Tag Archives: trade

Reality Is So Inconvenient

Time Magazine  recently ran a story illustrating the problem with electing stupid, uninformed people.

Numerous media outlets have explained–patiently, and in detail– why Trump’s evident belief that China is paying his tariffs is wrong; they’ve laid out–in painful detail–the way tariffs really work, and why those tariffs are more properly labeled tax increases on the American public.

The Time article addresses a subsequent demonstration of Trump’s utter economic cluelessness.

Tariffs on foreign goods are supposed to help companies that make things in the United States by increasing the costs of products sold by foreign competitors. Indeed, when rationalizing his administration’s increased tariffs on Chinese goods, President Donald Trump on Monday encouraged consumers and businesses to buy goods from countries other than China, or, in what he called the “best idea,” to buy American-made goods.

That would have been good advice, back when American companies were busy manufacturing  horse whips and corsets. These days, however, advice to “buy American” simply displays an embarrassing ignorance about the current realities of  the world of business.

But that advice is almost impossible to follow, as products made in America can contain parts sourced from all over the world. Even the most quintessentially American of goods has parts from somewhere else, whether that be a Ford F-150 pickup, a can of Budweiser, or tire chains from Worcester, Mass. “In the last 20 years, businesses have become much more strategic,” says Kara Reynolds, an economics professor at American University. “More and more often, they are looking at where they can find highest quality and lowest-cost parts so that they can be competitive.” More often than not, that’s China — and that means many U.S. businesses are feeling the pain thanks to Trump’s tariffs.

Trump, as usual, has ignored the warnings of more knowledgable people (a category that includes most sentient humans), and has doubled down on his tariff policy. Farmers have been the most notably hurt, but manufacturers and retailers aren’t far behind. Automobile companies are already feeling the pinch.

The most recent round of tariffs is expected to affect a broad swathe of industries that make products in the United States. “This is playing havoc with the supply chains of Americans producers — increasing their cost and reducing their worldwide competitiveness,” says Robert T. Kudrle, an economics professor at the University of Minnesota. St. Pierre, for example, makes chains and wire rope in its Worcester facility, as it began doing in 1920 when Henry St. Pierre started the company. But as it started facing foreign competition, St. Pierre began buying chain slings and other parts from producers overseas, then cutting them and adding hooks and fittings in the United States.

The cost of those imported chain slings have gone up as tariffs have risen. Even St. Pierre’s horseshoes, which are made completely from U.S. steel, have been affected by the tariffs on foreign goods. As the cost of foreign steel went up, the cost of U.S.-made steel rose too, says Peter St. Pierre, vice president of finance at St. Pierre Manufacturing — and Henry St. Pierre’s grandson. “Everything we do here is steel-related, and over the last year or so, the price of steel has been going up and up,” he said. Increased demand for domestic steel has allowed U.S. producers to raise their prices; one estimatefound that U.S. steel prices have more than doubled since 2015.

Companies affected by the tariffs include a number that make goods in the U.S., thanks to rising duties on imported parts.

A South Carolina plant that assembled televisions using Chinese parts said last yearit was shutting down because of the tariffs. The Beer Institute, which represents 6,000 brewers and 2.2 million American jobs, said thatabout six percent of the cost of beer is the aluminum used in cans, and predicted that higher aluminum tariffs could cost 20,000 American jobs.

Are we tired yet of all that “winning”?

Will his brainwashed base ever decide that it may be time to elect someone with less ego and more functioning brain cells?

Reality Doesn’t Care Whether You Believe It (Part II)

One of the defining features of our time is increasing complexity; the rapid growth and sophistication of technology, the globalization of economics, science and even governance, in short, the accelerating production of vast amounts of knowledge that no one person can hope to master (or even identify).

This complexity requires informed and thoughtful policymaking, an understanding of how the various aspects of our shared environment interact, if we are to avoid unintended and very harmful consequences.

Unfortunately, we have elected a President and numerous lawmakers who are not up to the task, to put it as delicately as possible. They are supported by voters who dismiss people who do have expertise, people who actually know things, as “elitist.”

A couple of examples: a while back, the New York Times ran an article about automation, addressing a number of likely consequences of new AI (Artificial Intelligence) technologies:

A.I. products that now exist are improving faster than most people realize and promise to radically transform our world, not always for the better. They are only tools, not a competing form of intelligence. But they will reshape what work means and how wealth is created, leading to unprecedented economic inequalities and even altering the global balance of power.

It is imperative that we turn our attention to these imminent challenges.

What is artificial intelligence today? Roughly speaking, it’s technology that takes in huge amounts of information from a specific domain (say, loan repayment histories) and uses it to make a decision in a specific case (whether to give an individual a loan) in the service of a specified goal (maximizing profits for the lender). Think of a spreadsheet on steroids, trained on big data. These tools can outperform human beings at a given task.

