trade war

As Trade Talks Loom, Blood Pressures May Zoom

Negotiations to reshape the North American Free Trade Agreement will begin in about a month. Priorities in negotiations for the Trump administration drew mixed reviews on Capitol Hill, including from a GOP leader who said changes in NAFTA can’t harm existing US business activity that depends on trade with Canada and Mexico.

Negotiations to reshape the North American Free Trade Agreement will begin in about a month. Priorities in negotiations for the Trump administration drew mixed reviews on Capitol Hill, including from a GOP leader who said changes in NAFTA can’t harm existing US business activity that depends on trade with Canada and Mexico.

Oregon exports and US industrial production are increasing, according to state economists, which could raise the stakes and blood pressure for Oregon businesses and workers as the Trump administration begins negotiations on NAFTA with Canada and Mexico in about a month.

Trump administration officials outlined their priorities for NAFTA negotiations, which drew mixed and nervous reviews on Capitol Hill and among trade groups. Trump objectives include improving market access for US manufacturing, agriculture and services, adding a “digital economy chapter” and adding labor and environmental obligations.

Administrative negotiators will seek to eliminate “unfair subsidies and market-distorting practices by state-owned enterprises” and improve intellectual property, says US Trade Representative Robert Lighthizer.

Texas Republican Kevin Brady, who chairs the House Ways and Means Committee, said Trump’s objectives are “ambitious” in seeking “strong, enforceable rules that go beyond any agreement ever negotiated.” Brady also said an updated NAFTA agreement can’t remove trade benefits currently enjoyed by US businesses.

Utah Senator Orrin Hatch, who chairs the Senate Finance Committee, made an underwhelming comment that he hopes Trump’s negotiating objectives will be “further developed” as negotiations proceed.

Democrats were less subdued. Oregon Senator Ron Wyden, the ranking Democrat on Senate Finance, called the Trump priorities “hopelessly vague” in explaining how they will “benefit the United States on key topics ranging from intellectual property rights and investment, to currency manipulation and government procurement.”

Wyden also jabbed Trump’s team for including what he called “watered down versions of [Trans-Pacific Partnership] TPP proposals” that candidate Trump belittled in his presidential campaign and withdrew from when he became President.

“Before sitting down with Canada and Mexico,” Wyden said, “I expect the Administration to update this summary, shine some daylight on its negotiations and set the bar high for American workers, businesses and farmers, as it promised it would."

Michigan Democratic Congressman Sander Levin said Mexico’s low wages and a lack of workers’ rights have cost many US jobs, but he said Trump’s priorities don’t evince “that a new NAFTA will be different than the old [NAFTA].”

A number of economists said trying to negotiate a better deal based on a goal of reducing trade deficits is “misguided” and could backfire.

The complexity of trade considerations that go into negotiations was illustrated by South Bend Mayor Peter Buttigieg, who has transformed abandoned factories into a business park for technology companies in his Indiana city. In an interview today with CBS News, Buttigieg said unionized American autoworkers in his city are assembling German Mercedes Benz vehicles to sell to consumers in China.

In the May economic forecast, Oregon economists said changes to international trade agreements, not to mention a trade war, would have a larger impact on Oregon, which has an economy that depends on exports, than on many other states. Even though job growth in Oregon has cooled off, the state economy continues to expand and is already the third longest upswing since World War II.

The Ghost of Willis Hawley, Good Intentions and Trade Tariffs

Donald Trump said he would tear up trade deals and negotiate new ones that put America first. He might revisit what happened when an Oregon congressman had the same good intention, but not so great an outcome.

Donald Trump said he would tear up trade deals and negotiate new ones that put America first. He might revisit what happened when an Oregon congressman had the same good intention, but not so great an outcome.

House Speaker Tina Kotek will have a featured place at this week’s Democratic National Convention. Former Oregon Congressman Willis Hawley played a key role at the Republican National Convention.

Kotek, a Democrat, can be expected to talk about inclusion, a higher minimum wage, family leave and free college education. Hawley, a Republican, provided the RNC with an example of what can happen when America erects trade walls.

Of course, Hawley wasn’t actually in Cleveland for the convention. He represented Oregon in Congress from 1907 to 1933 and died in 1941. But his ghost was there.

Former Oregon Congressman Willis Hawley lost his bid for re-election in 1932 after the bill he passed quadrupling U.S. trade tariffs deepened the Great Depression.

