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.