German Investment in the U.S. Creates American Jobs
Much current U.S. trade policy misses the importance of foreign direct investment (FDI) in growing the American economy and creating American jobs. Foreign-owned businesses are responsible for more than 6 million jobs in the U.S., and according to U.S. Department of Commerce statistics, Germany has consistently ranked among the top countries investing in America. 674,000 Americans are employed by German firms and almost half of those jobs are in manufacturing. Representative of German Industry and Trade (RGIT) recently published an excellent analysis of the trade and commerce that occurs between Germany and each of the states underscoring the key role foreign investment plays in our nation especially at the state level. Access the report to see how German business is helping to grow your state’s economy here.
The Administration has proposed and implemented tariffs on our allies and trading partners, including Germany, in the interest of striking deals that are more “fair.” However, it is more likely that these increasingly protectionist policies will end up inadvertently hurting more hardworking Americans than they help. The Administration’s contention is that these tariffs will create more jobs for U.S. workers and generate economic growth domestically. However, tariffs often result in retaliatory tariffs and U.S. economic partners have already begun imposing matching and targeted tariffs against the United States. Matching tariffs mirror the new tariffs, like those on steel and aluminum that we have enacted, and targeted tariffs are an asymmetrical response that focuses on American cultural exports like bourbon or motorcycles.
Many of the jobs created by FDI will be affected by the steel and aluminum tariffs and could eventually disappear because of them. Almost half of the jobs in German-owned businesses in the U.S. are in the manufacturing sector and either use or are directly affected by steel. Increased steel prices are passed on to the consumer. Higher prices on finished goods often result in fewer sales, lower company profits and possible elimination of jobs. Trade with Germany could be affected too. The biggest export to Germany in 2015 was transportation equipment, which is heavily steel and aluminum dependent. If trade in tractors and combines declines, there won’t be any need for the very manufacturing jobs the President purports to want to protect.
In 1962, France and Germany banned the import of U.S. chicken because of significantly more competitive pricing due to innovative farming methods. After the failure of negotiations, then President Lyndon Johnson imposed a 25 percent tax on light trucks not made in the U.S. This was a response designed to target European products destined for America. The justification was that under the General Agreement on Tariffs and Trade (GATT), the offended party could respond with tariffs equal to the losses of the original tariff. Now more than 50 years later, Ford (one of the companies that was supposed to be protected by this tariff) manufactures “passenger vehicles” in Turkey, imports them to the United States and strips the passenger seats out of the back to make the Transit Connect, a popular panel van. Until 2013 this method allowed them to circumvent the “chicken tax”. Now the same process is still employed, but the U.S. government enforces the tariff on an American company. This is a perfect example of trade restrictions hurting everyone in a trade war.
On the whole, free trade benefits everyone by bringing down the cost of living and making everyone more prosperous. In the Constitution, the Commerce clause (Article 1 Section 8 Clause 3) gives Congress the express power to regulate commerce, foreign and domestic. While regulating international trade is the purview of the federal government, the states are where that benefit is felt the most. The harms felt from a loss of that trade will be borne by the states as well.