Trade and Prosperity in the States: The Case of Mississippi

Report Trade

Trade and Prosperity in the States: The Case of Mississippi

October 1, 2018 22 min read Download Report

Summary

International trade and investment support hundreds of thousands of Mississippi jobs. About 51,000 Mississippi jobs depend directly on exports, and another 41,700 jobs have been created by foreign direct investment. Thousands more jobs depend on foreign trade to generate business activity in fields including: retail, transportation, construction, advertising, and legal services. To continue to create jobs and increase prosperity, Mississippi’s representatives should encourage continued reductions in government barriers to trade and investment.

Key Takeaways

Jobs created exclusively by exports and foreign investment account for 6 percent of Mississippi’s private-sector non-farm employment.

Employment in many industries has been aided by lower transportation costs, new technologies, and trade agreements that lowered U.S. and foreign trade barriers.

The free flow of goods to and from Mississippi and across U.S. borders is a boon to economic activity. It is tariffs that harm Mississippi businesses.

The freedom of Mississippians to do business with people around the world is increasingly important to the state’s economic well-being. Jobs created exclusively by exports abroad and foreign investment account for 6 percent of Mississippi’s private-sector non-farm employment, an amount that is likely to grow as global barriers to trade and investment fall.REF

Also dependent on international trade for all or part of their livelihoods are the 96,310 Mississippians who work in the transportation and material moving occupations; 51,630 Mississippi retail workers; 41,650 Mississippi construction industry workers; 5,820 Mississippians who work in legal occupations; and 810 advertising workers in Mississippi.REF

Employment in these and other industries has been aided by lower transportation costs, new technologies, and trade agreements that lowered U.S. and foreign trade barriers. To continue to create jobs and increase prosperity, Mississippi’s representatives should encourage continued reductions in government barriers to trade and investment.

Mississippi’s Roots in Free Trade

Trade policy seems controversial today, but it was even more of a hot-button issue early in U.S. history. Taxes on imports—also known as tariffs or duties—were an important source of early revenue for the federal government. Politically powerful manufacturers in the North thought that import taxes should also be used to protect them from foreign competitors.REF However, like most Southerners at the time, Mississippi’s elected officials believed that tariffs should only be used to raise revenue for the federal government, not to protect industries from international competition.

For example, President James Polk’s Secretary of the Treasury, Robert J. Walker, a former Senator from Mississippi, in his annual report dated 1845 propounded the following principles, “That no more money should be collected than is necessary for the wants of the government economically administered,” and “[t]hat the duty should be so imposed as to operate as equally as possible throughout the Union, discriminating neither for or against any class or section.REF” Mississippi Governor Gerard Brandon and the Mississippi legislature opposed legislation like the 1828 “tariff of abominations,” which increased the price of manufactured goods in Southern states and impeded Mississippi’s cotton exports.REF

Although special-interest “protective” tariffs are more widely advocated today, Mississippi’s state legislature used to view them as unconstitutional abuses of government power.REF

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How Trade Benefits Mississippi Businesses and Workers

In recent years, reductions in U.S. and foreign trade barriers have provided major benefits for people in Mississippi. More than 51,000 jobs depend directly on exports.REF

While Mississippi exports peaked in 2013, over the past decade, they increased by 50 percent (in nominal dollars); and since 2000, Mississippi’s exports have increased by 303 percent (also in nominal dollars).REF

Leading export markets in 2017 include Canada, Panama, Mexico, China, Belgium, and Guatemala. Petroleum leads the state’s exports. Other sizable exports include transportation equipment, pigments used in paints and plastics, chemical wood pulps, as well as medical devices, including artificial joints and related parts and accessories.REF

Jackson County, Mississippi, benefits greatly from international trade due to the Port of Pascagoula. Seventy percent of the U.S. Navy Fleet of warships were manufactured at this port.REF A new natural gas liquefaction and export facility at the port being proposed by Kinder Morgan, Inc., and other business partners could bring the residents more fruits of trade freedom if it is allowed to go forward. The proposed export facility stands to be one of the largest economic development investments in Mississippi history. The companies believe it will bring hundreds of jobs to Jackson County during construction, as well as boost long-term construction spending, and provide enhanced economic value to Jackson County once the liquefied natural gas starts to ship from the Port of Pascagoula to countries around the world.REF Indeed, the residents of Jackson County have much to gain from international trade if the facility is built. The Federal Energy Regulatory Commission is in the process of preparing a draft Environmental Impact Statement for the project.

