The law of unintended consequences warns individuals, governments, and corporations that any action may backfire. The possibility of a trade war with Mexico is a classic example: the consequences could be brutal, especially for San Diego.
Another example is the Trump administration’s promise to bring back manufacturing jobs. It may result in many more millions of robots — not millions of American workers with high-paying manufacturing jobs. According to the Boston Consulting Group, using a robot to perform spot-welding costs $8 an hour compared with $25 for a worker. About 40 years ago, 25 jobs were required to generate $1 million in manufacturing output. Today, in the United States, that’s down to 5 jobs. “The idea that we are going to bring back all manufacturing jobs just isn’t going to happen,” says Kelly Cunningham, economist for National University. Robotics will boom, he says.
“The old, low-skill, high-paying manufacturing jobs are not coming back. It is dishonest for politicians to suggest otherwise,” says Colleen O’Connor, who got her doctorate in economic and political history at the University of California San Diego and has retired from teaching on the college level. (O’Connor is the sister of former mayor Maureen O’Connor.)
“Sanctions, trade wars, tariffs, blockades,” and the like, initiated by politicians to tackle a problem such as unemployment in a certain industry, “often lead to dire unintended consequences,” O’Connor warns.
If Washington DC continues bullying Mexico, some of the worst of the unintended consequences may land on San Diego, she says. President Trump wants to erect a wall along the Mexican border; he has suggested that the United States slap a 20 percent tariff on imports from Mexico, supposedly as a way for Mexicans to pay for that wall. But that’s silly. For the most part, the tariffs would be passed on to Americans; the Mexicans wouldn’t be paying for the wall. The tariff would “only burden the consumer of those goods in the U.S. Why punish Americans?” says O’Connor.
California has 700,000 jobs that depend on trade with Mexico, says O’Connor. She takes a shot at President Trump: “More thought and [fewer] tweets could yield better results with fewer unintended consequences,” she says.
Cunningham agrees that a trade war with Mexico would be devastating for San Diego County. “In 2016, Mexico accounted for 92 percent of [San Diego’s] total exports and 80 percent of imports,” points out Cunningham. There are danger signs: new data show that imports of computer and electronic goods from Mexico plunged 11 percent last year. The last time that happened was in the most recent recession.
“The trouble with trade wars is that when you impose tariffs, your own population gets hurt,” says Cunningham. Other countries reciprocate, erecting their own tariffs. Prices rise. Employment may fall — ironically, because the reason for slapping on tariffs is usually to protect jobs that are being lost to foreign competition.
So, will America build a wall along the 1900-mile border to show Mexico a thing or two — and then make that country pay for it? Those who have studied such barriers say they won’t eliminate or reduce undocumented immigration. Actually, illegal immigration has been in decline for several years, due partly to the weak U.S. economy. So, you want to thwart illegal migrants? A recession or a disaster will do the trick. In the 2007–2009 recession, Mexican migration slowed sharply: “Mexicans could not find work in the U.S.,” says Cunningham. Border passage was tightened after 9/11. Traffic “was a nightmare,” says Cunningham.
In American economic history, the classic example of unintended consequences is the Smoot-Hawley Tariff Act of 1930. There was massive worldwide agricultural overproduction in the 1920s. Farm prices tumbled. Herbert Hoover promised in his 1928 presidential campaign to raise tariffs to help the farmer, although Hoover was dubious about tariffs, especially when businessmen like Henry Ford called them “economic stupidity.” The final bill covered all kinds of products — not just farm ones. Effectively, the tariff rate zoomed to 60 percent. Other countries retaliated with beggar-thy-neighbor tariffs. American exports to Europe declined from $2.3 billion in 1929 to $784 million in 1932 as unemployment soared from 8 percent in 1930 to 25 percent in 1932–’33.
Smoot-Hawley “compounded the misery of the Great Depression by instigating a global trade war,” says O’Connor. As other countries retaliated with fat tariffs on American products, “the U.S. retreated into isolationism, experienced a loss of trade and an even greater loss of jobs. The mess took decades to unravel.”
Now, history may be repeating. Bitterness and anger have arisen in the Midwest, where loss of low-skill, high-paying manufacturing jobs has been most painful. Democrat Bernie Sanders and Republican Donald Trump tapped into that angst in their presidential campaigns. Populists say that free trade is imperialism in disguise. Free trade is blamed for some of our most nagging problems: income and wealth inequality; environmental degradation in countries such as China; child labor; sweatshops; and low wages, especially in poor countries.
There is something to these arguments. “The notion that free trade costs American workers their jobs is correct,” concedes Ross Starr, professor of economics at the University of California San Diego. However, “economic analysts have long favored free trade. It allows economic producers to concentrate on what they do best and provides inexpensive goods for consumers.”
(In a 2006 survey, 87.5 percent of economists said the United States should eliminate tariffs and other barriers to free trade, such as subsidies to certain producers.)
“A tariff war puts Americans out of work in our export industries,” says Starr, “and America is a vigorous exporter of intellectual property, financial services, education services, and high-tech manufacturing. If we get into a tariff war with Asia, we will lose those markets. If we have high tariffs on Asian goods, TVs will cost more, shirts will cost more, underwear will cost more — this is not a prescription for keeping us happy.”
But free trade puts “some Americans on the losing end,” thus providing fodder to the protectionist argument, allows Starr.
The federal government’s Trade Adjustment Assistance Program is meant to help people who have lost their jobs to foreign trade obtain skills and resources for other activities. However, “It has never been well-funded,” says Starr.