Bruce Murphy
Murphy’s Law

Wisconsin Is a Global Trade Winner

Trump’s protectionist trade policies will hurt state far more than others.

By - Feb 28th, 2017 11:30 am
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Mining Equipment staged to go out to the Netherlands, April 2015. Photo by Peter Hirthe.

Mining Equipment staged to go out to the Netherlands, April 2015. Photo by Peter Hirthe.

Anyone who read a Monmouth College Poll from back in 2011 might have predicted the unexpected rise of Donald Trump. The poll found Midwestern residents — by huge margins — saw themselves as losers from global trade, just as Trump would insist in his campaign.

Some of the poll’s key findings:
-64 percent felt the Midwest lost more from global trade and just 20 percent felt it gained.
-64 percent said it cost the Midwest jobs; only 19 percent said it created jobs.
-71 percent felt it hurt manufacturing, versus 12 percent who thought it helped.

Given such negative feelings about global trade, it’s hardly surprising a majority of respondents — 48 percent — agreed that trade restrictions were needed to protect U.S. industries, compared to 37 percent who disagreed. That would become a key issue for Trump, who argued that free trade had destroyed American jobs and the nation must adopt more protectionist policies. And the issue clearly helped him win Rust Belt states like Ohio, Michigan, Pennsylvania and Wisconsin.

But at least in the case of Wisconsin, the opposition to global trade makes no sense. For Wisconsin, unlike the rest of the Rust Belt, is a global trade winner.

Consider the North American Free Trade Agreement, or NAFTA, which made trade far easier with Canada and Mexico. Wisconsin has a big surplus with these countries, exporting $7.3 billion in products to Canada while importing $4.2 billion in 2015 and exporting $2.97 billion to Mexico while importing $2.69 billion. Any measures to institute protectionism or otherwise reduce the flow of trade under NAFTA will hurt Wisconsin.

Wisconsin is a big trade loser with just one country: China. In 2015, this state exported goods worth $1.55 billion to China and imported $4.2 billion from that nation.

But despite this deficit, when you look at Wisconsin’s total trade picture, the state has tended to export as much in an average year as it imports, varying between a small trade surplus (in 2013, the state had $23.1 billion in exports compared to $22.2 billion in imports) and small trade deficit (in 2015 Wisconsin has $22.4 billion in exports and $23.0 billion imports).

That compares to other Rust Belt states that have huge trade deficits, as the accompanying table shows. In 2015 Michigan’s trade deficit was $70.3 billion, Pennsylvania’s trade deficit was $40.3 billion and Ohio’s was $17.8 billion.

State Imports Exports Deficit
Michigan $124.2 $54.0 $70.3
Illinois $121.3 $63.4 $57.9
Pennsylvania $79.7 $39.4 $40.3
Ohio $68.9 $51.1 $17.8
Indiana $49.1 $33.8 $15.3
Wisconsin $23.0 $22.4 $.08
Statistics from U.S. Census Bureau

 

What makes Wisconsin an island of success amid a Rust Belt with huge trade deficits? The best guess is it combines a still strong manufacturing economy that tends to specialize in higher-end products — rather than basic goods like steel — that can’t be duplicated, plus a robust agriculture sector that is a huge exporter of cheese.

One report found Wisconsin ranks second among the states in export of dairy products ($597 million), in HVAC & refrigeration equipment ($531 million), and miscellaneous animal products ($235 million), and third in miscellaneous transportation equipment ($413 million). “It is the top exporter of furskins and ranks among the top 10 exporters of berries, potatoes, vegetables and melons, and corn,” the analysis noted.

All of which has made Wisconsin a big winner from trade. The same report found that more than one in five jobs in Wisconsin are trade related. Other statistics from the report paint a very positive picture:

-Wisconsin’s trade-related employment grew 13.6 times faster than total employment from 2004 to 2013.

-Wisconsin’s goods exports have grown two-and-a-half times faster than state GDP since 2003.

-Jobs in U.S. exporting plants pay on average up to 18 percent more than similar jobs in non-exporting plants.

-U.S. exporting plants increase employment 2 to 4 percent faster annually than plants that do not export.

And that is just the export side of Wisconsin’s trade. On the import side, trade greatly lowers the price paid for retail goods. The number one item imported by Wisconsin is sweaters, which can be made much cheaper in places like China and Mexico. As a result of imports, the cost of retail items purchased declined greatly between 2003 and 2013, with the price of  TVs dropping by 87 percent, computer prices by 71 percent and toys by 42 percent.

Were there some trade losers in Wisconsin? Undoubtedly.

A study last year by three economists — David H. Autor of the Massachusetts Institute of Technology, David Dorn of the University of Zurich and Gordon H. Hanson of the University of California, San Diego — found that Chinese imports eliminated nearly one million American manufacturing jobs from 1999 to 2011. When you add in suppliers and other related industries, the total job losses reached 2.4 million. And some of those job losses were suffered in Wisconsin.

But the reality, as many economists have noted, is that the decline in U.S. manufacturing jobs is mostly due to automation, not overseas trade. A 2015 study by the Center for Business and Economic Research at Ball State University in Indiana found that of the 5.6 million manufacturing jobs lost by the U.S. between 2000 and 2010, just 13 percent were due to trade. The rest were eliminated due to automation, robots or other efficiencies realized by factories.

Even in states with huge trade deficits — like Michigan and Pennsylvania — the big culprit is likely automation, while the benefits from cheaper imports and faster growth in export-related jobs may make trade a net positive. But the size of their trade deficit would certainly explain why these Democratic-leaning states voted for Trump.

Wisconsin’s vote, by contrast, is harder to understand. Voter suppression was likely a factor. So was the long-term decline in rural farming jobs noted by Data Wonk columnist Bruce Thompson.

