The trade war that could wallop San Diego

Mexico: 92 percent of exports, 80 percent of imports

If the Trump administration can “bring back” manufacturing jobs, robots will be doing the manufacturing.
  • If the Trump administration can “bring back” manufacturing jobs, robots will be doing the manufacturing.

The law of unintended consequences warns individuals, governments, and corporations that any action may backfire. The possibility of a trade war with Mexico is a classic example: the consequences could be brutal, especially for San Diego.

Sanctions, trade wars, tariffs, and blockades often lead to dire unintended consequences. Image: The U.S.-Mexico border.

Sanctions, trade wars, tariffs, and blockades often lead to dire unintended consequences. Image: The U.S.-Mexico border.

Another example is the Trump administration’s promise to bring back manufacturing jobs. It may result in many more millions of robots — not millions of American workers with high-paying manufacturing jobs. According to the Boston Consulting Group, using a robot to perform spot-welding costs $8 an hour compared with $25 for a worker. About 40 years ago, 25 jobs were required to generate $1 million in manufacturing output. Today, in the United States, that’s down to 5 jobs. “The idea that we are going to bring back all manufacturing jobs just isn’t going to happen,” says Kelly Cunningham, economist for National University. Robotics will boom, he says.

If Washington DC continues bullying Mexico, some of the worst of the unintended consequences may land on San Diego.

If Washington DC continues bullying Mexico, some of the worst of the unintended consequences may land on San Diego.

“The old, low-skill, high-paying manufacturing jobs are not coming back. It is dishonest for politicians to suggest otherwise,” says Colleen O’Connor, who got her doctorate in economic and political history at the University of California San Diego and has retired from teaching on the college level. (O’Connor is the sister of former mayor Maureen O’Connor.)

“Sanctions, trade wars, tariffs, blockades,” and the like, initiated by politicians to tackle a problem such as unemployment in a certain industry, “often lead to dire unintended consequences,” O’Connor warns.

If Washington DC continues bullying Mexico, some of the worst of the unintended consequences may land on San Diego, she says. President Trump wants to erect a wall along the Mexican border; he has suggested that the United States slap a 20 percent tariff on imports from Mexico, supposedly as a way for Mexicans to pay for that wall. But that’s silly. For the most part, the tariffs would be passed on to Americans; the Mexicans wouldn’t be paying for the wall. The tariff would “only burden the consumer of those goods in the U.S. Why punish Americans?” says O’Connor.

California has 700,000 jobs that depend on trade with Mexico, says O’Connor. She takes a shot at President Trump: “More thought and [fewer] tweets could yield better results with fewer unintended consequences,” she says.

Cunningham agrees that a trade war with Mexico would be devastating for San Diego County. “In 2016, Mexico accounted for 92 percent of [San Diego’s] total exports and 80 percent of imports,” points out Cunningham. There are danger signs: new data show that imports of computer and electronic goods from Mexico plunged 11 percent last year. The last time that happened was in the most recent recession.

“The trouble with trade wars is that when you impose tariffs, your own population gets hurt,” says Cunningham. Other countries reciprocate, erecting their own tariffs. Prices rise. Employment may fall — ironically, because the reason for slapping on tariffs is usually to protect jobs that are being lost to foreign competition.

So, will America build a wall along the 1900-mile border to show Mexico a thing or two — and then make that country pay for it? Those who have studied such barriers say they won’t eliminate or reduce undocumented immigration. Actually, illegal immigration has been in decline for several years, due partly to the weak U.S. economy. So, you want to thwart illegal migrants? A recession or a disaster will do the trick. In the 2007–2009 recession, Mexican migration slowed sharply: “Mexicans could not find work in the U.S.,” says Cunningham. Border passage was tightened after 9/11. Traffic “was a nightmare,” says Cunningham.

In American economic history, the classic example of unintended consequences is the Smoot-Hawley Tariff Act of 1930. There was massive worldwide agricultural overproduction in the 1920s. Farm prices tumbled. Herbert Hoover promised in his 1928 presidential campaign to raise tariffs to help the farmer, although Hoover was dubious about tariffs, especially when businessmen like Henry Ford called them “economic stupidity.” The final bill covered all kinds of products — not just farm ones. Effectively, the tariff rate zoomed to 60 percent. Other countries retaliated with beggar-thy-neighbor tariffs. American exports to Europe declined from $2.3 billion in 1929 to $784 million in 1932 as unemployment soared from 8 percent in 1930 to 25 percent in 1932–’33.