Tens of thousands of Mississippi jobs rely directly on trade—both exports and imports. For example, about 55 million tons of freight were shipped through Mississippi ports in 2011.REF According to the Mississippi Department of Transportation, Mississippi ports directly and indirectly support more than 125,700 jobs and $16.8 billion in economic activity annually.REF

In addition to exports of goods, Mississippi businesses also exported $2.4 billion of services, such as installation, maintenance and repair services, and financial services per year in 2015.REF

How Trade Benefits Mississippi Farmers and Ranchers

Mississippi’s agricultural exports have more than doubled since 2000 (in nominal dollars).REF Exports accounted for over one-third of Mississippi’s agricultural production in 2016.REF Leading agricultural exports include soybeans, broiler meat, cotton, and soybean meal.REF In 2012—the most recent year data are available—Mississippi farmers and ranchers received over 11 times as much income from exports as they did from federal subsidies and loans.REF Only about 43 percent of Mississippi’s farms receive federal support, but nearly 100 percent of farms benefit either directly or indirectly from exports.REF

The Impact of Trade on Jobs. Critics claim that trade has cost Mississippi thousands of jobs, but the numbers tell a different story. In fact, since the North American Free Trade Agreement (NAFTA) took effect in 1994, the number of civilians employed in Mississippi has grown by 71,497 while the number of unemployed civilians decreased by 18,067. Since December, 2001, when China entered the World Trade Organization (WTO), the number of employed Mississippians has grown by 24,731—as the number unemployed decreased by 23,167.REF

In 1993, five of the seven members of Mississippi’s congressional delegation supported NAFTA and the Uruguay Round trade agreement that created the WTO.REF More recently, support for trade has been stronger. In 2011, for example, both Senators and all but one Representative voted for the U.S.–Korea and U.S.–Columbia free trade agreements.REF

Although Mississippi, like most states, has fewer manufacturing jobs than it did in the past, trade is not the reason. The downturn in the number of manufacturing jobs is the result of increased productivity by Mississippi workers. Manufacturing gross domestic product (GDP) per worker in Mississippi was 74 percent higher in 2017 than it was in 1997 ($107,039 compared to $61,434 in inflation-corrected 2009 dollars).REF

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How Trade Facilitates International Investment to Create Mississippi Jobs

International flows of goods and services tell only half the story of trade’s benefits for Mississippi. Mississippi workers benefit significantly from international investment. When Mississippians buy foreign goods, a share of the dollars they spend is used by foreigners to buy goods and services produced in the United States. Another large share returns in the form of foreign investment that creates jobs in the U.S., including in Mississippi. Many internationally headquartered companies choose to invest in operations in Mississippi because of the state’s:

  • Low overall cost of doing business,REF
  • Competitive labor costs,REF
  • Permitting speed,REF and
  • Relatively favorable regulatory environment.REF

Mississippi Going Global. As a result of these four factors and others, Toyota and Nissan had committed a combined $2.7 billion through 2016 to produce Toyota Corollas and Nissan models in Mississippi. Mississippi workers assemble over 500,000 vehicles annually for the two foreign car makers.REF In 2015, foreign-owned companies employed 41,700 Mississippi workers.REF Of these, 6,400 work in Nissan’s vehicle assembly plant in Canton, and 1,500 in Toyota’s manufacturing facility in Blue Springs.REF In April 2018, Toyota announced that it will invest in new production lines in Blue Springs—a $170 million investment by the corporation that will create an additional 400 jobs within 12 months.REF

While foreign direct investment—when done right—is beneficial to Mississippi and to Mississippian working families, the means the state uses to attract the investment should be undertaken thoughtfully.

Nissan received more than $1.3 billion in total Mississippi taxpayer subsidies in return for opening its plant in Canton.REF Toyota received a $354 million subsidy package.REF Nissan and Toyota secured favored tax treatment over other businesses in the state, and the subsidies paid the two automakers for things like worker training costs and infrastructure upgrades. Attracting companies through regulatory and tax reform that is more even-handed—that applies to all business owners big and small equally—should be the targeted approach to Mississippi job creation in the future. Mississippi Governor Phil Bryant understands this, as evidenced in his January 2018 penultimate state of the state address, when he told his fellow Mississippians:

[W]hen government creates a tax and regulatory climate that encourages growth—and then gets out of the way so the private sector can harness its innovative character—our economy thrives, more of our citizens experience the dignity and affirmation of a good-paying job, and our state is made stronger.REF

