President Trump’s commitment to fight for American workers is a big reason he’s president. To deliver on that commitment, he should consider a lesson from the Gemini space program.
Back in the 1960s, NASA engineers were learning how spaceships could rendezvous and dock. It looks easy in the movies, but reality is much more complex. For example, if one of the spacecraft is far behind the other, how does it catch up? The obvious answer would be to step on the gas. But that answer would be wrong.
Why?
When a spaceship speeds up, the laws of gravity push it into a higher orbit. That’s a big problem because ships in a higher orbit move more slowly. So, crazy as it seems, the only way to catch up is to slow down. Hitting the brakes drops the ship into a lower orbit and a lower orbit means higher speed.
The laws of economics are not nearly so firm or as well understood as the laws of gravity. But the obvious answers often create more problems than they solve.
That’s certainly the case for calls to impose a tariff on any car made in Mexico. Raising the cost of cars made south of the border sounds like a simple way to keep jobs in the US. The reality, though, is even more confusing than orbital physics.
It’s true that the number of cars made in Mexico has tripled since the North American Free Trade Agreement (NAFTA) was signed. And, during that time, the number of US-made cars has held steady. The numbers haven’t decreased, but there’s been little growth. Some conclude, therefore, that the Mexican growth came at the expense of American workers.
However, when a car is built in Mexico, nearly half of the component parts are made in the USA. That applies to cars assembled in Mexico and sold in the US, but also to those sold to other countries. As a result, Detroit alone exports more than $10 billion worth of goods annually to Mexico. Since NAFTA was signed, US exports of auto parts to Mexico have tripled.
The last thing the millions of American workers dependent on the auto parts industry want is a trade war with Mexico. The same is true for millions of other Americans whose jobs depend on exports. Just as speeding up a spaceship causes it to slow down, punitive tariffs are an obvious answer that produce the opposite of what is instinctively expected. They’ve been tried before and failed. The 1930 Smoot-Hawley tariff converted a bad recession into the Great Depression.
President Trump’s commitment to American workers earned him the votes and trust of working class Americans. To honor that commitment and trust, rhetoric and symbolic actions aren’t enough. He needs to deliver jobs. Imposing a punitive tariff might make his supporters feel good in the short-term, but the good feelings will fade quickly as jobs disappear and the economy sinks.
A more productive approach would build upon the president’s call for reducing the regulatory burden and reforming the tax code. These steps would create jobs by getting rid of political obstacles that encourage companies to invest elsewhere.
What America needs today is not a trade war, but an end to the federal government’s war on job-creation.