Smoot-Hawley “compounded the misery of the Great Depression by instigating a global trade war,” says O’Connor. As other countries retaliated with fat tariffs on American products, “the U.S. retreated into isolationism, experienced a loss of trade and an even greater loss of jobs. The mess took decades to unravel.”

Now, history may be repeating. Bitterness and anger have arisen in the Midwest, where loss of low-skill, high-paying manufacturing jobs has been most painful. Democrat Bernie Sanders and Republican Donald Trump tapped into that angst in their presidential campaigns. Populists say that free trade is imperialism in disguise. Free trade is blamed for some of our most nagging problems: income and wealth inequality; environmental degradation in countries such as China; child labor; sweatshops; and low wages, especially in poor countries.

There is something to these arguments. “The notion that free trade costs American workers their jobs is correct,” concedes Ross Starr, professor of economics at the University of California San Diego. However, “economic analysts have long favored free trade. It allows economic producers to concentrate on what they do best and provides inexpensive goods for consumers.”

(In a 2006 survey, 87.5 percent of economists said the United States should eliminate tariffs and other barriers to free trade, such as subsidies to certain producers.)

“A tariff war puts Americans out of work in our export industries,” says Starr, “and America is a vigorous exporter of intellectual property, financial services, education services, and high-tech manufacturing. If we get into a tariff war with Asia, we will lose those markets. If we have high tariffs on Asian goods, TVs will cost more, shirts will cost more, underwear will cost more — this is not a prescription for keeping us happy.”

But free trade puts “some Americans on the losing end,” thus providing fodder to the protectionist argument, allows Starr.

The federal government’s Trade Adjustment Assistance Program is meant to help people who have lost their jobs to foreign trade obtain skills and resources for other activities. However, “It has never been well-funded,” says Starr.

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John Raifsnider: The trouble is that, for the most part, Trump supporters are racially insensitive, if not outright racist, not well educated, and not inclined to follow what is going on in Washington. Other Trump supporters are intelligent Wall Streeters and corporate executives, who know that Trump is mentally disturbed but will look the other way because they anticipate lower taxes and less regulation. As I have said before, "profits before patriotism."

Most Trump supporters are the kind of people that simply do not want to hear anything negative about the person they voted for. No cognitive dissonance fork them. I agree that we are stumbling toward a cliff, but I have no idea when we will get to the edge, and hope that common sense takes root and we don't get there. Best, Don Bauder

The economist quoted in the article also think that Walmart is a great example of economic success. Low wages, low/no benefits, low skill workforce making a great profit for a few while bringing low cost, low quality goods to consumers. Those same consumers are subsidizing Walmart profits by paying taxes that help pay for welfare benefits for Walmart workers. Walmart workers do not buy homes or new cars or participate in any meaningful way in the economy.

AlexClarke: There are only three San Diegans quoted in this column. I find it hard to believe that one of them finds Wal-Mart a great example of success. Please tell me more. I agree with you that Wal-Mart pays low wages with inadequate benefits, and sells low quality goods, often imported from China, for a low price. Moreover, Wal-Mart depends on subsidies from the cities and towns it locates in. Best, Don Bauder

Good story. I've read about the forecasts of robotic and AI taking more human jobs. It's happening around us all the time. The only reason America has an auto industry is due to robots where making cars takes far less human labor than in the good old days.

Manufacturing may be coming back to the U.S. but the job creation will be in operating and servicing automated assembly. Trump would need to create a major job retraining program if his base of coal miners and old-school factory workers are to join the workforce again.

There is another thing to think about. America doesn't have a lock on automation. China and other manufacturing economies are also deploying millions of robots in their factories to continue to drive prices down. Hon Hai Precision Industry (Foxconn, the maker of Apple iPhones) has plans for millions of robots to replace a good part of its workforce. In May 2016 Foxconn announced it had reduced its workforce from 110,000 to 60,000 using "Foxbots," their own robots.