How Anti-Trade Policies Harm Mississippi’s Economy

Clothing Taxes. Americans are gouged on a daily basis by double-digit taxes on imported products like shoes and T-shirts. In 2016, the average U.S. tariff rate for shoes and clothing was 13.1 percent—which is more than 13 times higher than the average tax on other imports. Clothing and shoes account for 5 percent of U.S. imports, yet duties on textiles and apparel generate 40 percent of U.S. tariff revenue.REF

These import taxes cost Mississippians close to $400 million in 2016.REF They are especially harmful to low-income consumers in Mississippi and across the country.REF

Trade Restrictions and Overseas Relocations. In contrast to foreign investment, which creates gainful employment in Mississippi, trade restrictions can force U.S. firms to relocate overseas to avoid the higher costs of production that come with protectionism. Trade barriers can limit job growth and expansion at businesses that remain, or even cause them to shut down.

It would be a disaster for Mississippi farmers, for instance, if the ongoing NAFTA negotiations result in Mexico or Canada imposing new tariffs on agricultural products. Mexico and Canada are two of Mississippi’s largest foreign export markets. Under NAFTA, the cotton industry in particular has enjoyed a steady recipient market in Mexico. A Californian cotton farmer named Cannon Michael recently told The Wall Street Journal, “There’s so much speculation right now. It’s really hard to tell what [President Trump] is going to implement. Will there be a 20% tax? Who pays it? It just throws up a lot of question marks.REF Another cotton farmer named Alan Underwood said, “Mexico is my domestic market,” because it is closer and cheaper to ship cotton to Mexico where it is assembled into apparel than it is to ship it to much of the U.S.REF

Other countries are also likely to target U.S. exports with trade barriers in retaliation for import restrictions that the Trump Administration is implementing on questionable national security grounds. In April 2017, President Trump ordered the Department of Commerce to investigate steel imports under a little-known part of the Trade Expansion Act of 1962, Section 232, which allows the executive branch to place import restrictions or tariffs on steel for national security reasons. In a letter to Secretary of Commerce Wilbur Ross, a large collection of groups representing U.S. agricultural producers expressed concern that other countries would put up retaliatory trade barriers of their own on false national security grounds.

The groups explain in their letter:

The undersigned agriculture organizations are extremely concerned about the consequences of import restrictions under Section 232 of the Trade Expansion Act of 1962. If the Section 232 investigations on steel and aluminum result in new trade barriers, the aftermath could be disastrous for the global trading system and for U.S. agriculture in particular.
U.S. agriculture is highly dependent on exports, which means it is particularly vulnerable to retaliation. Many countries that export steel to the United States are also large importers of U.S. agriculture products. The potential for retaliation from these trading partners is very real. Short of explicit retaliation, these countries may also stall efforts to resolve current trade issues if they believe they have been unfairly targeted over legitimately traded products.REF

In March 2018, the groups’ fears were affirmed when President Trump ordered steep protectionist tariffs on steel and aluminum imports, to which China retaliated with plans for steep 25 percent tariffs on a range of U.S. products including soybeans. The soybeans tariff will especially hurt Mississippi farmers, as soybeans made up over 30 percent of Mississippi’s total agricultural exports in 2016.REF

The free flow of goods to and from Mississippi and across United States borders is a boon to economic activity, as it makes the size of the economic pie larger so more Mississippians, and more Americans in general, can partake in increased mutually rewarding transactions. Individuals enjoying the freedom to trade should not have trade-stopping booms lowered over their heads by bureaucrats in Washington, costing them their prosperity or livelihoods. Mississippi jobs depend on doing business with foreign countries.

“Buy American” Laws and Antidumping Tariffs

Many U.S. government policies have unintended harmful consequences. Buy American laws, for instance, require government agencies to buy only U.S.-made inputs, instead of allowing them to buy the best-made products at the best prices.

Protectionist antidumping tariffs like the ones proposed by the Commerce Department earlier in 2018 on Canadian newsprint, have the stated purpose of preventing foreign producers from dumping their product in the U.S. at below the foreign producer’s cost to make it—supposedly harming the competitiveness of domestic producers. But it is the tariffs that actually harm Mississippi businesses.

