Friday, January 21, 2022
Jan. 21, 2022

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Washington faces uncertainty as Biden continues hard line on trade

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The prevailing wisdom is that America will continue to back away from “free trade” under President Joe Biden, adhering in principle if not every detail to the Trump administration’s line.

Despite near-historic political polarization, left and right agree that past trade deals carried too many downsides. They may have lifted some workers but cost others their jobs. Merely expanding freer trade isn’t enough.

Yet the enormous container ship that transfixed the world when it blocked the Suez Canal, leading to an enormous backup that could disrupt the world’s ports for months, illustrates that trade is very much still happening.

Former President Donald Trump’s tariffs and threat to exit NAFTA hurt exports and imports, and the pandemic delivered a sucker punch, but trade continues. According to the research firm WiserTrade, U.S. exports totaled more than $127 billion in January. IHS Markit forecasts overall global trade to increase by 7.5% to 13.65 billion metric tons in 2021.

The future of U.S. policy carries enormous stakes for Washington, the nation’s most trade-dependent and trade-vulnerable state. According to the Washington Council on International Trade, 40% of state jobs are connected to trade.

Already the Trump trade war with China and tariffs on Canada have been costly. China is the state’s largest merchandise destination, followed by Canada.

Washington merchandise exports totaled $41.3 billion in 2020, down from $60.3 billion the previous year and $90.6 billion in 2014. Our state fell from the third largest exporter in 2014, behind Texas and California, to No. 10 this past year.

To be sure, part of the downturn was a result of Boeing’s 737 MAX crisis. Transportation goods account for 21.6% of state exports, second only to agriculture at nearly 30%.

One of the most visible elements of Washington’s role in the international flow of goods is its ports, especially the five-year-old Northwest Seaport Alliance that united the ports of Seattle and Tacoma.

In this week’s State of the Alliance report, leaders discussed how it’s halfway to a 10-year goal of $1 billion in infrastructure improvements, including Terminal 5 in Seattle and the Husky Terminal in Tacoma. One key goal is to handle larger ships, which includes the design phase of deepening the Seattle waterway to 57 feet.

Among the highlights: exporting 241,000 apples and 1.2 billion pounds of frozen potatoes in 2020, while 10 million square feet of warehouse space were added here. Three new weekly container services were added, including Wan Hai Lines using Seattle as the first port of call from Asia.

Legislation reformed the onerous Harbor Maintenance Tax, where the Alliance had received about a penny for every dollar collected here (the tax is heavily used to dredge and improve other ports). Now the distribution of revenue will be more equitable for natural deep-water ports.

John Wolfe, CEO of the Alliance, said cargo fell early in 2020, stabilized and then rebounded. The fourth-quarter volume of 2020 outpaced the similar period of the previous year.

Even so, both ports have room for additional traffic. That compares with the congested megaports of Los Angeles and Long Beach, where dozens of ships are anchored offshore, waiting for dock space to free up.

The Alliance is responsible for 20,100 direct jobs and another 14,700 indirect jobs (created by suppliers and vendors). These are mostly family-wage positions.

So, in the Puget Sound region at least, trade is an advantage and part of a diversified, high-end economy.

As for the other Washington, some definitions are necessary. From the long American-led effort to lower tariffs and establish rules, culminating in the World Trade Organization, to NAFTA and the stillborn Trans-Pacific Partnership, we’re talking about managed trade, not free trade.

When the United States was the world’s leading exporter – a condition that existed into the 21st century – expanding trade was widely supported as helping economic growth (the U.S. is still No. 2 in the world behind China). It also had geopolitical value, whether in bolstering allies or the (dashed) hope to manage the peaceful rise of China.

Although NAFTA rearranged jobs – with some sectors losing employment while others gained jobs throughout the three-nation bloc – the “China Shock” identified by economist David Autor undeniably cost around 2 million American manufacturing jobs. China plays by different rules, abetted by American companies seeking access to the world’s largest market.

No wonder Katherine Tai, the new U.S. trade representative, promised in her confirmation hearings to seek more equitable trade policies, including using tariffs to achieve them. That means no return to the conventional trade liberalization efforts of pre-Trump administrations.

She said the administration intends “to break out of that pattern, so that what we are doing in trade is coordinated with what we are doing in other areas, but also not forcing us to pit one of our segments of our workers and our economy against another.”

Who can argue with that? But what are we willing to do as individuals? Pay more for domestically produced goods rather than cheap stuff from Asia? Save more than we consume? Only then do we begin to lower our addiction to the 10,000-mile supply chain.

It seems unlikely, whether we’re talking about China-made consumer goods from Amazon or iPhones from Apple (“designed in California” but built mostly in China), or the parts for Boeing jets assembled here with components from several countries.

A new Reuters-Ipsos poll found a solid majority of respondents want the government to buy American goods, even if they cost more. But people were more ambivalent about their personal consumption.

And a tougher American stance brings consequences. For one thing, tariffs are essentially taxes on end-users, whether businesses or consumers. Also, American exporters have much to lose. Boeing CEO Dave Calhoun urged Biden to separate U.S.-China disagreements from trade lest competitor Airbus gain business from Beijing.

In other words, America risks much, and many jobs, by thoughtless abandonment of 75 years of trade policy.

Take Tai and Biden seriously. They’re not anti-trade, but they want a new paradigm, emphasis on equity, with details to come. Yet there, as every schoolchild knows, is where the devil is.

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