How Wisconsin Ties Into The Trade War with China
My colleague — an old friend from high school who also works inside sales with me at the locally-owned independent stainless steel business where we work — took the week off to enjoy his honeymoon. Normally, I would be stressed with the extra workload for covering for an additional person for a whole week, but I am not remotely phased. The phones have been fairly silent as of late — and our boss (the company owner, who voted for Trump) made it clear that our sales have been a fraction of what we did years ago.
Since Section 232 went into effect (otherwise known as the Trump tariffs), and Trump is playing a game of chicken with China, our requests for domestic melt and manufacture has steadily increased, which effectively priced most of what we sell out of the market. I work in Wisconsin, in a part of the state that’s known to be a hotbed of welding and fabrication talent. We have both a local technical college and the University of Wisconsin-Oshkosh that has been cultivating welders every year, who are guaranteed to walk off with employment, little-to-no post-college debt, and starting wages that will be more than I have ever made in a year, with a potential for a very wealthy future.
Wisconsin has been a swing state in almost every Presidential election over the last twenty years, and while it would edge into Democratic candidates, last time the state went for Trump. One key reason why ties right at the industrial sector that embodies the economy from Oshkosh to Green Bay, a string of blue-collar towns called the Fox Valley or Fox Cities (named after the Fox River that travels through most of the area). The main economic output of this region goes from paper products, baby and infant products like diapers, and industrial fabrication. Neenah, Wisconsin houses many of these giants such as Neenah Paper, Kimberly-Clark, and Neenah Foundry (next time you walk by a sewer cap, take a look to see where it was made).
Just about all three of those sectors of economic output are taking it in the shins, and they do not know how to recover from it — that is, if there is any recovery at all. Neenah Paper’s line of art and drawing paper has now been battling the boom of tablet users who prefer to create art on the screen. Trump’s grudge against China during his campaign was a populist point that hit home for those working at Neenah Foundry. One big issue many of their workers had was the fact that the United States was subject to air pollution restrictions while Chinese companies were not. Thus, those Chinese factories were able to produce faster and cheaper.
Kimberly-Clark’s main product is diapers, and people are not having as many babies these days. Demand is down, and now, Kimberly-Clark almost moved from Neenah until the state gave them a sweet deal involving tax credits and other forms of preferential treatment.
These market changes tie together — because people are having fewer children, that also ties into the workforce issue within the country. There is and has been a large age gap in manufacturing and welding. Currently, in America, the average age for a stainless steel welder is 55 years old. People are retiring in droves, and millennials have little interest in taking over the reins. Workforce participation for millennials has steadily declined, and even if they did, there are not enough of them. A recent study by the Forward Analytics — the research division of the Wisconsin Counties Association — provided some sobering statistics showing labor force participation for millennials has declined, and there are not enough bodies to fulfill our retiring workforce. This makes it rather difficult for Trump to restore America back into a manufacturing giant when we do not have the bodies to make it so. China, on the other hand, does have the bodies.
There was already an American market push for Non-China stainless steel — which had nothing to do with the trade deficit or governmental affairs. It was a direct response to American fabricators and distributors receiving fraudulent material — stainless fittings that were brittle, easy to break, and were not safe to utilize in any pressure-related applications. Instead of fabricators spending the extra time to cherry-pick out what manufacturers and melters in the large populous nation of China are good and which ones are not, it was easier and simpler for fabricators to put a “NO CHINA” stamp on their bid lists to distributors.
Not everyone out there cared what material came from China, though, and many distributors still carried plenty of Chinese-made stainless fittings over the past couple decades and performed well. It is when the tariffs came into play when things changed. Well-known distributors of Chinese fittings had to immediately bump up their prices over 15% — and if the price increase did not already dis-incentivize fabricators to shop elsewhere, it was the push for domestic melt (a partial result of these tariffs) that will. That creates a whole new problem in our industrial landscape: if America can play catch-up with Chinese melters and manufacturers, while somehow remaining competitive with their pricing. That takes at a minimum of three to five years in order to see our answer to that question — longer than a Presidential term, at the very least. And since it has been evident that we are struggling to have enough babies to replace the retiring workforce, it should be asked — who, then, benefits from these tariffs?
