California Forum

How Trump’s approach to foreign trade could hurt Sacramento’s economy

President-elect Donald Trump’s unorthodox approach to foreign trade could harm our Northern California’s economy, Jock O’Connell writes.
President-elect Donald Trump’s unorthodox approach to foreign trade could harm our Northern California’s economy, Jock O’Connell writes. Bay Area News Group

Here’s something I bet you didn’t know: Of the Sacramento area’s $7.4 billion export trade last year, less than half involved shipments of tangible goods.

We’ll talk more about this oddity later, but first let’s consider how President-elect Donald Trump’s unorthodox – and increasing belligerent – approach to foreign trade could quickly harm our local economy.

Blaming the plight of working-class Americans on unfair trade agreements was among Trump’s most popular and prominent campaign themes. To make America great again, he promised to renegotiate some trade pacts, tear up others, slap steep tariffs on imports from China and Mexico, and bring pressure on U.S. corporations to repatriate manufacturing jobs from abroad. In the past week, he has threatened retribution for companies that continue to send jobs overseas.

For the most part, though, it has been all bombastic charges and vacuous bromides. During the campaign and in the weeks since his election, it’s been clear that Trump and his followers have a cartoonish image of modern manufacturing and almost no grasp of the complicated process of manufacturing even the most mundane of products. For example, his campaign had very little to say about the role of technology in relentlessly reducing manufacturing’s dependence on physical labor. There were no stirring calls to fight the invasion of robots that would eventually displace more American workers than any free-trade agreement.

It may take many months before the internal policy debates within his administration are resolved. But, as in last week’s telephone chat between Trump and Taiwanese President Tsai Ing-wen, there is ample cause for anxiety over the future of U.S. policy, especially toward Asia, where issues of trade dangerously overlap with foreign policy and national security concerns.

Trade with Asia and particularly with China is of huge importance to California. China is our third biggest merchandise export market, and our ports handle the majority of goods we import from there.

But most of the hand-wringing about America’s international trade involves our large and persistent merchandise trade deficit. Our last merchandise trade surplus was in 1975. Frequently lost is the fact that we also trade in services. And it’s a trade in which we do rather well.

Last year, while running a merchandise trade deficit of about $750 billion, the U.S. exported $751 billion in services against $490 billion in service imports – a tidy $262 billion surplus.

What are service exports? A service export occurs when a Sacramento architect designs a new office building in China, when a Capitol lobbyist represents a German company before the California Air Resources Board, when a Nevada City software firm writes a customized computer program for a Brazilian hotel, when a French tourist loses big at a Placer County casino or when a foreign student enrolls at Sacramento State or UC Davis.

And here is something almost no one knows: The Sacramento region earns more from its service exports than from its exports of goods. According to data compiled by the Brookings Institution, our service export trade amounted to $4.22 billion or 57 percent of the region’s total of $7.39 billion in exports last year.

What’s the moral of this story? That it’s just not the conventional importing and exporting of goods that is at stake. Services matter. But because the consumption of services is often much more discretionary in nature than is the acquisition of goods, our large but underappreciated service export trade is even more vulnerable to disruptions caused by intemperate and ill-conceived trade policies.

Instead of Trump continuing to rail against the supposed evils of free trade and making inane promises about the millions of jobs that will never ever come back, I wish the president-elect would figure out how to get the robots that are swiftly displacing workers to pay into Social Security.

Jock O’Connell is a Sacramento-based international trade economist affiliated with Beacon Economics. Contact him at jockoconnell@hotmail.com.

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