November 14, 2016 | Backgrounder on Trade
International trade and investment support thousands of Kansas jobs. Because of international trade, consumers can enjoy fresh fruits and vegetables in the middle of winter, and Kansas businesses can export to consumers around the world. The state’s elected officials should support policies that give Americans the freedom to buy the best goods at the best prices.
International trade benefits Kansans in many ways. Imports provide competitive products for Kansas consumers and manufacturers. Exports benefit Kansas farmers and aerospace workers. Foreign investment supports thousands of Kansas jobs.
These benefits are threatened by U.S. trade barriers that protect politically well-connected companies from competition while driving up prices and threatening jobs in Kansas industries reliant on international trade.
The state’s congressional delegation can best advance the interests of Kansans by opposing protectionist policies and working to remove barriers to international trade and investment.
Over 280,000 Kansans are employed in the wholesale, retail, and truck or rail transportation industries, moving and selling goods made in the U.S. and around the world.
Like countless individuals around the country, Kansans rely on imports for the fresh fruit and vegetables at their local supermarkets during the winter months. According to the U.S. Department of Agriculture (USDA):
The produce section in today’s grocery store often has dozens, if not hundreds, of different fresh fruits on display all year around, which come from all corners of the globe (e.g., grapes from Chile, kiwi fruit from New Zealand, and mangoes from Mexico) as additions to domestic fresh fruit. Improved logistics, technology, and transportation have supported this increase in imports.
However, in other sectors of the economy, U.S. trade barriers drive up prices for U.S. consumers. For example, the average tax rate on imported shoes and clothing is 12.9 percent. According to a story in The Kansas City Star:
Marina Carpenter had just purchased Chinese-made shoes at a Payless ShoeSource…when she pondered what would happen if the coming presidential election led to a double-digit price increase. Like many Americans, she doesn’t have lots of extra income and said she’d be forced to cut back if shoes and other imported goods suddenly cost 15 percent more. “I’m sure everybody would have to cut back,” she said.
Congresswoman Lynn Jenkins (R–KS) explained why the government should cut taxes on imported shoes instead of increasing them:
Congress must strive to relieve the burdensome costs Government puts on consumers, especially consumers in lower and middle income families. That is precisely what this legislation [the Affordable Footwear Act] does; it lifts burdensome and punitive tariffs that affect those who can afford it least.
Cutting tariffs on shoes would also help retailers like Topeka-based Payless ShoeSource, its employees, and its customers. According to the company’s CEO, W. Paul Jones:
Few Americans realize the federal government imposes an outdated, regressive tax on imported shoes. Because of these duties, the vast majority of families, wherever they shop, are paying more than they should for footwear. Payless ShoeSource has been leading a coalition to eliminate this hidden tax on shoes. The shoe duty was put in place in the 1930s, but so much has changed since then. Today, less than 1 percent of the shoes Americans buy are made in this country. Yet this outdated tax on imported shoes remains on the books.
Consumers are not the only ones who benefit from imports. Over 60 percent of U.S. imports are either inputs for U.S. manufacturers, like petroleum, or capital goods like machinery. A study by the Peterson Institute for International Economics found that the use of imported inputs from 1961–2000 added $1.1 trillion to the U.S. economy, equivalent to $9,400 per household.
According to Kansas Governor Sam Brownback (R), “Exports are critical. We are an exporting state…. It is a key for us to thrive and we are doing that.”
Karyn Page, president of Kansas Global Trade Service, explained that “the state and regional economies are growing because of trade. Kansas businesses compete in the global marketplace.”
The U.S. International Trade Administration calculates that 59,175 Kansas jobs are supported by exports. The benefits run throughout the state’s economy:
U.S. trade agreements have expanded export opportunities for Kansans. Of the state’s exports, 41 percent are shipped to people in countries that have trade agreements with the U.S.
For example, Ted J. Vlamis of Wichita-based Pioneer Balloons explained: “Exports are a very important part of our business. They account for more than half of our sales.” NAFTA is a crucial element of making such arrangements possible, as it eliminated a 20 percent tariff on exports to Mexico, allowing the company to create new jobs in the U.S.
Another Kansas business that has taken advantage of export opportunities is Hesston’s Excel Industries, which manufactures Hustler and BigDog Mowers. According to Chad Lane, the company’s director of global strategy, “When we first started in 2004, our exports were 2.4 percent of sales. The strategic target we set was at least 10 percent (of sales) within 10 years. We exceeded that goal, and this past year we reached 12.2 percent.”
