Tough trade talk

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The U.S. Business and Industry Council is asking Congress to place a tariff on all imported goods to bolster the floundering domestic manufacturing sector.
The group, which has 1,000 members in 44 states, says that some industries lost more than 70 percent of their U.S. market from 1997 to 2004. USBIC researcher Alan Tonelson said that Congressional intervention is the only way to lower the trade deficit, which was $68.5 billion in January.
“We need an emergency, across-the-board tariff,” he said. “It can be our only response. We need an emergency, economy-wide tariff that would focus on goods from those countries that have the biggest, fullest trade surplus with us. Those countries whose trading practices are nothing like free trade.”
Some financial analysts believe that tariffs are bad policy, leading to “tariff wars” and driving up the cost of goods.
“It’s an artificial barrier,” said Tom Zwirlein, professor of finance at the University of Colorado at Colorado Springs. “Tariffs in the United States are followed by a rapid response by the opposing country. It’s a detriment to free trade. The answer is some politics and some economics. As countries currency rises, their goods will cost more in the United States. And some of it is politics, continuing to negotiate with countries that are keeping their currency artificially low.”
Zwirlein said that Americans are learning to compete in the global economy, one focused on services.
“Something always comes along to create jobs,” he said. “We still have R&D (research and development), innovation. We do some things as good – or better – than other countries. With the boomer generation getting close to retirement, we don’t have the labor force for manufacturing jobs.”
According to a USBIC study, some manufacturing sectors have lost between 50 and 98 percent of their market share to foreign imports, with electronic storage and machinery tools among the hardest-hit groups.
The study uses import penetration figures to examine the trade deficit, which Tonelson claims shows a more complete picture of the country’s manufacturing woes.
“They (import penetration figures) compare apples with apples,” he said. “The performance of products made in the United States versus products made overseas in the same U.S. market. That’s the market the domestic manufacturers should know best. Trade deficit figures compare U.S.-made products’ performance in overseas markets versus foreign-made products’ performance in the U.S. market.”
But Zwirlein said the comparisons are not that simple – and the data does not take the “global economy” into account.
“They are most likely skewed because they don’t take into account U.S. companies that are manufacturing overseas; or foreign companies that are manufacturing items in the U.S.,” he said. “If Toyota builds a car in the United States, they’re using U.S. labor, but the sale gets counted in Japan. It’s more complicated.”
The study claims that textile sectors, pharmaceutical preparations, telecommunications hardware, computers, broadcasting, wireless communications and environmental controls have lost more than 50 percent of their U.S. market to imports.
“Only four of the 112 industries gained ground in the U.S. market in the seven years examined,” Tonelson said. “Semiconductors, semiconductor manufacturing equipment, heavy trucks, and synthetic dyes and pigments. Only heavy trucks gained more than a percentage point of market share during these seven years.”
Tonelson said his organization is concerned about the importance of the manufacturing sector to American democracy and to prosperity.
“If we lose the sector that creates the middle class, then we’ll be in trouble,” he said. “I think we’ll have the answer as the slow-motion meltdown of the American automobile industry gathers speed. Hundreds, thousands of working-class families and retirees will have less spending power. And that spending power has been the major source of growth for the economy.”
Zwirlein said that the country is merely experiencing a shift in the goods and services it produces – similar to the shift in the Industrial Revolution when the United States moved from a more agricultural economy.
“At the time, more than 80 percent of jobs were agriculture,” he said. “Today, it’s more like 3 percent. Over time, the economy evolves. And this is just the theory of competitive advantage – your economy is better off when the factors of production are provided at the lowest cost. No one likes it – but at the same time, goods are produced more cheaply and companies are passing that on to the consumer.”
Amy.Gillentine@csbj.com