Opinion | Reversing tariffs would be a winning formula for Michigan economy

Dr. Michael Clark is an economist and associate professor at Hillsdale College

In the midst of drama around national elections, it might have been easy to forget the United States still finds itself embroiled in a trade war with major international trading partners, including Canada, Mexico and China.

Unfortunately, trade with these partners, who represent the top three nations for Michigan imports and exports, is vital to our state’s economic future. That’s why national leaders must adopt the United States-Mexico-Canada Agreement (USMCA) as soon as possible and resolve our trade differences with China. Doing so would be a real win for Michigan.

How did we get here? In March, President Trump announced a new 25 percent tariff on steel and a 10 percent tariff on aluminum from most trade partners. The move, aimed at bolstering American steel, was met with swift reaction from major U.S. trading partners such as China, Mexico, Canada and the European Union. China, for example, imposed its own tariffs, creating a veritable trade war that has, to date, affected a staggering $360 billion worth of goods traded between the U.S. and China.

In recent days, President Trump has threatened to slap tariffs on the remaining $257 billion worth of Chinese goods not currently subject to tariffs. Even without further action, the 10 percent tariff on China goods is set to skyrocket to 25 percent on Jan. 1.

We also find ourselves in a significant trade war with Canada, which levied its own tariffs on American imports, including a 25 percent tariff on American steel and aluminum. Like Chinese tariffs on Michigan-made goods, Canada’s trade countermeasures have now affected $1.17 billion in Michigan exports. Our auto sector, in particular, remains in the crosshairs.

It is important for policymakers and the public to understand that modernizing trade agreements with these countries to strengthen ties, rather than pursuing tariffs and other harmful trade policies, is the real winning approach for Michigan. That is how we best protect the future of industry, particularly auto manufacturing, and ensure uninterrupted trade with our biggest trading partners. That is also how we maintain the flow of foreign investment into Michigan, which today receives more dollars for automotive research and development than the other 49 states, Canada, and Mexico combined.

Earlier this spring, 1,100 economists, including myself, signed an open letter organized by the National Taxpayers Union in opposition to tariffs. Tariffs are, after all, a tax on consumption. Whenever a tariff is implemented, whether on steel, aluminum, or some other good, consumers are the ones who pay the cost.

Manufacturers also feel the economic pain of trade discord, including harmful tariffs. According to a study by the Fitch Rating Agency, for example, Michigan is the state most at risk of suffering economic losses if a North American trade deal is no longer upheld.

NAFTA, the centerpiece of open trade with Canada and Mexico, has been a huge boon for Michigan. According to the Canadian International Merchandise Trade Database, total trade between Canada and the United States more than tripled between 1990 and 2016. Today, 61 percent of Michigan’s total intermediate good imports come from Canada and Mexico. These imports supply the state’s auto industry with parts, keeping the cost of cars assembled and made in Michigan low. In other words, free trade in North America builds jobs, creates competitive advantages, and keeps prices low for families.

The truth is that protectionist trade policies simply don’t work. They serve to help a select few companies, while many more suffer. The United States faced this reality in 2002 with steel tariffs, which cost the United States 200,000 jobs in the steel-using sector, more jobs than the entire American steel producing industry. From auto manufacturers to businesses that supply the auto sector to medium- and small-sized businesses across multiple sectors, all businesses feel the pinch of tariffs.

To help Michigan, national leaders should do two things. First, they should update and modernize NAFTA. This can be achieved through the United States–Mexico–Canada Agreement, a deal that will strengthen economic ties to Michigan's most important trading partners and that will lead to better economic growth for North America.

The agreement has provisions that will be very beneficial to the auto industry in Michigan by increasing the percentage of components that must be manufactured in North America in order for a car to have zero tariffs. Second, tariffs targeting key trade partners like China, Canada, and Mexico should be reversed.

Michigan remains vulnerable as long as a trade war exists. It’s time for national leaders to reverse tariffs and ratify USMCA, paving the way for a strong future for Michigan businesses and families.

Bridge welcomes guest columns from a diverse range of people on issues relating to Michigan and its future. The views and assertions of these writers do not necessarily reflect those of Bridge or The Center for Michigan.

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Comments

greenertc@chart...
Wed, 11/28/2018 - 9:33am

Strange, coming from a professor at a school that is know for its conservatism and ultra right wing views. I Thought it would support anything Trump says or does. (per Sean Hannity)

Bones
Wed, 11/28/2018 - 9:55am

It's not that surprising. Hillsdale's econ department is probably second only to George Mason's Mercatus Center for worshipping Mises and the Austrian School. For them, any interference in the market (regulations, tariffs, antitrust) is antithetical and the cause of all economic woes.

Jacob
Wed, 11/28/2018 - 4:32pm

I believe the only reason why President Trump implemented the tariffs was just not for steel Industry, but was under the advisement of the military advisors for purpose national security interests due to the fact that we've been losing manufacturing capacity for over the last 15 years do to globalist policies that are increasingly making the United States more reliant on Goods produced in other countries and critical machinery necessary for us to build Defensin systems let alone heavy industry. this tariffs on steel and aluminum is just an example of shifting corporate interest into local production rather than overseas production. it's not the objective of the government to dictate whether the economy is prosperous or not that is completely reliant on free market and trusts the government is intended to regulate and establish laws for fair and equal trade amongst independent agents. It is also the government's responsibility to secure the nation and its people from foreign entities hence the reason for having a government. so it is necessary for the government to implement laws to ensure National Security interest or met and that means that we have the ability to produce weapons for ourselves when we need to produce them. we are far removed from a One World Government that most globalist seem to want at the detriment of the lower-income populations of the world. and if these entities so vitally want a One World Government then they should be pushing for the United Nations parliamentary assembly and for the European Union to actually be an elected assembly rather than Representatives appointed by the government of the individual Nations.

I'm Jim
Fri, 11/30/2018 - 1:40pm

That may be what his advisor told him, but I believe our president is a goof.
I doubt he really understands anything at all about markets much less your xenophobic dogma.

duane
Wed, 11/28/2018 - 11:58pm

Dr. Clark seems to distill American trade to a single issue, tariffs, and he can only see that America is bad for initiating tariffs. He doesn’t even acknowledge the tariffs other countries such as Canada, China, Germany, Japan, and so many others have been collecting on American goods and services. He doesn’t recognize all the other ways these nations prevent Americans selling into their countries, whether it be regulations, restrictions, special processing at port of entry that are designed to thwart American businesses in their countries.
Dr. Clark talks about research, but he fails to mention how American companies invest in research and development and have the fruits of their investments stolen by the likes of China [helping them avoid spending on research and ensuring an advantage over American businesses].
Dr. Clark and the 1100 ‘economists’ have a single answer for trade conflicts, condemn and blame America and protect the rest of the world for all they do to us in name of their ‘nationalism.’
Dr. Clark is so sure those trying to rectify the past trade abuses toward America are wrong he ignores how many years NAFTA has been in place without any revisions until those people he condemns began invoking American tariffs brought the limited changes achieved in the USMCA. Dr. Clark and others are so enamored with an image of past global trade that they can’t see the world has changed and nations around the world have turned global trade into an attack of a ‘thousand cuts’ to bleed the economic energy and creativity out of America and its culture such that America now needs to defend itself or the whole of the world economy will implode because of the unwillingness of other nations to emulate how America has economically elevated the world.

It is easier to condemn those in the fight than to enter the fight and receiving the condemnation of those not willing to fight.