Politics & Government

Could Trump's tough talk on trade backfire on U.S. jobs?

President-elect Donald Trump speaks at Carrier Corp, Dec. 1, 2016, in Indianapolis.
President-elect Donald Trump speaks at Carrier Corp, Dec. 1, 2016, in Indianapolis. AP

In some of the states where economic frustration propelled Donald Trump to the White House, the jobs he promised to bring back were already returning before he started making deals.

For the first time in decades, areas of the Carolinas that had been crippled by the loss of the textile industry are seeing some of those jobs return – thanks to the Chinese. Former mining towns in Pennsylvania have been revitalized thanks to jobs at Bimbo Bakeries USA, Wise and Mission foods, which are Mexican-owned companies.

25,000 People across the U.S. employed by Mexican bakery giant Bimbo, which has invested $1 billion in its northern neighbor since 2012.

In fact, 6.1 million Americans are directly employed by majority foreign-owned firms, and more than 12 million American jobs linked to foreign investment. These jobs pay a third more on average, and roughly 40 percent are in the manufacturing sector with significant job growth in Rust Belt states.

In other words, exactly the kinds of jobs the president-elect promised to bring back.

While Trump’s tough talk on jobs leaving the country may have helped him win the election, many worry that if those protectionist policies become a reality they could backfire on U.S. workers who rely on the growing number of jobs supported by foreign investment. Trump has also said he plans to renegotiate trade agreements like NAFTA, which he described as “the worst trade deal ever signed,” and impose steep tariffs on imported goods.

California, Texas and North Carolina have all seen more than $5 billion in Chinese investment since 2000

It’s certainly not Trump’s intention to limit foreign investment in the U.S.

“President-elect Trump definitely gets the foreign investment benefits,” said Nancy McLernon, president and CEO of the Organization for International Investment, which represents the US subsidiaries of global companies. She pointed out his overtures to Japan’s SoftBank and Chinese e-commerce giant Alibaba.

Members of Trump’s administration, including vice president-elect Mike Pence as governor of Indiana, and Gov. Nikki Haley of South Carolina, have in the past aggressively courted foreign companies to invest in their states.

But some economists say Trump’s administration can’t have it both ways, touting protectionist policies and painting globalization as a threat to American workers while reaping its rewards.

$353 billion Amount invested by international firms in the U.S. economy in 2015, an all-time high and twice as much as in 2014, according to the Organization for International Investment.

A survey conducted for global management consulting firm A.T. Kearney last year found that the number of foreign companies planning to increase their investment in the U.S. could be reduced by 13 percent with a populist candidate such as Trump or Bernie Sanders in the White House.

“Isolating ourselves in a 21st century economy which is more globally connected than ever does not make the U.S. more competitive,” McLernon said. “Global companies succeed best in competitive markets.”

Taken at face value, Trump’s economic proposals “will result in a more isolated U.S. economy. Cross-border trade and immigration will be significantly diminished, and with less trade and immigration, foreign direct investment will also be reduced,” economist Mark Zandi wrote in a Moody’s report last year.

That impact could be felt sharply in states like North Carolina, where U.S. subsidiaries of foreign companies write the paychecks to nearly 7 percent of its private sector workforce, about 230,500 workers.

“Trade and investment are two sides of the same coin,” said Christopher Chung, chief executive of the Economic Development Partnership of North Carolina, saying that the impact of the latter is more visible. “They are investing in bricks and mortar and payroll, so it’s very easy to see the benefits, with more North Carolinians going to work.”

It remains to be seen how Trump’s threats go over with foreign companies once his administration is in place.

“I don’t think many people know what to make of Trump’s trade policies (as a) reality,” said John McDermott, who chairs the Economics Department at the Darla Moore School of Business at the University of South Carolina.

A week before his inauguration, Trump threatened to slap a 35 percent tariff on every car that German carmaker BMW imported into the country unless it cancels its plans to build a plant in Mexico.

The world is bullish on North Carolina. Nothing compares to North Carolina as a destination for foreign direct investment.

N.C. Commerce Secretary John Skvarla, in a statement in 2016 announcing that Chinese company U-Play would invest nearly $21.3 million at its first U.S. location

BMW’s largest plant in the world is in Spartanburg, South Carolina, and employs 8,800 workers. It exports more than 70 percent of its U.S. production. In addition to hundreds of suppliers, BMW and Michelin account for more than 75,000 jobs in the state’s civilian workforce of just over 2 million.

“People just don’t realize how many export jobs there are. South Carolina has remade itself amazingly from a state that relied on import good to export goods - tires, autos, aerospace, it’s a huge exports industry,” McDermott said. “What Trump is doing trying to influence the auto companies is just crazy – it’s all about deals and not markets. I don’t think he can possibly micromanage to the degree he’s used to in his own firm.”

When it comes to jobs that rely on foreign companies, tough protectionist policies could endanger more jobs than Trump can save.

For example, Indiana has lost 7,000 manufacturing jobs in the past year. Trump’s deal saved about 800 jobs at the plant of Indiana air conditioner manufacturer Carrier by giving the company a $7 million tax break. But between 2012 and 2014, Indiana brought in $4.6 billion in foreign investments, created nearly 13,300 jobs, according to data from the U.S. Bureau for Economic Analysis. Most of those are in manufacturing.

While the largest share of foreign investment comes from the United Kingdom, Japan and Canada, there are a significant number of U.S. jobs being supported by Mexico and China – two of Trump’s favorite punching bags when it comes to trade during his presidential campaign.

Annual direct Mexican investment in the U.S. more than tripled from 2006 to 2015, from $5.3 billion to $16.6 billion, according to Bureau of Economic Analysis data. The U.S. is also increasingly benefitting by foreign investment by China, a country Trump frequently criticized on the campaign trail, and more recently insulted by speaking to Taiwan’s leader. More than 90,000 Americans are employed by Chinese-affiliated U.S. companies, a threefold increase in just three years, according to an analysis by Rhodium Group, a New York-based economic advisory group specializing in China.

The same report cautioned regulators and lawmakers to “ensure that political rhetoric and politicization do not needlessly impede job creating investment inflows, particularly in an election year."

That seems unlikely with Trump’s appointment of well-known China trade hawks like Peter Navarro, whose 2013 film was called “Death by China” and will head a White House trade council.

For the time being, states expect things to stay the same. If anything, there is an uptick in companies expressing interest in coming to the U.S. while they wait and see what the next administration will do, Chung said.

“As long as the U.S. continues to be a beacon for people all over the world, with talent availability and strong rule of law, it will continue to be a location where foreign companies come to invest,” Chung said. “It boils down to whether the U.S. continues to be an attractive location.”

Vera Bergengruen: 202-383-6036, @verambergen

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