How Trump Can Actually Make Free Trade Good For U.S. Workers
The president-elect’s anti-trade rhetoric is dangerous. ·Fortune
Frank Berlage
Updated
If President-elect Donald Trump is serious about his proposals to limit imports or impose tariffs on companies leaving the U.S., it will have important ramifications for the American economy. For many ardent believers of free trade, it seems that inhibiting the ability of companies to seek lowest costs of production, be it in the U.S. or elsewhere, might limit choices for American consumers, produce hardships for U.S. manufacturers, and result in significantly higher prices.
However, the real conundrum is that without a proportional, per capita, high value manufacturing base domiciled in the U.S., one that results in higher paying manufacturing jobs, companies may find that they don't have the customers they need to buy their production. Consumers may also find that their newly acquired paychecks have limited ability to provide them with the consumer goods they seek.
Ironically, history also warns us that eventually our cumulative current account deficit combined with our rapidly declining net international investment position reflecting the deterioration of our international wealth, will come home to roost in the form of a plunging dollar. This may eventually push imports out of the reach of consumers regardless. Therefore, Trump should implement policies that are instrumental in reducing production costs within the U.S. while concurrently applying those costs savings to incentivize and subsidize the American consumer to buy goods that emanate from a new American production.
The hard reality is that no one is going to buy a $100 American made microwave oven if a Chinese microwave costs $85. You can appeal to patriotism all day long and it simply is not going to happen. However, if the U.S. produces cost savings throughout the economy and apply those savings to offer consumers a $16 rebate on that microwave. it offers U.S. employers an incentive to create more jobs and therefore help boost the domestic economy.
I recognize that many free trade supporters may find the use of the terms "subsidy" and "rebate" to be anathema to their convictions. However, the practical implementation of market assisting tax and incentive policies could result in more U.S. production, higher paying jobs, a smaller or nonexistent trade deficit and consumer goods with effective prices at or below the import prices of today.
Let’s start with finding those savings that will provide the money to fund those coupons and rebates.
One way for Trump's administration to do this is to reduce wasteful government spending by instituting "employment at will" for all government jobs, similar to the way it works in the private sector where employers can dismiss employees for any, and without warning.
That might sound harsh, but given the size of the government in America, no other single act would result in such large immediate improvements in aggregate cost savings. Such savings could be applied to equalizing product prices and costs with competitive imports.
Imagine government departments held to private sector standards, or for that matter, even answering the telephone. Imagine the benefits of regaining the long lost ability to fire incompetent, lazy or even destructive government workers. While such policies would also need to be supplemented with reward systems for exemplary or self-starting government employees, having the ability to eliminate non-responsive federal and state workers would greatly enhance every level of government in America. For example, one must ask, how does anyone gain by offering lifetime tenure for California teachers after only 24 months on the job?
Importantly, “Draining the swamp” should also mean an annual clearing of the bottom performing 5% of government employees during the first few years of the new administration.
Former CEO Jack Welch implemented such a program while running the company in the early 1980s and 2000s and it revolutionized their work force. These cost savings could be applied to rebating a critical portion of the price of domestically manufactured products, and if structured correctly, could offset the advantages that now accrue from cheap foreign labor. These changes would also result in prodigious positive effects -- not only for public sector efficiencies, but also for private sector production and productivity by abating burdensome and time consuming government processes that are made only that much more difficult by the inertia of the Federal employee system.
As an adjunct, the Trump administration should also employ zero-based budgeting at all levels of government, where all expenses must be justified for each new period and where every function of government is analyzed for its needs and costs starting from a base of zero. The reality is that this won't be easy to do, but the idea is worth a serious look. After all, during my years as a licensed pilot flying private and commercial seaplanes, I an FAA regional head in San Diego some years back once told me that because it was the end of his fiscal year, he had to go fly around in several FAA airplanes to burn fuel so that his budget would not be cut the following year.
Another way to reduce costs for manufacturers and apply the savings to the American consumer and domestic manufacturing is by ensuring that radical labor unions are contained. Many Detroit residents would agree that excess union power has hurt Detroit's economy in unprecedented ways. In fact, the physical plant of the City of Detroit is testimony to the damaging effects of the unending financial claims of organized labor. So it goes for all of America.
Union power needs reasonable restraints to insure the U.S. does not short circuit its manufacturing economy. One answer is for the new administration to work tirelessly to encourage “Right to Work” laws that limit agreements between employers and labor unions in all 50 states. Excess demands by union leaders have never been in the long-term interests of rank and file workers, even if, at times, those union members have not been able to see it themselves.
Many employers currently complain that they cannot find competent workers to meet the demands of a more complex factory floor. However, costs savings can be attained by attracting selected foreign workers that already have many of the skills in short supply.
Consequently, America's immigration process should be made significantly easier for well-screened individuals coming legally to America with education, capital, productive skills and for those foreigners graduating with expensive American educations. Nothing is more wasteful than providing exceedingly valuable educational slots to foreign students in our top STEM universities then watch them walk out the border door when they fail to get a visa.
By contrast, there are significant cost savings to be found by restricting immigration for those simply looking for a free ride or a welfare handout.
Let's look at our national interests in the same way as Australia. Specifically, U.S. immigration should be stridently biased in favor of engineers, scientists, mathematicians and other similar practical occupations. Australia has an excellent template on this matter where capital, education, likely assimilation and work skills are the key priorities that determine acceptance for immigration.
Frank Berlage is CEO and Managing Director of Multilateral Partners Global Advisory Group L.L.C., a private equity firm headquartered in La Jolla, California.
