Trade war: The stakes for Rochester

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Global trade is really complicated. President Donald Trump’s urge to simplify the challenges posed by trade have led to a chaotic and often counterproductive set of policy actions. As an example, he mistakenly believes that trade deficits are always bad and always the result of anti-competitive intent on the part of our trading partners (e.g. tariffs and non-tariff barriers). 

Oh, that it were so simple. Our vibrant economy has created a strong dollar and an American consumer with money to spend on imported goods. The power of the dollar also allows our government to run significant budget deficits that are funded by foreign creditors eager to purchase U.S. Treasury debt. These factors are the dominant drivers of the trade deficit, not currency manipulation and unfair trade practices.

Economists agree with the president that our trading relationship with China is in need of a “reboot.” He has launched a full-blooded trade war, however, that may not have the intended effect. Tariffs (taxes on imports) on Chinese goods were imposed in a series of steps beginning in 2018, with a 25 percent tariff on $250 billion in imports in place by May 2019. China responded in June with its own 25 percent tariffs on $60 billion of U.S. goods. A 10 percent tariff on the remaining $300 billion in Chinese imports was scheduled to take effect on Sept. 1, although many exemptions were just announced. I fear that the tit-for-tat escalation will continue without achieving any real gains. Rarely are trade wars won by either side.

Taken in isolation, however, the impact of Trump’s tariffs on Chinese goods is not catastrophic for American consumers. Moreover, the threats and penalties may actually achieve a portion of the China trade reboot the global economy deserves. Of greater concern is that U.S. actions may trigger a ripple of trade restrictions worldwide and spark a recession. Many U.S. companies and regions stand to lose valuable business and the world will be a poorer place if this is the result of our policies.

Rather than dig deeper into mind-numbing technical questions, I’ll use this post to explore the significance of trade to Rochester. If you wish to learn more about the economics of our trade with China and the current state of the war, I recommend the U.S.-China Trade War website maintained by the Peterson Institute for International Economics.

Back to Rochester: The Brookings Institution hosts a global trade database called the Export Monitor. Detailed export statistics for major metropolitan areas estimate total exports by detailed product/service and associated employment. Rochester metro export dependence is roughly in line with our population share, 51st among the national metro areas. Our relative dependence on export-related jobs is reported a bit higher at No. 47. 

Brookings estimates that more than 45,000 jobs here are supported directly by exporting firms, 8.4 percent of total employment. The total contribution to the economy is higher if we factor in local supply relationships (or “spillover” jobs). 

Reported at the four-digit level of NAICS industry detail, our No. 1 export is communications equipment, with export sales valued at $437 million in 2017. I would assume that this was dominated by Harris Corp. (now L3Harris Technologies). 

Kodak’s specialty chemicals division is included in Misc. Chemicals and Basic Chemicals, ranked No. 5 and No. 6. Chemical manufacturing captures a number of other well-known Rochester firms such as Xerox (toners), Bausch & Lomb and CooperVision (solutions), Lonza (formerly part of Arch Chemicals) and Pfaudler. Combined, these related categories are responsible for more than $500 million in annual export sales. Further down the list are other items with Kodak and other legacy firm affiliations including $67 million in Film & Music Industry Royalties and $62 million in Chemical Manufacturing Royalties. 

The remaining sectors are difficult to attach to specific firms. See a summary of Rochester on the Export Monitor site. 

Just as tariffs on Chinese imports or U.S. imports to China would not cripple the U.S. economy, a hiccup in global trade won’t plunge Rochester into a recession. Yet global trade contributes substantial income and supports tens of thousands of local jobs. It would be foolish to put this at risk outside the context of a well-considered trade strategy.