To go even further, why are we having a trade war with China? Yes, it’s true that China is importing fewer goods from America, and America is importing more goods from China, but so what? China was once a communist country, but it is slowly and certainly weaning away from those days. Many of their country’s elders remember all too well those impoverished days and have no desire to return to them. While it’s still nowhere near capitalism, it is at the very least seeing a middle class being established due in part to trade with America, who desperately seek prosperity like us Americans do. In short, freer trade — the very principle that old-school conservatives espoused — was working. The best way to eliminate a communist country while preserving human life is to have open trade with them and open your borders to them; suddenly, wealth starts creeping through those insular walls, and people see the benefit. The idea becomes a vine that continues to grow. That is evident because before this trade war started, the trends for tariffs rates were in decline instead of going up. Since the days of NAFTA, China was continuing to lower their tariffs on goods being imported, and the results stand for itself. Their GDP shot through the roof.
China was actually freeing their market slowly over time, instead of the other way around. Phones from Huawei were becoming less expensive, and the quality of their products improved. By 2015, US’s standard of living was hitting another high.
Are trade deficits automatically bad?
No. Each country has natural resources they specialize in. Much of the nickel that is used in stainless steel comes from Canada, Indonesia, and the Philippines, for an example. Countries like Norway, Saudi Arabia, and the United States have oil. Because of that, there will always be trade deficits one way or another. How we put value on those commodities make them fungible.
What makes trade deficits bad is not necessarily that the commodities are fungible, but the fiat currency that forces us to measure our value in these commodities. And that is where the United States, in particular, is showing signs of trouble. US Debt-to-Gross Domestic Product has doubled over the last 15 years over the span of three different Presidents. When debt-to-GDP goes up, the dollar can weaken, and the government sells its debt to other countries in the form of Treasury Securities. It, perhaps, is not a coincidence that China owns most of that debt to the United States, the only other entity that owns more is the Federal Reserve itself, who bought government debt after they printed more money during the bank bailouts (nice racket, wouldn’t you say?). If we think China is manipulating its currency, just wait until we get to know the Federal Reserve.
And while China was able to provide manufacturing labor for less cost than Americans, China was also seeing wages steadily increase before the tariffs took effect. According to market research firm Euromonitor, China’s wages went up 64 percent in a matter of six years. They were starting to level up with the rest of the world. That is also one of the many benefits that freer trade can provide.
Why would China buy so much US debt?
China does not want to fully own the United States — they would have to go much, much further lengths to ever get that close since the US’s total debt is now clocking in above $30 Trillion. China wants to keep the US Dollar value high so they can keep their exporting and manufacturing sector strong. It is a cornerstone to their economy and staying relevant to the world. Trump thinks manufacturing is key, too, and wants it back to the United States. But you can’t do that while also continuing to increase the debt-to-GDP rate — and, thus far, Trump has very much become the new Spender-in-Chief, with debt now topping $21 Trillion under his watch. And he does not appear to be all that concerned about how to pay it off with actual sound fiscal policy, instead keeping his focus on China.
Let’s entertain this notion that Trump somehow brings most manufacturing jobs back to the United States through his hardline tariff play. How could America do that in the first place, since we are having fewer babies every year and could not physically replace the number of those retiring from the workforce?
Maybe we could bring people in from other countries like Mexico… oh wait.
I suppose I could go get a degree in welding myself and ditch my career in sales — by the time I graduate, I’ll be 45 so, compared to most welders, that makes me a young and spry apprentice. Perhaps that will also ease my anxieties of my employer’s business being so quiet over the year. When my colleague returns from his honeymoon, he may be spending his hours twiddling his thumbs.