Simplistic trade debate cuts many ways

Cinton and Trump

Both candidates propound a retreat from TPP

ASHLAND – If you live and work in this Lake Superior community of 9,000, where Bretting Manufacturing is the largest employer, the proposed clamp-down on foreign trade by both presidential candidates comes off as crazy.

Bretting is the ultimate advanced manufacturing enterprise. It employs 450, including 100 engineers, who build paper-converting machines for making napkins and towels that cost from $1 million to $10 million. These are good jobs, paying as much as $24 per hour for unionized positions on the floor. Bretting is an employer of choice in this city.

The company doesn’t make the paper products; it makes the incredibly complicated machines that convert huge rolls of paper into smaller products, and it sells them all over the world.

Note: about half of Bretting’s orders come from customers outside the United States, from 39 different countries.

Machines on the floor last week were destined for places like Egypt, Jordan, Saudi Arabia and Dubai. One ocean-borne delivery can entail up to 40 containers, meaning different engineering specifications than for machines delivered over land in North America.

In short, Bretting is expert at exporting. It is entirely up to the game of world trade. And it that game is the purest form of value-add for the America economy.

The relentless hardening of the dollar, made worse by Brexit and the surrounding uncertainties for the pound and euro, has already disadvantaged Bretting and other U.S. exporters.

That is why the blunderbuss comments made by candidates in the superficial presidential campaign are so disappointing in places like Ashland. The country’s exporters hardly need a politically motivated upheaval in the world of global trade. Trade deals need to be done with pragmatism, not xenophobic ideology, with surgical care, not with a sledge hammer.

Candidates Trump and Clinton both propound a retreat from the pending Trans-Pacific Partnership (TPP). So does Russ Feingold; Sen. Johnson has been non-committal. Recall that Hillary Rodham said TPP “sets the gold standard for trade agreements” in 2012 when she was Secretary of State. As Bernie Sanders pulled her to the left, she flopped to oppose it. (The Trump family imports its branded products from all over the world.)

Yet Trump is flat out opposed to TPP and other trade deals, like NAFTA with Mexico and Canada passed under President Bill Clinton with votes from both sides of the aisle. Studies on the impacts of NAFTA on the U.S. economy are mixed, but most concede we have gained as much as we lost in terms of jobs.

With either a Trump or Clinton win, TPP looks to dead in its tracks, and NAFTA will face renegotiation. So, where does the U.S, go from here on trade?

There can be no argument that low cost countries, especially China, have cost the U.S. millions of manufacturing jobs. That is especially true for dense commodity products that are cheap to transport, like electronic devices, apparel or small appliances. That horse is out of the barn.

It is that loss that works for Trump’s rhetoric, especially his attacks on China’s export strategies. On that count, there is substance to his broad-brush attacks. About half of our enormous trade deficit is with China.

But trade policy is a tricky business that cuts many ways. Bretting is an example. Half of its 450 jobs, of which 220 are union production jobs, hinge on trade. That is true even though the company chooses not to compete in the Wild West markets in Asia.

It does compete very successfully in other world markets; and neither a President Trump nor a President Clinton will want to mess with that success by a wholesale breech of existing trade deals. Rhetoric will have to meet reality after the election is over.

Remember that states like Wisconsin are net exporters in most years. Trade creates jobs here.

What would a pragmatic trade policy look like?

1. Reset trade rules with China, no longer a developing country that needs trade help. Negotiate a bilateral, versus multi-lateral, trade pact with China. As Warren Buffet has suggested, use chits for China to export. If it adds imports of U. S. goods and services of, say, $100 billion, it gets $100 billion in chits for increased exports to the U.S. Call it “balanced trade” from this point forward. Allow the bilateral trade deficit to go no higher. Cap it.

2. Cut similar bilateral deals with other trade partners to set similar balances.

3. Stiffen penalties for thefts of American intellectual property. Cut back exports from sectors in other countries that are caught hacking U.S. corporations or violating their patents.

4. Ditto for the hacking of American companies for cash. It’s epidemic. The hackers are often from China or Russia. Instead of looking the other way, insist that those countries crack down or pay a price on how much they can export to us.

The United States is the richest market in the world, by far. Every country wants to sell here. Much as Trump is off base on most positions, he is right about using our market leverage to bring about fair and balanced trade.

But balance is the key. We are net exporters to many countries.

David Bretting, CEO of a fifth-generation company, grimaces when asked about the simplistic attacks on trade made by politicians who know better. “It’s crazy,” said the exporter.

Beneath their rhetoric, we hope they know better. (My company exports, too.)

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  • Jim K

    These sound like reasonable ideas. And what of the business-defined NAFTA arbitration tribunals that are allowed to overrule US laws, e.g., prompting a claim of $15B+ against the US government for the Keystone XL rejection? (…Wherein international business seeks maximize profits by claiming that the US government must continue to follow an “all of the above” policy in spite of increasing evidence that such a policy may doom civilization.)

  • jim Lenfestey

    There is another fix for China and other low-cost, low-regulation, heavily polluting countries. Check out Citizens’ Climate Lobby website, Their three point plan – escalating carbon fees, rebated as dividend to famiies, and – most important — border adjustments to impose similar carbon fees on products from counties without them, and to rebate carbon fees to exporters to countries without them – is the solution. America and Europe cleaned our air and water while inadvertantly offshoring our pollution. This fixes that, making it sensible for other countries to pass regs similar to US and Europe.

    • JohnTorinus

      Neat concept. Will be tough to sell on a multi-lateral basis to countries like China. I suppose it could be imposed, but then there are the trade war possibilities. Would need to be done, I think, in the context of bilateral trade talks with China.
      That country is at the crux of our trade deficit problems. And the U.S. and China are the top two polluters.

      • jim Lenfestey

        John – the beauty is, re trade, “Border Adjustments” do NOT require bilateral agreement. Nor any new trade deal. (FYI, unaddressed climate change is a major beef with the TPP, otherwise an excellent protocol). US or any country can pass a carbon tax, then rebate it at the border, while charging others a similar fee at the border who do NOT have an equivalent tax. Ends offshoring pollution. WTO approved, as I understand it. Now if we could only get the Republican party to get its head out of the oil sands re. climate change, this market-based solution could unwind much regulatory red tape as it raises fossil fuel prices, finally and forever leveling the playing field vs non-polluting energy sources that do not use the atmosphere as as free sewer. Wisconsinites should definitely go for this, a manufacturing-exporting state and fossil-fuel importing state.

        • JohnTorinus

          A very coherent argument, especially for a journalist. I make pick up your cudgel.