advisors is split between those favoring “sticks” like tariffs, and “carrots” like regulatory reform and tax cuts to induce economic growth. As the most trade-dependent state in the U.S., the potential upside and downside for Washington are great. One estimate of the possible harm is a projected loss of five percent of Washington’s private sector jobs if a Trump-driven trade war develops.
State lawmakers, the administration of Governor Jay Inslee, and business leaders are voicing strong concerns, but diplomatically. The undercurrent is how Trump, Congress and states can boost economic growth and jobs, while avoiding a protectionist boomerang.
Trade War Would Slam Washington State
Trump has vowed to withdraw the U.S. from the proposed 12-nation Trans Pacific Partnership (TPP), and is considered likely to push for reinstatement of some tariffs on Mexican imports through new “side agreements” to revise the North American Free Trade Agreement (NAFTA). The President has great leeway on tariffs, and if Trump delivered promised double-digit import duties on goods from China and Mexico, retaliation would be all but certain.
Washington industries including aviation, agriculture, retail, marine and food processing have strongly supported TPP and U.S.-Asia trade. The now likely-to-be-scuttled TPP pact would have reduced tariffs, some of them steep, for Washington state exports of paper, salmon, wheat, hops, and french fries.
National Leader In Exports
In 2015, Washington exported an estimated $54 billion in transportation equipment, nearly $9.5 billion in agricultural equipment and $3.8 billion in computer and electronic products. Washington’s largest export markets include China at around $19.5 billion, Canada at almost $8 billion and Japan at nearly $6 billion.
Washington “leads the nation in per-capita goods exports. Obviously, we are very integrated in the global economy. Anything that impacts trade is…important for the state’s economy,” said Robert Hamilton, Washington Governor Jay Inslee’s Adviser for Trade Policy.
Any NAFTA revisions will need careful calibration, added Hamilton. “There’s so many industries in the country that are integrated across the board with Canada and Mexico and that would be very disruptive…Canada and Mexico are [Washington’s] number one market for both apples and pears.”
Washington’s “export opportunities would be put at risk by taking protectionist measures, because they invite equal and opposite reactions by other nations,” wrote former Washington State Attorney General and 2012 Republican Gubernatorial Candidate Rob McKenna in a blog post.
McKenna: Lawmakers, Business Leaders Must Step Up
McKenna added, “Slap tariffs on a country’s products and they’ll return the favor. Close our market, and they’ll do the same. Slow down the import process here with disputes over rules, and soon our products will likewise languish in foreign ports…”
Washington’s political leaders of both parties support trade, according to McKenna. “We’re going to need them to step up and argue for the benefits of free trade,” he added. “Business leaders, too, need to join the fray – from all sectors, and both sides of the mountains – and make the case to their communities and the federal government about why open markets are needed.”
State Sen. Steve Conway (D-29), a member of the Senate Commerce and Labor Committee, said, “Will countries retaliate is the big issue here. If there is retaliation for this increased pressure to keep manufacturing jobs in America, that means we will lose customers. They will respond by increasing tariffs.”
A recent Peterson Institute for International Economics briefing projected that “in a full trade war scenario, Washington State would be the worst affected, suffering a 5 percent private sector job loss relative to baseline.”
Boeing’s Big Stake
The paper defines that scenario as one in which the United States places 35 and 45 percent tariffs on non-oil imports from Mexico and China, respectively, and the two countries then implement identical tariffs on their U.S. imports. Retaliation from China might include a transition from purchasing Boeing aircrafts to Airbus.
“Chinese termination of aircraft purchases could destroy 179,000 U.S. jobs. The Seattle-Tacoma-Everett, Washington and Wichita, Kansas metropolitan areas are the worst affected…The Seattle metropolitan area, the historic center of the Boeing production network, could lose more than 31,000 jobs, or more than 2 percent of regional private sector employment,” according to the report.
Boeing is taking a diplomatic tack, publicly. “We congratulate President-elect Trump and newly elected members of Congress and look forward to working with them to ensure that U.S. companies can compete, win and grow our economy to provide good jobs to U.S. workers; as well as preserve American leadership in national security,” said Tom Kin, Senior Vice President of Communications for Boeing.
Reducing Regulation, Growing The Economy
“I think the Trump Administration will be good for the economy overall, reduce regulation, and I think we will see a lot of investment here at home. We have already seen an optimistic stock market. I think America will be producing more things and have a more competitive business environment,” State Sen. Michael Baumgartner (R-6) told Lens. He is Chair of the Senate Commerce and Labor Committee.
Baumgartner said he would be “surprised” if trade relationships related to agriculture, airplanes or technology were harmed.
“I don’t think it will be the doom and gloom some folks are talking about,” said Baumgartner. “Looking at the desire to make the economy more competitive…and produce more goods and services here at home, these things are a team effort. Congress is involved, state legislative bodies to some extent…I am cautiously optimistic about this.”
Carl J. Schramm is the former CEO of Fortis Healthcare, ex-President of the Kaufman Foundation and currently an economics professor at University of Syracuse. He specializes in entrepreneurialism. Writing in the Wall Street Journal, Schramm states the recipe for more jobs in the U.S. must include expansion of Gross Domestic Product at a robust 4 percent annually to grow more start-ups away from Silicon Valley. He adds that reform of the labyrinthine Dodd-Frank Act is crucial in order to “make it possible for local banks to get back in the business of financing startups.”