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Jan 29, 2018

Smith’s Gary Cohen Talks Trade Policy

SMITH BRAIN TRUST – President Donald Trump last week declared that America "is open for business" in a speech at the World Economic Summit in Davos, Switzerland. And elsewhere the administration’s actions on trade were making headlines.

Several media outlets — from South China Morning Post to Sinclair to WBAL radio to WTTG (Fox5) News — looked to the Smith School’s Gary Cohen for insights.

Cohen, clinical professor of International Business, Global Trade and Supply Chain Management at the University of Maryland’s Robert H. Smith School of Business, says the Obama administration’s tariffs on tires and the George W. Bush administration’s tariffs on steel famously backfired. And when it comes to the Trump administration’s recently announced tariffs on washing machines and solar panels, Cohen says, “I actually don’t see a big difference.”

“We need to realize there are always unintended consequences [and these are] higher prices and fewer consumer choices,” he told Sirius XM POTUS’s Tim Farley. “Americans will be able to do a lot less with their disposable income.”

The notion that such tariffs might boost manufacturing employment at home, he says, is suspect. “We’re not living in the 1990s or 1980s anymore,” Cohen says. “Our real competition, now, is not cheap, Chinese labor. The real competition about is automation, artificial intelligence… Jobs have to change.”

Tariffs also could potentially counteract positive the effects of a weakening dollar. “In basic economics, when we weaken the American dollar, we reduce the cost of American products overseas. That is an advantage,” says Cohen. “But if we continue to take protectionist measures, other countries will do the same with us…and nix [advantages] of the weaker dollar.”

Moreover, Cohen adds, no one wins in a trade war. Standing for fair trade at the exclusion of blocking trade or creating barriers to trade, he says, and embracing comparative advantage from other countries represents ideal policy.

U.S.-based appliance manufacturer Whirlpool’s recent claims of that its rivals were engaging in “unfair trade” practices, Cohen adds, “is really baffling.”

“I don’t believe it’s pricing that’s really eaten into Whirlpool’s market share,” he said. “If you look at the products offered Samsung and LG, compared to Whirlpool, you’ll find many consumers have chosen them, not because the prices were lower, but because they have embraced leading-edge technology [such as] the Internet of Things.”

The tariff, he says, stands to raise prices for U.S. consumers and make it more difficult to purchase what they want.

Those comments followed Cohen’s recent warning earlier, via Sinclair Broadcast Group, that the U.S. trade policy is going backward under the Trump administration.

"In Asia, we walked away from [Trans Pacific Partnership],” he says, “and by pulling out of that, these Asian countries are now forging a partnership and a trade agreement without us. I think that's going to hurt… And we still don't know what the impact will be on NAFTA. That’s still up in the air.”

Related commentary from Gary Cohen: “Trade Fight on washing machines will do more harm than good,” via The Hill.




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