By Morgan Chilson, Kansas Reflector
TOPEKA — Last week’s news that the U.S. and China had reached a 90-day tariff deal elevated the uncertainty surrounding President Donald Trump’s trade war.
But at Wichita State University’s Center for Economic Development and Business Research, director Bekah Selby-Leach watches the trade war with the interest of an economist whose deep knowledge helps her interpret what’s happening.
She answered questions about tariffs, their impact, and what it would look like to strengthen the manufacturing economy.
“A tariff is a tax on the businesses that are bringing goods and services into the country,” Selby-Leach said. “It really is a tax levied against domestic businesses to encourage them to not import as much but rather produce locally.”
“Oftentimes, people who don’t understand tariffs think it’s going to be paid by the other country,” she added. “It might indirectly be paid through a reduced amount of purchasing from those countries, but in this case it really is trying to threaten them with reduced purchasing to get them to change their own policies.”
She said Trump administration policies could address trade imbalances.
“About one-third of goods and services are being produced out of the China region,” she said. “That puts them at a huge advantage in terms of their control of global markets, and the United States wants to reclaim some of that control. It is really just a strong arm move, I think. I don’t think they really want to damage the global economy. It doesn’t make sense for any governmental entity to put any country or the whole world into a recession.”
Selby-Leach and economists nationwide are seeing slow-downs indicative of an approaching recession. The short-term China trade deal led some analysts to reconsider but that news was quickly followed by a U.S. credit rating downgrade from Moody’s. That news caused mortgage rates to jump up near 7%. Yet inflation also increased at a lower-than-expected rate, the Bureau of Labor Statistics reported.
Much depends on how Trump trade deals benefit the United States, Selby-Leach said.
“If it doesn’t go right, it could very well lead to a deepening recession. It is a risky move, but if it does pay off and advanced manufacturing does relocate to the United States, that could have long-term gains,” she said.
Current tariff policies in the United States are reminiscent of a similar situation from the past.
“The Smoot-Hawley Act, just after the Great Depression, was the closest version of this as a country,” Selby-Leach said. “It wasn’t worldwide, but it was a substantial number of tariffs that were levied. We do know from history what to expect from these types of policies.”
The act passed in June 1930, under President Herbert Hoover, and it increased U.S. tariffs on agricultural imports and thousands of imported goods. Many economists credit it with deepening the Great Depression because of retaliatory tariffs and causing decreased U.S. exports.
“The economist in me knows very much how tariffs play out in terms of taxes — it almost always leads to inflation in prices. There’s really no case in which prices won’t change if these tariffs take effect,” Selby-Leach said.
Almost all goods the United States consumes have some portion of their supply chain that will be affected by tariffs, she said. For instance, the truck that transports products may have parts that are imported.
“That global connection has really helped us grow as a country,” Selby-Leach said. “Every step of the way, there’s an international component that’s going to increase the total cost.”
In terms of global economic power, Selby-Leach said, there is value in reclaiming and maintaining the country’s status. Global economic power has shifted toward China for some time, and pulling some of that back would add more democracy to the global markets, with less centralization in one country, she said.
“It also reduces risk, so if there’s something massive that happens in that one country, it won’t damage the entire world as much,” she said. “I can see the reasoning for it, but I don’t think the current actions are consistent with the reality of what it would take to shift that manufacturing back to the United States.”
Selby-Leach said consumers will “most certainly” see rising costs of items typically purchased from abroad, even if companies move manufacturing to the United States.
“Take, for example, a T-shirt produced in China. Their labor costs in China are considerably lower, so they’re able to produce that T-shirt at a remarkably low cost,” she said. “Whereas labor laws in the United States, as well as our history of higher-wage jobs, do mean that when that production happens it necessarily will increase in the labor cost to produce that thing.”
Bringing manufacturing back to the U.S. isn’t as simple as it may appear to be, Selby-Leach said.
“Most countries start off predominantly agricultural,” she said. “On average, we typically see this movement from agricultural to industrial and manufacturing and then into the service industry, what we would typically think of as part of economic growth, a shift towards services as we become higher educated.”
“Manufacturing is then located in areas that are at that stage in their economic development,” she added.
Most of the richest countries in the world do not have a lot of production, Selby-Leach said.
“They offer an incredible amount of service, and that’s what economists would say is a natural progression. Whether it’s good or not good, that’s just the way it works,” she said. “Moving the opposite direction, I don’t know if a country’s ever done that without some sort of massive wartime event. During World War II, for example, we produced a lot of goods and services.”
High-tech manufacturing, though, can be considered its own new industry, which could complicate the understanding of what a shift toward manufacturing would mean for the United States. Selby-Leach said maybe it means delving into quantum computing or things as yet unknown.
Multiple factors influence how the United States would manage a return to manufacturing, Selby-Leach said. China has a head start, as the country has been working on advanced manufacturing for at least a decade.
Advanced manufacturing refers to the use of robotics, artificial intelligence, automation and other high-tech advances.
“They have a tremendous investment into high-tech manufacturing that a lot of Americans don’t even understand,” she said. “We often think of their manufacturing as traditional manufacturing but a lot is really high-tech, and they have a lot of investment that went into it. They have some production centers that have 500,000 workers. That’s the entire city of Wichita.”
Selby-Leach said she’s not sure the U.S. could sustain large production centers. Low unemployment rates already create challenging workforce issues.
“You also have to develop the talent pool,” she said. “There aren’t people who know how to do those things in the United States because we haven’t done them for so long. So you’d have to go through a huge human training program to develop those skills. That will take at least a couple of years.”
Although there might be ways to train existing manufacturing workers and move them around to fill positions, there isn’t an available labor pool to reskill and place into newly created manufacturing jobs, Selby-Leach said.
Places like Wichita, with its highly skilled workforce in the aerospace industry and other advanced manufacturers, would have an advantage, she said.
“Fortunately, we have a big innovation with AI occurring simultaneously, and I think that can add efficiency into some of this, so that we can do more with fewer workers,” she said.
“On the economic side of things, uncertainty has a very known effect and people tend to consume less and save more,” Selby-Leach said. “They tend to invest less and hold onto their money in what they consider to be more stable places, such as a savings account, or even cash and assets like that.”
Such individual decisions impact the economy, she said.
“The way we measure economic activity is through spending,” Selby-Leach said.
In her opinion, that’s the biggest concern right now — people are so uncertain that they’re just pulling back from economic activity.