I have posted previously about the potential consequences of AI and automation generally for job creation. The number of jobs lost to automation already dwarfs those lost to outsourcing and trade–and yet, activists on both the Right and Left continue to focus only on trade policy.

This kind of A.I. is spreading to thousands of domains (not just loans), and as it does, it will eliminate many jobs. Bank tellers, customer service representatives, telemarketers, stock and bond traders, even paralegals and radiologists will gradually be replaced by such software. Over time this technology will come to control semiautonomous and autonomous hardware like self-driving cars and robots, displacing factory workers, construction workers, drivers, delivery workers and many others.

Unlike the Industrial Revolution and the computer revolution, the A.I. revolution is not taking certain jobs (artisans, personal assistants who use paper and typewriters) and replacing them with other jobs (assembly-line workers, personal assistants conversant with computers). Instead, it is poised to bring about a wide-scale decimation of jobs — mostly lower-paying jobs, but some higher-paying ones, too.

If Donald Trump has ever addressed this issue, or suggested that he is even aware of it, it has escaped my notice.

Richard Hofstadter’s book, Anti-intellectualism in American Life is, if anything, more relevant today than when it was written. What Hofstadter and others who have addressed this particular element of American culture failed to foresee, however, was a time in which the federal government (together with a good number of state governments–Texas comes immediately to mind) would be controlled by people who neither understand the world they live in nor know what they don’t know.

Science Magazine  recently reported on the EPA’s dismissal of 38 science advisors.

U.S. Environmental Protection Agency (EPA) Administrator Scott Pruitt continues to clean house at a key advisory committee, signaling plans to drop several dozen current members of the Board of Scientific Counselors (BOSC), according to an email yesterday from a senior agency official.

Unlike most of Trump’s cabinet, Pruitt is proving to be effective. Unfortunately, he is proving effective in his efforts to destroy the EPA–not just by denying the reality of climate change science, but by rolling back regulations that protect air and water quality. He appears to be operating on a theory common to this administration: if a reality is uncongenial, ignore it or deny its existence. If evidence contradicts your worldview, dismiss it.

Yesterday, in a reference to Neil DeGrasse Tyson, I observed that science and reality are true whether or not you believe them.

The worst thing about giving simple and/or corrupt people the power to run a government they do not understand is that complicated realities continue to be realities, and the longer we fail to engage those realities, the worse the consequences.

Sauce for the Goose

Evidently, sauce for the goose is not sauce for the gander.

We’ve become accustomed to the breast-beating and recriminations that accompany decisions by American businesses to manufacture goods in other countries, or to move existing operations overseas. In the latter case, the loss of jobs is a genuine “hit” and efforts to retain them are understandable–although, as we’ve seen with Trump’s Carrier deal, often costly and counterproductive.

We almost never hear about the other side of the equation, however. Indiana, in particular, has benefited mightily from outsourcing decisions made by foreign companies. According to the Indiana Business Research Center at Indiana University, in 2015, Indiana had 152,700 workers employed by foreign-owned firms. (Think of the Honda plant in Greensburg, the Isuzu plant in Lafayette, etc.) Of the jobs created by foreign companies located in Indiana, 97,900 were manufacturing jobs that accounted for 3.1 percent of the state’s private employment.

Similarly, automation–not trade– accounts for most of the job losses in the United States. Trade actually creates jobs (although often the jobs created are different from those that are lost, and that does make for winners and losers). According to a January 2010 report from the Business Roundtable, at that time, 761,500 jobs in Indiana depended on trade.

In 2008, 20.5 percent of jobs in Indiana depended on trade, up from 10.0 percent in 1992. Indiana’s trade-related employment grew more than five times faster than total employment from 2004 to 2008.

This is not to minimize the issues raised by job losses; the impact on workers who find themselves unemployed–and often, due to age or lack of other marketable skills, unemployable–is very real. The impact on communities when a major employer closes or downsizes are equally real, and challenging. But addressing the consequences requires an accurate understanding of the causes.

To use a medical analogy, prescribing the proper remedy requires a correct diagnosis of the disease being treated.

The globalization of the economy has proceeded too far to be undone, even if we wanted to mount a retreat. History teaches us–or should teach us–that erecting trade barriers, punishing companies with tariffs on their foreign operations, and the other measures Trump has threatened–simply invite retaliation that hurts everyone.

It’s comforting to have a target for our economic frustrations, a “bumper sticker” solution to a problem. Unfortunately, modern life is more complicated than such “solutions” recognize. Automation has multiple virtues, but it does cause troubling job losses. There are good trade agreements and bad ones. Losing jobs as a result of American outsourcing is painful; gaining jobs as a result of Japanese or Canadian or British outsourcing is gratifying.

The world is a complicated place.