But whatever the reason for Wisconsin’s vote, it’s hard see how trade protectionism will help it. In particular, any efforts to reduce trading under NAFTA will be a downer for the Dairy State.

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14 thoughts on “Murphy’s Law: Wisconsin Is a Global Trade Winner”

  1. Duane Snyder says:

    “Even in states with huge trade deficits — like Michigan and Pennsylvania — the big culprit is likely automation”.

    Why would automation lead to trade deficits? I don’t see how you connect those two dots. Japan doesn’t have huge trade deficits and they are probably more advanced in automation and manufacturing than anybody. Germany, South Korea, both very advanced economies and technological leaders but no trade deficits. Automation doesn’t cause trade deficits, trade policy causes trade deficits. The US hasn’t had a “pants down” moment because of our insane trade policies but just give it time. And as far as protectionism goes, this nation never would have developed into the power it is without it. Japan, Germany, South Korea, China, they all kind of know that. We apparently don’t

  2. fightingbobfan says:

    In a word — ginseng

  3. fightingbobfan says:

    In order to be a right winger is it necessary to never think things through?

  4. Bruce Murphy says:

    Duane, the point is not that automation causes trade deficits, but that it causes a reduction in manufacturing jobs. Study found just 13% of decline in manufacturing jobs was due to overseas competition and trade, the rest of decline caused by automation and other factory efficiencies.

  5. Sarcasm says:

    FAKE NEWS! Trump isn’t going to hurt us here in Wisconsin, no way! … We all voted for him … Walker said so and is working with him to cut back regulations that are killing our jobs and we’re going to start mining again to make steel and he’s gonna fix healthcare and and and …

  6. Wisconsin Conservative Digest says:

    It is hard to believe Bruce but are you stupid or Naive?
    Read his book, this is negations time.
    We have some really bad agreements, with us down almost a trillion a year and you dumb Lefties think that this is neat.
    The Left got us into these turkeys and the Swishy GOP Globalists, Corporatists. Time to renegotiate.

  7. mbradleyc says:

    Protectionism never works.

  8. Vincent Hanna says:

    Grown man calls people stupid and dumb, provides no evidence whatsoever to support his claims, and the irony is totally lost on him.

  9. Wisconsin Conservative Digest says:

    it is not protectionism, that is ignorant statement.
    Free trade is one thing, negotiated trade where we lose, is disaster. That is not Free Trade. With China we have a 600 billion dollar deficit, with Mexico 60 billion.
    That means , along with the other losers, is that almost 1 trillion dollar worth of goods are being made over there that could be made over here.
    Then we have the stupid Obama rules that makes our businesses keep 3 trillion overseas instead of coming back here.
    it is stupid and naive to defend that stupidity. Both GOP and Dems put us there with the Globalsits.
    Time to make things “Even Steven”.

  10. Nevertheless She Persisted says:

    Comprehension is a learned skill lost on Duane.
    Is WCD’s default response always childish name calling when it has no point?

  11. Caligula says:

    Referring to Wisconsin as an “island of success” in any regard, is completely and totally insane.

  12. Vincent Hanna says:

    Yes it is. An elderly man goes on the Internet every day to call people names.

  13. Jan Marra says:

    We don’t have a trade deficit with China.

  14. David Ciepluch says:

    Automation did not lead to all the products being made overseas. Heavy manufacturing was in a decline starting in the 1970s and when the USA reached peak oil production during 71-72 and became more reliant on imported oil. During the 1980s, Large companies took their huge Reagan tax breaks and invested in production in foreign countries along with mergers and buyouts instead of US expansion. Tax and policy decisions were made that the US would become a service knowledge based economy. Automation and efficiency did reduce the need for workers, but investments in buyouts and mergers since the 80s created larger multinational companies that expanded across the planet.

    Corporation have always influenced governments to write laws that benefit them at the expense of the worker. The perfect example is Wisconsin where ALEC laws have been implemented that were written by corporate attorneys.

    Most USA people purchase many of their household products that are made overseas. Companies are multinational today and have no allegiance to the USA, just their profits, and will hold their money in tax sheltered countries, including their HQ. Milwaukee and WI have lost many of their corporate HQs. Even the state’s largest utility HQ may move to Chicago. And automation has played a role in some quality job reductions, even in retail where Amazon will challenge the Walmart model as the largest employer in the USA. It used to be GM that produced products.

    Following WWII, the USA held 60% of the GDP of the planet and the crumbs were shared by wealth and power to create a large Middle Class. Today the USA GDP with 4.7% of the planet’s population is at 17% and in decline. China is at 17% and on the increase. Wealth and power want all the crumbs. During the past 15 years, WI families have seen a decrease in family median income of over $10,000 annually to lead the nation in this category along with working age people leaving the state.

    Large companies have used the security umbrella of US Defense at taxpayer expense and $20 Trillion in the nation’s debt, as they expanded across the planet for exploitation of resources, cheap labor, and hide from paying taxes. This debt is the largest immoral intergenerational theft scam played out on our children and grandchildren. And they still want tax breaks after wealth and power has robbed from the millions of citizens for decades. This trickle-down approach was a failure under Reagan, Bush, and now likely to be repeated by Putin’s agent orange and increase debt by another $10 T.

    Lost in all the discussion is that a successful local and regional economy requires a balance of 1/3 production type jobs that brings money into the region, to the 2/3 service sector in retail, government, health care, etc. Production jobs tend to pay higher in wages.

    Small and medium size businesses are the true job generators. Large business has not created any new jobs in the USA in over 30 years. Large business has reduced 3 million jobs in the US and created 2.3 million new ones in foreign countries over the past decades.

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