China is investing heavily in a robot workforce. It may be hard to imagine, but once the robots are widespread in China, their people will experience rising unemployment. Where are low skilled workers going to find jobs when robots are taking more of them?

The Trump administration is wasting precious time on fool's errands rather than laying out a plan to invest in modernization of our manufacturing infrastructure. Those $25 and $40 an hour manual labor jobs are not coming back. Even the $15 minimum wage jobs are targets for automation. Wealth will continue to concentrate to companies and individuals who own the machines.

Ponzi: You are right. The companies that send jobs to low- and slave-wage nations, and then dodge U.S. taxes by claiming they are based in low-tax nations, should be punished. Both Sanders and Trump blasted such traitors in their campaigns, but Trump is doing nothing about them. Instead, he is claiming he will bring back high-paying manufacturing jobs to the U.S. Not so. Robotics are taking over, and, as you say, the American jobs robotics create will be in maintenance of robots, and in some cases, engineering of them. Best, Don Bauder

I'm going to be uncharacteristically optimistic here. No kid dreams of a lifetime bolting fenders on cars. Bring on the robots for all the repetitious, mind- and body-numbing jobs. Same with stoop labor and the uncertainty of farming, the lifework that industrial labor replaced. So what's next? Something better. It could hardly be worse. The pain of transition (let's call it progress) was worth it in the whole of history, at least as far as I've studied, which is frankly mostly Monty Python movies.

rehftmann: If robots do all the repetitive manufacturing jobs, we could wind up with a lot of unemployment. Best, Don Bauder

Everyone is giving Trump far more credit for actually doing any work. Trump is salesman-in-chief who is just signing the documents being created by Steve Bannon, etc. The only thing Trump has been doing himself is spewing rhetoric to distract the American public from the horrible things his cabinet and congress have been doing. Our country is being dismantled from within for the benefit of the corporations and special interests that are part of the emerging kleptocracy, at the expense of everyone else. Meanwhile, we have seen no meaningful job creation legislation from the White House.

amorpheous: And just think back to the campaign. He pretended to be a champion of the low-wage and middle class. It was a fraud. Best, Don Bauder

Ponzi: But how does government target robots? Best, Don Bauder

As the refrain of the old Bobbi Gentry song went, "Yeah, yeah, yeah . . . "

"Unintended" consequences = ignored consequences.

The analysis of complex phenomena, particularly when it comes to prediction, requires leaving no relevant stone unturned.

Trouble is, we think only the pretty stones are worth collecting. And the weighty principles are too heavy, man, to carry in our Volkswagen.

I repeat, the consumer is industry's Golden Goose. No consumers, no golden eggs. At any price. Henry Ford knew this equation.

Flapper: Henry Ford brilliantly priced his autos low enough for middle income Americans to buy them. But later he turned into a union hater -- approving violence against union members. Best, Don Bauder

And Shakespeare knew this:

Devouring Time, blunt thou the lion's paws, And make the earth devour her own sweet brood; Pluck the keen teeth from the fierce tiger's jaws, And burn the long-lived phoenix in her blood; Make glad and sorry seasons as thou fleet'st, And do whate'er thou wilt, swift-footed Time, To the wide world and all her fading sweets . . .

Flapper: As Dylan Thomas wrote, "Oh as I was young and easy in the mercy of his means, Time held me green and dying, Though I sang in my chains like the sea." Best, Don Bauder

An apocryphal tale is told about Henry Ford II showing Walter Reuther, the veteran leader of the United Automobile Workers, around a newly automated car plant. “Walter, how are you going to get those robots to pay your union dues,” gibed the boss of Ford Motor Company. Without skipping a beat, Reuther replied, “Henry, how are you going to get them to buy your cars?”

Exactly! We are heading for a two class society. The middle class will disappear leaving only the wealthy, the poor and the working poor. When the people have no jobs and no hope you only have civil war left,

Ponzi: Is that apocryphal? If so, it shouldn't be. It says a mouthful. Best, Don Bauder

AlexClarke: The middle class is already shrinking and the upper 5 percent soaring in wealth and income. Even Alan Greenspan fears ugly consequences of the bad split between the very rich and the rest of us. Best, Don Bauder

Gary Whaley: The media is not telling the whole story in one sense: the situation is worse than the media portray it. Best, Don Bauder

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