Port Strikes and Tariff Wars

On Tuesday, the International Longshoremen’s Association (ILA) went on strike. The work stoppage by union workers in East Coast ports hampers the ability of American companies to export to foreign markets and may cost an estimated $5 billion per day.

As The Hill explains, workers are seeking hefty increases in compensation as well as protections against being replaced by automated systems. These two goals are contradictory. When worker compensation is increased, automation becomes more attractive as workers price themselves out the labor market.

This situation does present a conundrum. Workers obviously need to earn money to support themselves and their families, but corporations are in business to make money. Oftentimes, machines are more efficient and cheaper at doing jobs than humans, and unloading cargo containers from ships seems like an area that could be easily automated. Indeed, ports in other countries are already more automated, making them more competitive than US ports.

In Tuesday night’s debate, when JD Vance spoke about restoring American manufacturing, he was wrong. US manufacturing output has increased steadily over the years while manufacturing jobs have decreased. We are producing more with fewer workers. This is not a problem of offshoring but of automation.

And it’s going to get worse. Automation and artificial intelligence are not genies that can be stuffed back into the bottle. Even if the longshoremen get their wishes and freeze out automated systems in the short term, automation will be implemented eventually.

Elevator operators used to be ubiquitous. Some of those jobs lasted longer than others, but it is a dead career in 2024. You can only hold back the tides of progress for so long. I don’t have a solution to the problem of AI eventually replacing almost all human occupations, but it’s something that we are going to have to grapple with.

John McCarthy, a pioneer of AI, famously said, “If a machine can do a job, then an automatic job should be done by a machine. If I were being replaced by a black box, I would study how the black box works and probably start making black boxes.”

We are rapidly approaching the point where the black boxes can design and manufacture themselves. Aside from the Terminatoresque implications, that reality is going to cause social and economic upheaval that we do not have a clue how to handle. The introduction of Universal Basic Income is one possibility, but as I said, I have no good answers except to say that people have to eat, whether they work or not.

Getting back to present day, I don’t doubt that Republicans are salivating at the possibility of a long ports strike a month before Election Day. The strike itself lends to the air of chaos that Republicans want to project, and the likelihood of price increases and shortages stemming from an extended strike would almost certainly help Republican candidates.

President Biden has the authority under the Taft-Hartley Act to declare an economic emergency and force the longshoremen back to work. Biden currently says that is not an option, but that position may change if the strike drags on an economic and political pressure mounts.

The problem for Republicans is that Donald Trump’s tariff policy looks a lot like the longshoremen strike. As I’ve described before, the centerpiece of Trump’s economic policy is a plan to tax our way back to prosperity with a 10 (or 20, he has used both numbers) percent universal tariff on imports. Ten percent is actually the low end of the tariff that would applied to imports from friendly nations. Some countries, such as China, would have their products subject to a 60 percent tax.

Let’s think about this for a moment. If you buy a widget from China, the cost will go up by 60 percent. If you buy from Canada, you’ll see a 10 percent price increase. This is true because price increases get passed along to the end consumers. As I said before, businesses are in business to make money.

There’s another word for increasing prices. It’s called “inflation.”

And it goes further. Many American companies rely on foreign imports for components in their products, many of which are either not available from domestic suppliers or are only available at increased cost. This means that the cost of American products will increase as well.

Actually, that’s a feature rather than a bug of protectionism. Its entire goal is to make foreign products more expensive in order to help American manufacturers either raise their own prices or eliminate foreign competition entirely. If prices don’t go up, protectionism fails. You might call it “trickle-up” economics.

It is axiomatic that when you tax something you get less of it. That includes international trade. As prices for imports and exports rise on both sides of the tariff barrier, importers and exporters will seek new and more profitable markets. This means fewer product choices for American consumers and fewer buyers for American exports.

I remember talking to Canadian lobstermen on a trip to Canada in 2019. The Canadians said that Trump’s trade wars had been “good for us” because Canadian exporters were taking over buyers that used to purchase Maine lobster. Trump’s trade war made Maine lobster artificially expensive for buyers in places like China so they shifted their purchases to Canadian companies.

Henry George, a 19th-century economist, explained why tariffs are harmful in a metaphor that was later picked up by Milton Friedman. George wrote, “Protective tariffs are as much applications of force as are blockading squadrons, and their object is the same—to prevent trade. The difference between the two is that blockading squadrons are a means whereby nations seek to prevent their enemies from trading; protective tariffs are a means whereby nations attempt to prevent their own people from trading. What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.”

The port strike threatens us with higher prices and shortages of imported goods. So does Donald Trump’s economic plan, which is essentially a self-imposed blockade on ourselves. That should give us pause.

The Tax Policy Center estimates that Trump’s taxes on trade would cost low-income households about $1,800 annually. That should also give us pause if reducing costs and inflation is our goal.

There are those who suggest that the economic fallout of punishing taxes on trade with China are necessary because China is our primary geopolitical foe. Playing devils advocate and accepting that argument, it still doesn’t excuse Trump’s tariffs to be applied to other trading partners. If tariffs must be used to restrict trade with China, a better strategy would be to allow American trade to shift to other countries rather than isolating ourselves.

Noah Smith points out that the strike may ultimately undermine the ILA’s power, saying, “We should all be thinking very hard about whether it’s wise to have a labor system that can allow that sort of thing to happen. Is it right that the livelihoods of millions of Americans should hang on the whims of 50,000 dockworkers? Is it smart to give a single union the power to shut down a large portion of America’s critical infrastructure? Collective bargaining is important, but there should be limits on how destructive we allow that bargaining process to be.”

If the ILA strike causes widespread economic devastation, there will be a movement among both the government and the shipping companies to rein in the union’s power to prevent a reoccurrence. That may be especially true in a Trump Administration that would be marked by close ties to business and heavy-handed use of government power.

In the same vein, Congress needs to rein in the power of the president to launch unilateral trade wars. During the Trump Administration, courts upheld the president’s power to institute tariffs with little or no cause. This authority is obviously subject to abuse and should be limited by Congress.

One man – or one union – should not hold such crippling power, essentially the power to declare war on the American economy. Congress must assume that the authority given to presidents will be wielded by corrupt actors and their party members won’t intervene to stop them. That’s just the country that we now live in.