Lane added: “It is exciting to travel to South Africa and Brazil and see these mowers, knowing they came from a small town in Kansas.”
Thanks to companies like Pioneer and Excel, Kansas has seen its manufacturing output more than double since NAFTA took effect in 1994.
Kansans should not take these benefits for granted. Exports of goods from Kansas plunged 10.8 percent from 2014 to 2015. As The Hutchinson News editorialized, “This presidential election is creating one of the fiercest political battles against American trade in recent history, and that’s bad news for Kansas farmers.”
The dollars Americans spend on imports can be used to purchase U.S.-made exports or to invest in the U.S. economy. Because the U.S. provides a safer and more attractive investment environment than most other countries, in many cases its trading partners choose to invest in the U.S. rather than buy exports.
The U.S. is a magnet for this job-creating foreign investment. In Kansas, over 70,000 people work for affiliates of foreign companies like Airbus, Bayer, and Unilever. If considered as a single entity, these foreign-owned firms would be the largest private employer in the state. Nearly 45 percent of these are manufacturing jobs, including over 350 jobs building parts for wind turbines for Siemens in Hutchinson.
Kansas legislators have consistently supported their constituents’ freedom to trade, allowing Kansans to reap the benefits of global commerce. The state’s congressional delegation overwhelmingly supported trade agreements ranging from the U.S.–Canada Free Trade Agreement in 1988 to agreements with Colombia, Korea, and Panama in 2011. The total vote for trade-expanding agreements from the Kansas congressional delegation during that time frame was 78–3 in favor.
Proponents of increased government control of the economy have propagated a number of misleading claims about trade. For example, according to the Economic Policy Institute (EPI), U.S. trade with China cost Kansas 17,500 net jobs from 2001 to 2011. EPI further claimed that U.S. trade with Mexico cost Kansas 5,100 net jobs as of 2010. These findings were based on the mistaken assumption that imports destroy jobs: “As imports are substituted for domestically produced goods, production that supports domestic jobs falls, displacing existing jobs and preventing new job creation.”
In reality, however, the dollars Americans spend on imports are used either to buy U.S. exports (creating jobs) or to invest in the economy (also creating jobs). Therefore, it should surprise no one that there has been no net loss of jobs in Kansas due to trade with Mexico or China. For example, since NAFTA took effect in 1994, Kansas has added more than 200,000 net new private-sector jobs.
U.S. sugar barriers particularly hurt trade in Kansas. The federal government artificially inflates sugar prices by imposing tariff-rate quotas that effectively cap the amount of sugar that food manufacturers and consumers in the U.S. can buy from producers in other countries. In 2015, bakeries and candy companies paid twice as much as their foreign competitors for refined sugar.
These inflated sugar prices threaten thousands of Kansas jobs. Kansans produce 39 million M&M’s a day at the Mars factory in Topeka; 1.5 million Twinkies a day at the Hostess facility in Emporia; and tons of Russell Stover and Whitman’s candy at plants in Abilene and Iola.
After Mars announced a $100 million expansion of its Topeka plant in 2015, Tracey Massey, president of Mars Chocolate North America, commented: “We are grateful for the warm welcome and continued support we have received from Topeka and the state of Kansas, and we are pleased to further invest in the community with additional job creation and economic development.”
This type of job creation is threatened by the sugar program, which encourages U.S. manufacturers to relocate in other countries to access competitively priced sugar.
U.S. barriers on sugar imports also encourage other countries to maintain similar barriers on exports of competitive U.S. agricultural products. After the U.S. exempted the protectionist sugar program from the 2004 U.S.–Australia Free Trade Agreement, the New York Times wrote:
The agreement sends a chilling message to the rest of the world. Even when dealing with an allied nation with similar living standards, the administration, under pressure from the Congress, has opted to continue coddling the sugar lobby, rather than dropping the most indefensible form of protectionism. This will only embolden the case of those around the world who argue that globalization is a rigged game.
