By John H. Hilton
The carrot and stick approach works well in parenting, but does it translate when it comes to the trading policies of the world’s superpower?
From what has been observable of President-elect Trump’s stance on international trade and the U.S. economy, one can deduce that he believes it does translate. The President-elect campaigned against the rush to globalization, and much like the Brexit vote in the United Kingdom, excited a groundswell of passion among working class and middle class voters the likes of which we may never have seen. Even amongst the very conservative free trade had, until Mr. Trump, solidified itself as almost unquestioned orthodoxy in Republican circles (and most Democrat circles). Now it appears that we have something new in the arena of trade philosophy; an economically patriotic capitalism blended with a splash of nationalist populism.
America first. It all boils down to those two words. Trumpism, it seems is a worldview about creating wealth, high growth and good paying jobs, whose beneficiaries are Americans (a border-defined American nation, American companies, workers and consumers). Did not Mr. Trump make himself clear when he told Carrier to revise its plans to build a large plant in Mexico? From the media buzz, it appeared that Trump’s threats of government retaliation in the form of tariffs and other taxes persuaded the giant furnace manufacturer to remain in the States. The real story is that Mr. Trump also favors slashing the corporate income tax along with a host of regulations that corporate America finds onerous, in order to reestablish a business-friendly climate here in America. Classic carrot and stick.
I sense that Carrier, along with Ford and many other major U.S. companies are persuaded more by the carrot. They simply want to be a part of the new economic revival that is certain to happen if Congress enacts legislation to cut taxes and regulations. Most companies that have offshored have done so because the cost of doing business in a particular state or in the country as a whole has threatened their competitive edge and long-term profitability. There are some unfortunate stories of U.S. firms going oversees simply for the dirt-cheap labor and short-term profits, but they are the minority. Worse yet has been the rush to a pro-globalization attitude by previous administrations, global trading partners and the media. Such a climate encourages offshoring. In fact, in recent years, the government has subsidized offshoring. Now that Mr. Trump is in town, that climate can shift.
I suspect the President-elect knows precisely what he is doing (to the continual consternation of his critics). But he has to know that although it may be good politics for the moment, threatening large tariffs against U.S. companies that offshore is not a sound long-term trade policy. For example, if the government placed a tariff on all textile goods shipped back to the United States from China, who would pay the bill? You and I of course, in the form of higher prices for day-to-day goods to which we have become accustomed. The same principle is operative when the government raises taxes or the cost of doing business on any company; it will be the workers who pay that cost in the form of lower wages and benefits, or the unemployed who might have been hired by that company.
These are but a few of the unintended consequences of well-meaning, high-handed government regulation. So if the new President is serious about putting America first again he should use the carrot to entice industry to stay put and create the desperately needed growth environment to extricate us from a decade-long economic morass. And he should apply the stick in the form of the bully-pulpit, to those few companies who insist on offshoring no matter what. Passionate public opinion over time can be a mighty force, and a strong President who shouts and tweets “America First” every day can change the conversation about things such as globalization.
Mr. Trump is already changing it, and for that I applaud him.
John H. Hilton is a business writer and regular contributor to The Loudoun Tribune. A native northern Virginian, John is a veteran top-producing sales industry leader with expertise in insurance, real estate and financial services.