6 thoughts on “Trade war: The stakes for Rochester

  1. Sadly , the horse has left the barn . We may have 45,000 jobs that are supported by exports , but that is less than the 50,000 middle class manufacturing jobs our area has lost since 1980 . For the most part these were the jobs that could be filled by those with a high school diploma
    and minimal training . Globalization was sold as if it was early 19th century David Ricardo’s English wool for Portuguese wine , a win / win . In fact , American companies selling American products to Americans at American prices with off shored dollar an hour labor has nothing to do with Ricardo and little to do with trade . It deindustrialized our great cities leaving poverty and ghettos in its wake while transferring more wealth to the rich . The fact is almost every country in the world has tariffs on foreign goods to protect their jobs and home industries . They are set bi-laterally and adjusted when needed to cancel any foreign advantage for low wages and regulation . These tariffs are Valued Added Taxes or VATS . Only America of developed countries has no VAT . Global supply lines integrated with geo political concerns has made things very complicated . Sadly , as his former Secretary of State said , our President is and effing moron in an increasingly complicated world . Any Trump advisor that knows anything must spend their time telling the bigoted Emperor with no clothes how right and great he is . This will not end well .

  2. This is a misunderstanding of the VAT tax, Jim. A VAT is a consumption tax and would replace sales taxes in the U.S. There are many good arguments for replacing the sales tax with a VAT. And it would influence trade but it is incorrect to think of the VAT as a tax on imports like a tariff. See https://www.theatlantic.com/business/archive/2010/03/how-does-a-value-added-tax-work-anyway/36834/.

    As you might expect, I think that the evidence suggests that an open trading regime can benefit both participants. We need to police the relationship which is why we’ve created international bodies to do so. And, as I noted in my piece, China has been getting away with rather a lot.

  3. I appreciate the info and perspective Kent . You know Labor has always had a problem with these international bodies , their lack of rules and /or enforcement when it comes to workers , from the first world to the third world , and what interests these international bodies represent .
    What is your perspective on the corporate tax reform and it’s effect on trade? By cutting the
    tax on profits for American companies to half for those that manufacture offshore , 21% to ten and a half percent , does this incentivize off shore production ? Does the failure to eliminate domestic loopholes cancel a foreign advantage ? Is this issue different by industry based on tax incentives that are different by industry , eliminating an across the board conclusion?
    If tax policy was to tax profits on imports at a higher rate than profits from domestic production , would such a tax still be seen as really a tariff in violation of WTO rules ?
    Sometimes WTO rulings seem inconsistent to many of us in their application .
    Your comments on these issues would be helpful .
    Thanks ,

    • These international bodies are all we have–by continuing to engage them, we can help nurture a global consensus that promotes fair trade, including standards supporting workers rights and environmental protection. Surely you agree that the EU is supportive of such things. We’ve few tools to influence nations like China and India outside of these forums. Perhaps you and I won’t agree on the net improvement in well-being from trade–we economists believe that this has been overwhelmingly proven. I’d never want to argue that WTO rules are optimal in design or application, although they might more sense than the U.S. tax code!

  4. Growth is not an unequivocal good. ALL goods and services moving about the economy, in whatever country, are an assault, large or small, on our life support system. All of it should cost much, MUCH more than it does if its price were to accurately reflect its actual cost to our quality of life and especially to future generations. In light of this, we should be moving to a much less consumptive way of life with regard to goods. Services are another matter. Services tend to denude the natural world to a lesser degree than goods (huge generalization here). Activities such as education, health care, arts, and entertainment are much of what make for a fulfilling and enjoyable life. Beyond basic necessities, which all humans have a right to, we should be moving to an economy focused much more on life-affirming services and much less on material goods. If trade wars will slow down the movement of goods, then more of it, please! In any event, our economic modeling and the resulting values it assigns is very dangerously out of whack.

    • As value statements, Mary, I heartily agree. You’re calling for a revolution in American values, which would be welcome. But wrecking the economy and impoverishing millions doesn’t change hearts and revolutionize values.

      Individual choice matters. Consider an engineer at Harris earning $150,000. Surely she or he could choose to earn less and embrace a simpler lifestyle. That choice shouldn’t be taken away simply because the President pursues a pointless trade war.

      If poverty is noble, then we need only look to the Depression for an example. Although trade policy didn’t start the Depression, most economists believe that misguided trade policy perpetuated it.

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