During the presidential campaign I visited two regional manufacturing executives who do business in the same county but hold views on trade that are worlds apart. Now that Donald Trump is the president-elect, I asked them and some regional economists how the new administration’s approach to trade might affect the Ohio Valley region.
When I spoke to Bud Layne in August, he was excited and hopeful for another Clinton to take office. Layne’s the CEO of the conveyor belt manufacturing facility Spantech, and he was eager to see more trade with Asia, where he’s found valuable clients for more than 20 years. But since Election Day he’s changed his tune.
“I think business is going to really respond to the Trump administration in a big big way,” Layne said. “It’s going to give everybody in the business community a positive feeling about the future of business in this country.”
While Layne still favors free trade (which accounts for about 20 percent of Spantech’s business) he likes Trump’s stance on lowering taxes. He said if the tax rate is lowered he’ll spend more money and so will workers. Layne also said he believes companies that have moved their businesses offshore will bring jobs back if the tax rate is lower.
Thirty miles away at Trace Die Cast, where parts are made for transmissions that will go to Ford and GM plants, President Chris Guthrie is still no fan of free trade. But he doubts Trump can change something so ingrained in American business.
“It’s going to be hard to put the genie back in the bottle. All the companies have their supply chains, all the countries’ economies depend upon each other, and trying to unravel that is going to be very difficult,” Guthrie said.
These business owners aren’t the only ones left uncertain about what Trump’s trade stance will mean for the Ohio Valley region. Two economists with differing views on trade say it’s hard to tell how Trump’s tough stance with China and skeptical view of trade agreements might play out.
“The best I thing I’m hoping for at this point with respect to this administration is that they don’t mess too much stuff up,” Western Kentucky University economist Brian Strow said.
Strow, a free trade supporter, said President-Elect Donald Trump appears to have helped derail one trade deal already, the Trans-Pacific Partnership, or TPP. Trump announced he will withdraw from the deal during his first 100 days in office. Strow said that deal with 11 countries could have been a big job generator in Kentucky, Ohio and West Virginia.
“Particularly in the exportation of automobiles, heavy machinery, electronics. These are the big things this region is exporting to Asia,” Strow said. “We could have seen an increase in jobs in those particular areas. It wouldn’t be the same for every state but we [Kentucky] are a state that produces automobiles, and free trade agreements are very important to the success of that industry.”
He says the state’s storied bourbon industry could even be hurt by the
absence of the TPP. Asia is the biggest growing market and Kentucky has the lion’s share of the bourbon business. Strow worries the high tariffs Trump and his administration have talked about could spark a trade war with China. He hopes cooler heads will prevail.
“I’m going to hang my hat on the separation of powers and know that there are a number of people in both parties in Congress that understand the value of trade, that they won’t throw the baby out with the bathwater,” Strow said. “I hope they don’t pull a Smoot-Hawley tariff of the 1930’s out of their pocket, go Herbert Hoover on us and dramatically slow down the economy.”
When the stock market crashed in 1929 President Hoover signed the Smoot-Hawley Tariff Act and imposed high tariffs on goods, something most economists say contributed to the severity of the Great Depression.
Strow is also concerned about Trump’s tendency to directly intervene in business decisions. The president-elect has already pressured aircraft maker Boeing, air conditioning makers Carrier, and the Ford Motor Company over a proposed change at its Louisville plant.
“I don’t want to live in a country where basically one person can just tell people what to do. So I don’t like when president of any party tries to use the bully pulpit to beat people over the head,” Strow said.
A New Approach
Kentucky Center for Economic Policy economist Jason Bailey thinks a whole new approach to trade is long overdue. He said trade agreements need to tackle things like tax avoidance and the fair treatment of both workers and the environment.
“We need a new approach to trade that is based on fair trade, that’s based on what’s best for all parties involved,” Bailey said. “What we’ve had in the past, too often, is a process controlled by powerful corporate interests and that’s what needs to stop.”
He said he’d like to see action to reduce the country’s trade imbalance with China and to confront China about its manipulation of currency. China’s practice of purchasing foreign currency in order to influence exchange rates encourages more manufacturers to operate there.
“It will still be cheaper to produce manufacturing goods in China than in the United States but it’s artificially cheaper now because of currency manipulation and that’s the problem we need to address,” Bailey said.
Bailey said this arcane subject has big effects in the region.
“In Kentucky, for example, by one estimate increased trade imbalance with China has led to a loss of 41,000 Kentucky jobs, and that’s jobs in industries like computer part manufacturing, apparel manufacturing,” Bailey said.
“Everybody needs everybody”
Back at Trace Die Cast President Chris Guthrie said he will have to move ahead with business decisions in the face of uncertainty about the new administration.
“Governments are always going to change but we’ve got to control what we can control,” Guthrie said. “We do believe in adapting, but we don’t do it to the government, to what administration’s in. We do it to what t
he economy is doing and what our competitors are doing.”
Spantech’s Bud Layne doubts any action Trump takes will significantly hinder trade between China and America.
“Everybody needs everybody in this scenario. I mean, the concept that we’re not going to sell to China and we’re not going to buy from China? That train left a long time ago. You can forget that,” Layne said.
Regardless of where business owners fall on the free trade discussion they’ll have to wait and see what Trump’s trade policies will be.