Trade and Immigration Policies & the Unintended Consequences

Trump’s trade and immigration policies are unfolding, and the unintended consequences so far are outnumbering the good intentions that prompted their enactment.

February 13, 2017

By: Bobby Casey, Managing Director GWP

Trump Trade ImmigrationAs Trump’s trade and immigration policies unfold, the contentious rivalry between unintended consequences and well-meaning objectives isn’t obscure.

I don’t deny the intent of tariffs and restricted immigration. Tariffs are meant to make cheap imports more competitively priced to what American made products cost: to offset the “unfair” price advantage developing nations have over American made goods. Restricted immigration is supposed to keep foreign criminal elements at bay and immigrants out of American jobs and welfare programs.

While these are the stated ambitions of these policies, they are based on some faulty understandings of how the markets work.

Tariffs

Let’s start with the tariffs. As I mentioned before, manipulating the price of imports through tariffs doesn’t address the larger issue of the cost of regulations and taxes in the United States. Tariffs don’t make it cheaper to manufacture or do any sort of business in the US. It just makes cheaper goods more expensive.

So one of two things will happen: either the companies will suck it up and continue to operate out of the US, or they will manufacture outside the US anyway, and see if they can make up the difference.

There are some companies that are tired of dealing with the American way of doing business. We discussed the sugar industry, for example, where confectioners and sweet makers are leaving for Mexico and Canada just because the cost of sugar is over twice the amount the rest of the world charges for sugar. So for every one job in sugar production our government saves, 3 are lost in subsequent industries that use that sugar.

We can add a few more corporations to the list of inverters: “industrial products supplier Rexnord Corp. (RXN), heavy construction equipment maker Caterpillar Inc. (CAT), steelmaker Nucor Corp. (NUE), food service equipment maker Manitowoc Foodservice Inc. (MFS) and electronic component maker CTS Corp. (CTS).

It’s not an all or nothing thing, of course.  Some will stay and commit to Trump’s plan. Intel is looking to grow jobs in the United States and finds the president’s plan encouraging, for instance. However, the automotive industry doesn’t seem to be fully on board the optimism train. Ford indeed did promise to create several hundred jobs in the US rather than open a new plant in Mexico, but nonetheless, has proceeded with moving its manufacturing of the Focus to an existing plant in Mexico.

In January, CAR (Center for Automotive Research) released a study which had a few grim forecasts for the automotive industry if Trump’s plans were to go into effect (Source: Investopedia):

  • “At least 31,000 U.S. auto industry jobs would be lost from withdrawal or the implementation of tariffs.”
  • “An additional 6,700 vehicle assembly jobs lost throughout North America if the tariff were imposed. Part of those losses would be in the U.S.”
  • “Trump’s plan would ‘result in higher costs to producers, lower returns for investors, fewer choices for consumers, and a less competitive U.S. automotive and supplier industry.’”

 

Many of these companies were part of a panel who advised Trump on his economic plan. Trump made his move and decided not to listen to some of them, and now they are making their moves.  Tariffs be damned, they are heading out.

Immigration

The argument remains that immigrants are taking American jobs and anchoring American wages.   Price wars anchor prices. That is to say, competition keeps prices aggressive and low. The alternative is the government sets a fixed price for something, or as was the case with Obamacare, the government decides what companies can make off a given service or good.

I think we can agree that didn’t work out well for anyone.

Conservatives insist immigrants take jobs Americans would want and do. That’s really not true. Immigrants were willing to leave their lives behind in another country just for the privilege of working a job in the US for less than an American would, which means they will go to where the jobs are. Shikah Dalmia writes and speaks on the matter of immigration extensively. One of her key findings is that immigrants are mobile. They can work construction in Arizona or pick fruit in Florida. Wherever they are needed they are there because they don’t have the same ties to one community as Americans might.

Moreover, they facilitate upward mobility for Americans. Again: comparative advantage proves to grease the wheels of an economy. When a highly qualified individual can go back into the workforce because they can find an affordable nanny/childcare provider, it is a win-win situation.

According to the Wall Street Journal, illegal immigrants are responsible for 3% of private sector GDP. That is a small number, due in part to the fact that they are illegal.

The study, which used a series of special U.S. Census Bureau surveys taken from 2011 to 2013 to infer the characteristics of unauthorized workers, found documented foreign-born workers were about 25% more productive than undocumented workers based on their incomes, even with the same level of education and experience.”

Granting unauthorized workers amnesty would increase their overall productivity by 20%, equivalent to 0.6% of GDP, the study finds.

Conversely, if you pull them out:

  • “California’s private-sector economy would shrink by almost 7% if its unauthorized workers, which make up 10% of its workforce, were removed, the study found.” (Source: WSJ)
  • “Approximately 70 percent of all farmworkers [in California] are living in the United States illegally, according to researchers at University of California, Davis. The impact could reverberate throughout the valley’s precarious economy, where agriculture is by far the largest industry. With 6.5 million people living in the valley, the fields in this state bring in $35 billion a year and provide more of the nation’s food than any other state.” (Source: NYT)
  • “The output of the construction, agriculture and hospitality sectors, whose workforces are made up of between 10% and 18% unauthorized workers, would fall by up to 10%, the research suggests.” (Source: WSJ)

 

It seems like Trump’s policies only work if everyone does what Trump needs them to do. But that’s not what’s happening. Businesses are still leaving despite the tariffs (or perhaps because of the tariffs). Cracking down on migrant workers could leave both hospitality and agriculture in a lurch as well.