The tariffs on Canadian newsprint were thankfully blocked by the United States International Trade Commission (USITC) on August 29, 2018. Such tariffs are costly for taxpayers, and the ones on Canadian newsprint endangered the viability of newspaper businesses across the U.S., including The Natchez Democrat in Natchez, Mississippi. The Democrat felt the pain of the Canadian newsprint tariffs, which were being collected on a provisional basis at over 20 percent while the U.S. Department of Commerce and the U.S. International Trade Commission investigated. Before the USITC blocked the tariffs, The Democrat explained in an online edition what would happen if the tariffs on Canadian newsprint were made permanent:

Publishers will not be able to absorb the significantly higher cost of newsprint, which is a newspaper’s second-largest expense behind payroll. Newspapers will likely have to raise prices for readers and advertisers, reduce distribution by eliminating publication days, and reduce our workforce. Not only will newspapers suffer, but so will our workers, readers, and advertisers.REF

By the time the tariffs on Canadian newsprint were blocked by the USITC in its unanimous decision in August 2018, the damage had already been done. Both The Natchez Democrat, and another Mississippi paper, The Vicksburg Post, had cut printing of their newspapers from seven days to five days a week. Both papers implicated the tariffs as a main factor leading them to decide to decrease production.REF

The Associated General Contractors of America called Buy American requirements an “antiquated” standard that could “specifically exclude certain American companies and jobs over others.”REF Protectionist anti-dumping tariffs like the ones that were collected on Canadian newsprint do the same.

The Jones Act. Protectionist restrictions on services can be just as harmful as restrictions on imports of goods. The Jones Act requires all ships that transport goods within U.S. waters to be U.S.-built, U.S.-owned, and at least 75 percent U.S.-crewed. These requirements restrict traffic for U.S. ports, including for Mississippi’s 16 public ports. According to the director of the Fletcher Maritime Studies Program, “The Jones Act remains a fundamental roadblock to large scale coastal shipping between US ports.”REF

The ban on the use of foreign-built vessels was felt by the Gulf Coast following the 2010 BP oil spill. At that time, Alabama author Winston Groom, of Forrest Gump fame, wrote:

Does anyone share my outrage that there are not nearly enough, nor large enough, oil skimming craft in the Gulf of Mexico to protect our coast? There are numerous oil removal ships available right now that could be sweeping up the huge oil slicks heading for our shores, but various U.S. government regulations and red tape have prevented them from coming here.
For two months, 13 oil-producing countries plus the United Nations have offered to send us their huge oil-skimming tankers and other vessels. But the Obama administration has dragged its feet on accepting these generous offers because of a labor-union law called the Jones Act that permits only U.S.-built ships crewed by U.S. seamen to operate in U.S. waters.
A hundred years from now, someone is going to write the history of this tragedy/fiasco, and will likely record that if there was a single scandal attached to the so-called cleanup, it was the lack of proper craft to contain and remove the oil before it came on shore. And the worst part will be that this was caused by our own government in Washington.REF

The lack of oil-skimming ships because of the Jones Act did in fact do great unnecessary damage to Mississippi wildlife and to the state’s tourism industry. A 2013 report by the National Academy of Sciences details how removing the oil while it was still offshore was much more effective and preventative of damage to the Gulf ecosystem than when the oil later had to be removed from the shore.REF

Tariffs on Intermediate Goods. More than 60 percent of goods imported to the U.S. each year are considered intermediate goods—parts used to make final goods, or capital goods, such as machinery.REF

Access to competitively priced intermediate goods, regardless of origin, is crucial for manufacturers in Mississippi.

In 2017, auto parts used by Mississippi autoworkers accounted for over 15 percent of the state’s top 25 imports by dollar value. Medical devices and medical device parts were another 10.2 percent.REF

Restricting inputs of these parts would jeopardize Mississippi jobs. Policymakers should remove taxes on imports, including intermediate goods used by Mississippi autoworkers and by the large medical device and health care industries in the state.

Trade Is Vital for Mississippi

Early in U.S. history, Mississippi fought special-interest trade barriers that held down the state’s economy. Today, the federal government continues to pick winners and losers through policies like the Jones Act and protectionist taxes on imported parts used by the state’s workers. Mississippi policymakers and their constituents should take the lead in eliminating these destructive federal government policies, so that Mississippians can thrive and prosper.

—Patrick Tyrrell is Research Coordinator, and Anthony B. Kim is editor of the Index of Economic Freedom, and Research Manager, in the Center for International Trade and Economics, of the Kathryn and Shelby Cullom Davis Institute for National Security and Foreign Policy, at The Heritage Foundation.

Authors

Patrick Tyrrell
Patrick Tyrrell

Research Coordinator

Anthony Kim
Anthony Kim

Research Manager and Editor of the Index of Economic Freedom