Rising international trade tensions are placing in jeopardy an increasing number of U.S. jobs, including those of Kentucky farmers, autoworkers and bourbon makers, a top U.S. trade representative told Insider.
“Costs of steel and aluminum are going up in the U.S. They’re, you know, 40 to 50 percent higher than the world price, so these companies are all facing higher costs because of the Trump administration’s tariffs — and then their exports are getting hit by retaliation, so it’s a double-whammy,” said Rufus Yerxa, president of the National Foreign Trade Council.
Yerxa visited Louisville Tuesday on the invitation of the World Affairs Council of Kentucky and Southern Indiana.
His visit was timely, coming a day after renewed fears about tariffs and retaliation contributed to the Dow Jones industrial average losing 328 points.
On Monday, iconic American motorcycle maker Harley Davidson said that European tariffs, which were a response to U.S. tariffs on steel and aluminum, would increase costs on its exported motorcycles by an average $2,200. The company said it would eat the cost for the near future, up to $45 million for the rest of the year, but also, over the next 9 to 18 months, would shift production of motorcycles “to its international facilities to avoid the tariff burden.”
Yerxa said Harley Davidson presents a perfect example of how the tariffs on imported aluminum and steel increase costs for many U.S. producers, while retaliatory tariffs reduce their overseas revenue.
“Harley buys lots of steel to make motorcycles, … then the Europeans hit them with retaliation and they have to relocate some production behind that tariff wall in order to continue selling in Europe,” Yerxa said.
“And then Trump threatens them with sanctions if they locate outside the U.S.,” he said. “That’s the problem with trade wars.”
Local companies, too, have felt the impact of the tariffs and retaliation: Shares of Louisville-based Brown-Forman fell sharply earlier this month after the distiller reported higher expenses and lower profit and warned that results this year could be dragged down by the looming trade war.
Yerxa’s trade association represents more than 200 companies, including some of America’s most recognizable brands, such as Walmart, Coca-Cola, John Deere, Microsoft, Chevron, Amazon and Ford Motor Co., but it also represents U.S. subsidiaries of foreign companies with sizable operations in the U.S., including Siemens and Toyota.
Yerxa has served as NFTC president since May 2016. He previously served as a diplomat, deputy director general of the World Trade Organization and deputy U.S. Trade Representative under a Republican and a Democratic President. Yerxa, who holds law degrees from Seattle University and the University of Cambridge, also has worked in private practice and the corporate world.
Yerxa told Insider Tuesday that tariffs implemented by President Donald Trump — and retaliation from trading partners — are increasing raw materials costs and reducing exports, which play a crucial role for many U.S.-based companies, especially small to medium-size businesses.
Exports have increased 70 percent in Kentucky in the last decade and support about 140,000 jobs in the commonwealth, he said. Kentucky’s most important export markets are Mexico, Canada and Europe.
Nationally, the $2.2 trillion annual exports directly or indirectly support one out of every five U.S. jobs, Yerxa said. And U.S. farmers plant one out of every 10 acres for exports.
“Global markets are really important,” he said. “Trade is enormously important.”
“Part of my message to people is … 7.3 billion of the world’s 7.6 billion consumers live outside the United States. The thought that we can pull up the drawbridge, build tariff walls around America and just sell to each other and be successful in … the 21st century … is ludicrous.”
Trade, productivity and job losses
Yerxa acknowledged that international trade has led to some job losses in the U.S., but he said that it also has led to enormous job gains.
In the automotive sector, for example, many foreign companies, including Toyota, Honda, BMW and Mercedes, have created tens of thousands of jobs, he said.
Yerxa also said that many job losses that people have experienced in the last few decades are a result of productivity gains — not of trade.
“We need to be exporting to world markets, particularly because the productivity revolution that we’ve had means that we can produce far more stuff with fewer people,” he said. “A lot of the job losses in a sector like steel or autos is simply due to the fact that we produce the same output with a quarter of the workforce that we did 25 years ago.”
Machines will continue to replace people, and digital aids will continue to make companies more productive, he said.
“How do you keep employing more people with that kind of a productivity revolution? … The simple answer is you’ve got to train people for higher skilled stuff. That’s the first thing. And the second thing is you have to have bigger and bigger markets which means you have … to be exporting to the world and you have to be opening up markets around the world. And this is what trade agreements are about, and this is what we’ve been pretty successful on.
“And contrary to the narrative you’ll hear from the administration about how our trade agreements have been terrible agreements, actually the fastest growth in U.S. exports is to our free trade partners, the countries we have negotiated free trade agreements with. It’s over half of our exports now.”
Mexico is a good example, Yerxa said. Mexico used to be a closed market, with a one-party political system in which state-owned companies imported very little. Now, Mexico is one of America’s biggest trading partners, and Mexico’s imports from the U.S. are equal to about 20 percent of the country’s GDP.
“It’s totally changed its economic philosophy over the last 25 years … because we convinced them … to become more like us,” Yerxa said.
If the U.S. now turns around and puts up trade barriers, that will hurt the U.S. economy and it will push those trading partners to turn inward, he said.
Yerxa said that many U.S. companies have big concerns about unfair trade practices by other countries, especially China, which has lax rules against intellectual property theft and requires some U.S. businesses to form joint ventures with Chinese partners before they can gain access to the Chinese market.
“We support the administration’s effort to identify those practices and to try to put pressure on China to change them,” Yerxa said. “We think they’re going about it in very much the wrong way.
“The right way to go about it would have been to lock arms with all of our best allies and trading partners … and putting pressure on China through multilateral agreements.”
European, Canadian, Japanese and Mexican companies and governments share many of the concerns raised by Trump and U.S. companies, Yerxa said.
Yerxa said that the disgruntled American workers who are voting for candidates who oppose free trade have to realize that tariffs will not bring back the jobs that have gone away in the last few decades.
If anything, he said, tariffs are placing an even greater number of U.S. jobs in jeopardy.
“Getting caught in trade wars with your partners … is a lose-lose proposition,” Yerxa said. “You’re going to have more and more stories like the Harley-Davidson story as this accelerates and fewer and fewer success stories.”
The trade discussion also is hindering America from focusing on the primary challenge that businesses face, the ambassador said.
“When I talk to my companies, the biggest single problem they have is not that all these jobs have been lost to plants overseas,” he said. “The biggest single problem they have is they can’t find the skilled workers to take the jobs that are there.”
Six million jobs in the U.S. are unfilled, Yerxa said.
In Louisville, employers had more than 24,000 online postings for open jobs in the first quarter, according to KentuckianaWorks.
Instead of torpedoing trade relationships, the U.S. should focus on workforce preparation, much like Germany, Japan and even China.
“If we’re going to have open markets, we also have to have the kinds of program in place and the social structure … to prepare our population and our workforce for the 21st century,” he said.
“And you don’t even hear that debate taking place in Washington now.”