More recently, former adviser to the Reagan Administration Burleigh C. W. Leonard explained how U.S. sugar barriers affected Trans-Pacific Partnership (TPP) trade negotiations:
The U.S. is seeking to lower Japanese trade barriers on beef, pork, rice, dairy, wheat, barley—and sugar. We are asking Canada to provide more access for our dairy and poultry products. How can the U.S. square its stance on market access for U.S. agricultural commodities with its actions to resurrect limits on sugar imports from Mexico, one of the parties to the TPP talks? It can’t, and thus its negotiating leverage is compromised.
The Merchant Marine Act of 1920, commonly known as the Jones Act, and the Passenger Vessel Services Act (PVSA) of 1886 require that ships transporting goods or people between two points in the U.S. must be built in the U.S., mostly U.S.-owned, and mostly crewed by U.S. citizens. These laws are designed to protect U.S. shipbuilders from competition, but they impose steep costs on Americans who use ships for domestic transportation.
According to the U.S. Department of Homeland Security: “The coastwise laws are highly protectionist provisions that are intended to create a ‘coastwise monopoly’ in order to protect and develop the American merchant marine, shipbuilding, etc.”
The Jones Act drives up U.S. gasoline prices. It costs about $2 a barrel to ship U.S. oil from the Gulf Coast to Canada on foreign-built tankers, but it costs $5 to $6 a barrel to ship oil to the East Coast. According to the American Fuel and Petrochemical Manufacturers Association, “[R]estricting how goods move between U.S. ports distorts petroleum flows, increases costs to deliver petroleum to refiners and consumers, and in some cases even gives foreign competitors a transportation cost advantage when competing in the United States.”
The Jones Act also harms Kansas farmers by increasing the price of shipping grain domestically, since foreign-built vessels cannot be used to transport grain along the Mississippi River or from the Gulf Coast to pork producers in North Carolina and elsewhere in the U.S.
According to Representative Mike Pompeo (R–KS), “There are pieces of [the Jones Act] that are anachronistic. We should certainly look at making sure that we reduce the friction associated with the transportation of energy commodities and, frankly, other commodities around the world.”
Another positive reform would be to allow Kansas farmers to ship their cargo on foreign-built ships. U.S. cargo preference mandates, which require a majority of food aid and other government-funded cargo to be shipped on U.S.-flagged vessels, harm the state’s farmers.
A report from the Congressional Research Service notes that “preference cargo now accounts for almost all of the revenues of the U.S.-flag international fleet. U.S.-flag ships do not appear competitive with foreign-flag ships in carrying the overwhelming bulk of exports and imports transacted in the private sector.”
According to a study by the American Enterprise Institute, “Cargo Preference for Food Aid (CPFA), which requires at least 50 percent of all food aid to be sourced and shipped on U.S.-flagged vessels, resulted in an additional $140 million to $200 million in wasted spending on shipping costs from January 2012 to May 2015.”
Kansas is positioned to prosper from continued growth in trade with the rest of the world as trade barriers are reduced. Physical barriers, such as the limits imposed by canals and ports unable to handle modern cargo ships, and governmental barriers, like limits on shipping and the use of imported inputs, are falling across the globe. The state’s congressional delegation should take the lead in making sure that government-constructed impediments to trade and prosperity fall as well.—Bryan Riley is Jay Van Andel Senior Analyst in Trade Policy in the Center for Trade and Economics, of the Institute for Economic Freedom and Opportunity, at The Heritage Foundation.
 The Heritage Foundation calculations are from U.S. Department of Commerce, Bureau of Economic Analysis, “Annual State Personal Income and Employment: Total Full-Time and Part-Time Employment (SA25N): NAICS Industry (1998 forward),” http://www.bea.gov/itable/iTable.cfm?ReqID=70&step=1#reqid=70&step=30&isuri=1&7022=4&7023=0&7024=naics&7033=-1&7025=0&7026=19000&7027=2014&7001=44&7028=-1&7031=0&7040=-1&7083=levels&7029=30&7090=70 (accessed October 27, 2016).
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 Kevin G. Hall, “In Trump’s World, Every Step You Take Could Cost More,” The Kansas City Star, September 28, 2016, http://www.kansascity.com/news/politics-government/article104709931.html#storylink=cpy (accessed October 28, 2016).
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 Includes votes on agreements with Australia, Bahrain, Canada, Central America, Chile, Colombia, Korea, Morocco, Oman, Panama, Peru, and Singapore, along with the North American Free Trade Agreement and extending normal trade status to China.
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