Good intentions don’t pay the bills or fix economies. Free markets and deregulation does that best. I have a bad feeling about Trump’s protectionism. In the end, the only thing this will accomplish is a prideful denial toward a global supply chain.

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Comments

  1. There is a huge blind spot in your thinking. This is the same argument that gets trotted out time and again. Nobody in America wants these jobs and letting all these people in isn’t driving down wages. Could it be that your viewpoint is skewed because of where you sit? In Latvia? Financially independent?

    What you are about to see is the ground swell of awakening people in this country. Up to now, only “conservative republicans” would argue against immigration. But now because of what has happened in this country economically, people are starting to think about all the aliens being invited here. Especially Black people. Don’t be fooled by the token faces you see on CNN screaming about that racist Trump. More and more Black people are starting to see the ramifications of out of control immigration and illegal aliens entering the country. They’re also concerned for their safety as Somali and Sudanese terrorists come in.

    It’s very easy to have these intellectual conversations about immigration when it doesn’t affect you. There are millions of Black people struggling to survive right now and they will take jobs if they can get them. Many of us WERE in the middle class, but most have always been low wage earners and they are now seeing the threat of all these people descending on our country. They don’t want to see yet another group leap frog over them and take the only available jobs.
    And when your 16 year old kid can’t get a part time job at a fast food place because of all the illegal aliens working there, you have a different view of “immigration”. A lot of white and Latino families are experiencing this also.

    • And maybe you should try reading history.

    • Kelly Diamond says:

      1. Nobody wants these jobs, they are driving down wages.
      A few years ago, a tomato farm in Alabama couldn’t find anyone to pick their harvest. A good amount of it rotted away in the sun and was wasted. The truth is, American workers won’t do the temp labor because they aren’t nearly as mobile as migrant workers. Alabama had a huge crack down on illegal workers, and their hospitality industry suffered for it. I want to believe that Americans have an ethic comparable or better than that of a migrant worker. But that’s conjecture and tribalism talking, not facts. The fact is, when the recession hit, people didn’t pick up and move toward where the jobs were. They stayed put, and demanded an extension on their unemployment payouts.

      Sadly, the notion of America’s homeless and veterans will take these jobs is overstating things considerably. Americans panhandle for money. Mexicans panhandle for jobs at Home Depot.

      2. Immigrants are taking American jobs? By that same logic then, when I move from state to state, I’m taking jobs from those native to that state? I moved from Texas to California. I took a Californian’s job? No. I took a job. It was never their jobs. If it was, they wouldn’t be unemployed. That an uneducated migrant from another country is MORE qualified than an American says what about those Americans exactly? They can’t even compete with that?!

      3. Underskilled and unskilled workers can’t find jobs because of minimum wage laws. They aren’t worth $10/hour because they can’t produce $10/hour worth of work… much less operate at a profit. An immigrant who doesn’t charge $10/hour CAN produce at a profit. That’s why your kid can’t get a job. They cost too much. That’s not the immigrant’s fault though. Tell your kid to work under the table at a farm. See if that works… because that’s what immigrants do.

      4. Immigrants offer the kind of cheap labor that frees up SKILLED Americans to produce at their potential. Much like cheap stuff made in China affords our lower income constituents to live a better quality of life, cheap labor affords Americans the ability to free up their time for greater production (i.e. comparative advantage). I have an assistant. I can do what she does, but it takes me away from the more sophisticated work I’m qualified to do. It’s more efficient to hire an assistant at a lower wage than me to do the low skill work and avail me for high skill work for more hours in the day. This is what the migrant worker does. Migrants cook our food, clean our homes, mow our lawns, clean and hem our clothes, and watch our children, which frees up the man and woman of the house to do other more productive things. This is a good thing, in case your shaking your head. Affordable childcare is possible because of migrant workers. Delicious cheap take out is available because of migrants.

      Here’s the real rub though: immigrants ultimately create their own jobs. If you ever have a chance to go into Los Angeles County, visit a few cities: Monterey Park, Alhambra, and San Gabriel… Almost every single business has signs in some Asian characters. These are all the immigrants than came to LA, started a little business, and helped the rest of their friends and family to come here. They didn’t TAKE jobs. They created them for themselves, their friends and their families.

      They own restaurants, cleaning services, nail salons, hair salons, some are lawyers and realtors and insurance brokers because they are bilingual, they own cleaners and tailor services. They do the trade work. They live 2 and 3 families to a house. They are frugal and resourceful. They aren’t on welfare. They came with a trade skill and put it to work…

      Americans could stand to emulate that ethic. But instead they complain and blame and scapegoat. It’s pathetic that you blame immigrants for economic woes when there’s NEVER EVER been a case in history where a civilization was brought down from high migration. High migration has ALWAYS resulted in economic growth. Just like free and unfettered trade agreements have done more to foster growth.

      What brings down civilizations is the welfare state. The warfare state. And protectionism. That’s history. That’s what the numbers prove. Your fears are understandable but unfounded.

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