Is It Too Late to Rescue American Global Economic Strength from Our Unforced Tariff Errors?
Mike Jacob, President, Pacific Merchant Shipping Association
As owner of the world’s most robust levels of total consumer spending, at approximately $18.8 trillion, the home of the highest disposable personal income per capita, and steward of the de facto global currency of record, it is hard to conceive of any international system of commerce where America could reasonably be described as “being taken advantage of” by our trading partners.
As a result of the current system rooted in the US’s economic prowess, American consumers, retailers, and manufacturers can buy what they want, from who they want, at the lowest prices possible anywhere they exist around the globe. This exertion of power results in a durable trade deficit that is not a result of American weakness – it is squarely a show of American strength.
It is a result of our global purchasing power that we can contract for and procure the goods that we desire from our trading partners overseas at nearly a whim, at any time, and with nearly de minimis transportation costs. Indeed, our current intermodal supply chain is facilitated by the greatest, most efficient, most cost-effective, and most environmentally-friendly maritime transportation system in history, and our global intermodal liner and marine terminal operator systems have facilitated nothing short of decades of American-led global economic exceptionalism.
And, in the process of developing a global economy that feeds American demand, we have exported peace, prosperity, and global security. According to the World Trade Organization, between 1995 and 2022, as countries with low and middle incomes increased their exports from 16.5% to 32.2% of total global trade, their poverty at subsistence levels radically dropped from 40.1% of population to 10.6%.
There is always merit in the US pursuing a trade policy that holds trading partners accountable and in ensuring that the rules for our international trade are such that they will ensure fair, competitive, and secure international markets for US importers and exporters. Our embrace of free-trade principles and the utilization of tariffs that are measured, precise, and finely calibrated to strengthen and protect the US economy have embraced this policy north star, and they have been the hallmark of our global economic growth for the past eight decades. In the process we have built strong mutual economic interests with our trading partners and geopolitical allies around the globe based on these well-defined rules.
The tariffs imposed by the federal government over the past month have not been adopted in our historic spirit of American economic exceptionalism or with our regular caliber of thoughtfulness.
These new tariffs, and the uncertainty associated with their rollout, will cost the US consumer, retailer, manufacturer, farmer, and small business, in addition to investors and taxpayers. In the meantime, the maritime industry and our intermodal supply chain partners will be left in a situation not unlike our recent experiences during the COVID pandemic, where we are attempting to manage unimagined swings in demand and a loss of trust and certainty in the costs of participating in the market.
But, unlike the pandemic which was brought on by the unforeseen introduction of the COVID virus and impacted the entire globe without abandon, the imposition of these tariffs and creation of a new trade war is a man-made, unforced error, where we as Americans are making ourselves an unreliable and untrustworthy trading partner. This is a self-inflicted wound that will be hard to quickly heal – if healing is actually even feasible in the near-term.
The maritime industry does support the Trump administration’s vision for a new national focus on growing American shipbuilding and waterfront industrial infrastructure. Without qualification nearly everyone can agree that building a new merchant marine fleet would be of benefit to US importers, exporters, and in achieving national security goals. Yet, somehow, in the past several months, a trade policy that supports growing American access to foreign markets, and a domestic policy making new investment in industry and reinvigorating the American waterfront, have become mutually exclusive propositions to some in Washington DC. This is upside down.
The recently proposed China-ship fleet fees by the USTR are a case-in-point. If we aren’t naturally investing in shipyards because we are behind our competitors on productivity, cost, reliability, and efficiency under our current circumstances, what’s the better path for growing investor interest in a reinvigoration of this sector? Your choices are: a) limiting revenues and cashflow to the industrial players most likely to invest in a new American waterfront; or, b) growing the revenues and cashflow to the industrial players most likely to invest in a new American waterfront. Some apparently should be reminded that the correct answer is (b).
And, economic support for the Trump Administration’s focus on reviving shipbuilding and growing the US merchant marine fleet is likewise undermined by the new across-the-board federal tariffs. Not unlike ship fees, tariffs also work at cross-purposes to the goals of growing investments in the trade sector and lowering costs of entry for new industry entrants. Moreover, given the lack of domestic infrastructure and labor, in the short-term, we need to work even more closely and collaboratively with traditional trading partners in foreign countries with the facilities and skilled labor to build up this fleet. And, in the long-term, we need a national strategy to incentivize private and public dollars in the construction of new shipyards on all three coasts, create a new generation of skilled trades workers to work in those shipyards, and begin to scale up the corps of licensed mariners that will be necessary to crew these vessels.
Achieving these very laudable goals will require generational commitments, generational investments, and exceptional amounts of private capital. In international trade, we have proven over many decades that exceptional amounts of private capital can be generated and brought to bear to solve problems and to invest in big ideas.
And we can do it again, but only by growing trade volumes and trade value – not by taxing it out of existence.
It is certainly too late to avoid the damage done by the opening act of the current trade war. We are already seeing dramatic drops in intermodal booking data, growth in blank sailings, pauses in trading, and unknown damage in the US-China commercial and financial relationship.
But, for our second act, because we know what works, what produces wealth, what reduces poverty, and what accelerates and rewards American economic and geopolitical exceptionalism, it is not too late to try and undo as much damage as possible, regain as much trust as possible, and rehabilitate the US global brand.
Let’s pray for a play with only two acts.