Changing rules on trade could cause more harm than good
Change is hard, but it’s inevitable.
People in South Carolina have seen firsthand the effects of Ricardo’s notion of creative destruction, which is embedded in any market economy. They don’t make buggy whips anymore, but our economy is the more robust for it as we have transitioned from carriages to cars.
None of this made the transition easy though, and I write to say “let’s not do it again.” The people of our state survived what Ross Perot described as that “giant sucking sound,” as textiles move from a state like South Carolina to other places around the world. The ones that stayed modernized and can compete with anyone. In many cases, though, the jobs shifted, and in a state like ours, it was indeed from cotton to cars. BMW built their first assembly plant outside of Germany in South Carolina in 1992 and has now grown to be more than a $9 billion investment. It has been surrounded by a host of suppliers in nearly every county of our state, and nearly 250,000 cars are shipped from the Port in Charleston each year. The same stories could be told of other auto companies like Mercedes or Volvo or of suppliers like Bosch or Cummins.
All of this investment and the jobs that come with it are intertwined in a global supply chain. For instance, all X5s for world production by BMW happen to be made in Spartanburg, South Carolina, though they certainly don’t stay there. The same is true of the tires produced by the likes of Michelin, Bridgestone, and Continental Tire in South Carolina.
In short, the people of South Carolina did the same thing that people in many other regions of our country have done. When the global landscape changed, they changed with it. Billions have been invested, and jobs now depend on South Carolina’s place in that global supply chain in producing something like cars.
Why in the world would we want to disrupt that? We went through the hard part. It’ll hurt the people of our state to change the rules again, and businesses will hardly make billion dollar bets if our trade agreements are subject to change with each new administration.
All of this brings us to the next round of the renegotiation of the North American Free Trade Agreement (NAFTA). The administration has said they want to renegotiate NAFTA in order to get a better deal, but the cost of doing so outweighs the benefit of this hypothetical better deal.
And withdrawal would be disastrous. Today, 14 million U.S. jobs are supported by trade with Mexico and Canada, and 125,000 small and mid-size American businesses export products to these countries. In fact, from 1993 to 2016, regional trade between these countries has increased from $290 billion to $1.1 trillion.
NAFTA has strengthened the American auto industry. In 2016, automakers manufactured 12.2 million vehicles in the U.S., and the automobile industry invested $8 billion in U.S. plants and equipment and nearly $20 billion in research and development alone. This is over 1 million more vehicles manufactured in the country than the year before NAFTA took effect. Today, the United States has 7.25 million auto industry jobs and 45 states have at least 10,000 auto-related jobs - including South Carolina, which has nearly 140,000.
The administration’s reported “rules of origin” standard proposal would cost auto workers jobs. The current standard, which measures the percentage of a vehicle that comes from NAFTA countries, is set at 62.5 percent and is the highest of any U.S free trade agreement. Drastically increasing this, which the administration reportedly wants, would be disastrous.
Increasing domestic production requirements and the rules of origin standard would force companies to decide whether to continue manufacturing their products in North America at cost increases or simply manufacture a product overseas and pay a 2.5 percent tariff when importing a product. NAFTA changes could prove to cost jobs.
Many Americans have entered 2018 with great hopes for a prosperous economy - businesses in the United States will be more competitive with lower corporate tax rates. Let’s not now go backwards. No deal is perfect, and all agreements can survive minor alterations, but let’s indeed not throw the baby out with the bathwater. Businesses invest, and people adapt to the rules at hand. However well intended, based on things occurring in South Carolina, changing things radically now would represent more harm than good.
Rep. Mark Sanford, a Republican, has represented the 1st Congressional District of South Carolina since 2013. Prior to his current post, he served as Governor of South Carolina from 2003-2011. Rep. Sanford also served as a member of the U.S. House of Representatives from 1995-2001.
Rep. Sanford on the Administration’s decision to issue tariffs on solar panels and washing machines:
“This is a mistake. If increasing tariffs were the road to prosperity, then a whole host of economically forgotten places around the world would be vibrant. They are not. Increased tariffs have proved themselves to sound great but set countries on a financial road to ruin. This is shortsighted and will cost American jobs…The appliance industry has recently seen strong investment in South Carolina with Samsung investing $380 million to build a new manufacturing plant, while the solar industry concurrently has been growing at 20 percent a year over the last four years. All told, over 7,000 South Carolinians who work in the solar industry could lose their jobs as a result of these tariffs.”