The tactic of pressing global adversaries with overarching tariffs and aggressive trade practices is currently diminishing U.S. exports such as Kentucky bourbon due to reciprocal tariffs. While President Trump’s tariffs are a response to public resentment against trade policies, their wide-ranging impact could be detrimental to both the economy and consumers. Kentucky suffered a significant decline in manufacturing jobs due to trade deficits amplified by NAFTA and China’s inclusion in the WTO. Rather than blanket tariffs, tactically pertained tariffs and industry strategies focused on key sectors would be a more effective solution.
Once upon a time, Fruit of the Loom apparel plants were a common sight across Kentucky, with operations in Jamestown, Frankfort, Campbellsville, Franklin, Greensburg, Princeton, and Bowling Green employing 11,000 workers. In 1987, it held the rank of the state’s second leading manufacturer. However, over the years, Fruit of the Loom started to shutter plants and shift production to lower-wage nations such as Honduras, Haiti, and Vietnam. By 2014, all of its production activities within the state had ceased.
The consequences of these closures were devastating beyond measure for workers who abruptly lost their jobs and for communities whose livelihoods depended on these factories. These unfortunate events were largely triggered by a bipartisan consensus on trade that primarily served the financial interests of large corporations at the expense of workers and communities. President Donald Trump has recognized the public’s frustration with such trade policies and has adopted an approach of imposing significant, wide-ranging tariffs on imports.
While tailored tariffs may be justified within an industrial policy that targets strategic sectors, the haphazard, all-encompassing measures adopted by the President may, in the long term, undermine the economy, skyrocket consumer prices, and injure Kentucky businesses without addressing the nation’s staggering trade deficit. The staggering trade imbalances and job losses in Kentucky are a testimony to the flawed policies.
The trend of escalating U.S. trade imbalance emerged in the 1970s as a result of the deregulation of the international capital flow. This pattern intensified with the North American Free Trade Agreement (NAFTA) in 1994 and dramatically surged when China was admitted to the World Trade Organization in 2001. From 2000 to 2010, Kentucky lost around 100,000 manufacturing jobs in total, a third of the figure from the previous decade.
Direct impacts of China’s rise and NAFTA are estimated to have caused the loss of around 45,400 and 12,100 net jobs respectively in the state of Kentucky. Industries such as computers and electronic parts, metal products, machinery, apparel, furniture, and textiles bore the brunt of these job losses. Politicians and economists alike supported these transition, claiming it would ultimately be beneficial for everyone.
While it’s true that consumers enjoyed a drop in prices for goods selling at stores like Wal-Mart, this shift had a dire impact. Such benefits came at a hefty price: towns were gutted, families were forced into bankruptcy, and death from substances abuse and suicide surged. Supporters argued that the government could always balance out those who lost jobs with financial aid and re-skilling initiatives. This promise, however, proved to be hollow with support and effective retraining materializing inadequately if at all.
Meanwhile, the transition of jobs to overseas locations lined the pockets of Wall Street, attracting foreign fiscal investment due to the robust U. S. dollar; manufacturing companies that reaped higher earnings from cheaper overseas labor; and business corporations that used the threat of factory shutdowns to suppress attempts to unionize and negotiate concessions.
Intelligent tweaks to the current approach could leverage industrial policy, including purposeful tariffs, to address the gaping trade deficit and improve conditions for both local and foreign workers. Fresh policies could nurture strategic sectors such as automotive, steel, energy, and semiconductors via public investment, research and development, and union-collaborated workforce schooling, along with strategic tariffs. Such policies could help bring manufacturing jobs back to the U.S., not only for employment but also to stimulate innovation and build more robust supply chains as demonstrated by the recent pandemic.
Simultaneously, we can foster reciprocal trade relationships with other nations while imposing stringent access conditions to U.S. markets on labor rights protection and environmental preservation. This will essentially help in improving frequently unethically exploitative working conditions abroad. However, the current rollout does not reflect this vision.
The sporadic implementation and sprawling nature of the new tariff policy is causing economic mayhem, putting the brakes on consumer spending and business investments. The approach of unilateral tariffs and provocative trade attitudes are already affecting U.S. exports challenged by reactive tariffs, particularly in industries like Kentucky bourbon.
High, wide-ranging tariffs could also inadvertently boost the value of the dollar and raise prices of Kentucky-manufactured products that rely on foreign components. This could harm U.S. manufacturers and farmers even more. Moreover, the cost of these new tariffs will inevitably be forwarded onto consumers at a time of valid concerns over inflation and high prices for basic household items.
In conjunction, the administration’s domestic policy is eroding workers’ negotiating power through actions against labor unions and undercutting public investments necessary for a substantial employment policy by crippling core federal agencies.
The room for the President’s current action was created by the failure of past trade policies. It’s critical to comprehend that this course of action is an incorrect response to the correct problem. Recognizing this fact will pave the way for a solution that genuinely meets the needs of the people of Kentucky.
The onus is on us to devise strategic policies to address the fundamental issues underlying the trade imbalances, job losses, and economic impacts. Strategically targeted tariffs, accompanied by support for strategic sectors, could reshape the current landscape. Observing the lessons from past and ongoing trade policies will guide us towards a more equitable and beneficial trade environment, not only for Kentucky but for the wider United States.