Former Oregon Congressman Willis Hawley lost his bid for re-election in 1932 after the bill he passed quadrupling U.S. trade tariffs deepened the Great Depression.

Hawley’s legacy is the Smoot-Hawley Tariff Act, which was passed in 1930 and triggered a trade war that most economists credit for deepening the Great Depression and Henry Ford called “economic stupidity." 

Senator Reed Smoot was a Republican senator from Utah and chaired the Senate Finance Committee. Hawley, who had been president of Willamette University where he taught history and economics, was chairman of the House Ways and Means Committee. The first signs of a global depression had emerged in 1929 as countries trying to rebound from the devastation of World War I lacked currency reserves and gold, so relied heavily on trade to pay their bills. Farmers and workers felt threatened.

The United States had passed a tariff bill in 1922. The League of Nations attempted as late as 1928 to persuade nations to end tariffs, to no avail. Smoot and Hawley pressed their tariff bill in the name of protecting U.S. farmers and workers from unfair foreign trade.

President Herbert Hoover agreed with higher tariffs on farm commodities, but wanted lower tariffs for manufactured goods. Hoover called the Smoot-Hawley Tariff Act, which raised tariffs on farm and manufactured goods, “vicious, extortionate and obnoxious.” But he declined to veto it, despite desperate pleas from 1,028 economists who signed a petition and many industrial leaders.

Oregon House Speaker Tina Kotek will speak at the Democratic National Convention about how to move a liberal agenda at the state level.

Oregon House Speaker Tina Kotek will speak at the Democratic National Convention about how to move a liberal agenda at the state level.

The first country to retaliate was America’s most loyal trading partner at the time, Canada, which directed more of its commercial attention to Great Britain. European nations looked to each other to bolster trading relationships as tariffs on more than 3,200 U.S. products quadrupled.

The result: U.S imports dropped 66 percent and exports declined 61 percent. Unemployment rose from 8 percent when the tariffs were imposed to 16 percent by 1931.

By 1932, the Depression was in full swing. Workers were thrown out of jobs. Farmers struggled and many lost their farms. Meanwhile, Smoot and Hawley were defeated in their re-election bids.

This chart shows the strong relationship to Gross Domestic Product and international trade. When trade drops, so does GDP, forcing job reductions, business closures and consumer belt-tightening.

This chart shows the strong relationship to Gross Domestic Product and international trade. When trade drops, so does GDP, forcing job reductions, business closures and consumer belt-tightening.

Generally speaking, people think of globalization rising in the late 20th century. The Smoot-Hawley Tariff Act is evidence that globalization was a significant economic factor much earlier.

Trump and Democrat Bernie Sanders didn’t exactly call for trade walls in their presidential primary campaigns, but they argued that existing multi-national trade deals are bad for American workers. Sanders focused his attention on not allowing the Trans-Pacific Partnership go into effect. Trump went further and said he would tear up previous trade deals such as the North American Free Trade Act (NAFTA) and renegotiate them, putting American interests first. While possibly unintended, those actions could trigger the eruption of a trade war, adding to the people and regions of the country suffering most from economic dislocation.

Oregon and other West Coast states have benefitted economically from international trade. The Port of Portland is known as an “export” port, with much of its outgoing cargo in the form of bulk agricultural commodities. Oregon manufacturing has declined, but not disappeared because of productivity advances by basic industries and diversification into high tech manufacturing. Consequently, Oregon’s political landscape is more favorable to international trade and trade deals, such as the TPP.

No one from the Oregon delegation to the RNC was likely to hold up a sign saying “Willis Hawley was our hero.” Maybe no one in the delegation ever heard of Willis Hawley. It’s likely Trump doesn’t know who Hawley is.

Too bad, though, because Hawley was a politician who thought he was helping everyday Oregonians and Americans, but wound up compounding their already bad situation so much that he lost his job and slipped into historical obscurity. He might have been a useful delegate at the convention to remind his colleagues that good intentions don’t always equate to great outcomes.

Gary Conkling is president and co-founder of CFM Strategic Communications, and he leads the firm's PR practice, specializing in crisis communications. He is a former journalist, who later worked on Capitol Hill and represented a major Oregon company. But most importantly, he’s a die-hard Ducks fan. You can reach Gary at garyc@cfmpdx.com and you can follow him on Twitter at @GaryConkling.