Dean Barber

A Trade War Would Be A Bridge Too Far

In Corporate Site Selection and Economic Development on March 13, 2018 at 7:05 pm

We live in a world at risk. That should be obvious to anyone who pays even a modicum of attention to the news.

Last week, Vladimir Putin was boasting that Russia had developed a new batch of “invincible” nuclear weapons that could foil any defensive system employed by the United States, cold war rhetoric to be sure.

There are a slew of other big risks that could, by extension, threaten the world economy. They include territorial disputes in the South China Sea, major cyber-attacks, war on the Korean Peninsula, an escalation of proxy conflicts in the Middle East, a big drop in oil prices, and the withdrawal of countries from the Eurozone.

Another threat emerged last week, which I hate to say, could be precipitated by the U.S. — a full-blown trade war, the costs of which could be very, very bad.

Mind you, we’re not there yet. But we could be if things escalate, which is the nature of these conflicts.

A Simplistic View

It is obvious that President Donald Trump views trade in very simplistic terms as a win or lose proposition, disregarding the nuances that come with it. Most concerning was his statement on Twitter, one day after announcing tariffs of 25 percent on steel imports and 10 percent on aluminum imports, that “trade wars are good and easy to win.” History would show that is far from the case.

It should be noted that the tariffs in themselves are not signs of a trade war but could be a catalyst to spur one on if other countries choose to retaliate. Already, the tit-for-tat threats have emerged.

Electrolux, Europe’s largest home appliance maker, said on Friday it would delay a planned $250 million investment in Tennessee in reaction to Trump’s announced tariffs. The European Union is now considering duties on U.S. imports worth about $3.5 billion if the White House pursues its plans.

“We will put tariffs on Harley-Davidson, on bourbon and on blue jeans — Levi’s,” European Commission President Jean-Claude Juncker said, according to Reuters news service. “We would like a reasonable relationship with the United States, but we cannot simply put our head in the sand.”

Trump naturally could not let that go unanswered and lashed out on Twitter Saturday, saying the U.S. may levy a 25 percent tax on cars exported from Europe.

My point is that trade skirmishes can snowball into an all-out trade war. And contrary to what the president may believe, there are no winners in that scenario.

A Consistent Message

Trump’s abruptly announced statement that he would go through with tariffs caught Washington and Wall Street off guard, with markets reeling as a result. But it is consistent with what the man has been saying since the 1980s — that America is being “ripped off” by other countries, hurting U.S. jobs and factories.

In his bid for the presidency, Trump made the renegotiation of the North American Free Trade Agreement (NAFTA) a hallmark of his campaign, calling it “the single worst trade deal ever approved in this country.”

Signed into law by Democrat President Bill Clinton in 1993 with Republican support, NAFTA created a managed trade zone among Canada, Mexico, and the United States. In his third presidential debate with Democratic nominee Hillary Clinton, Trump said what he had been saying on the campaign trail:

“We’re going to renegotiate trade deals. We’re going to have free trade . . . But we have horrible deals. Our jobs are being taken out by the deal that her husband signed, NAFTA, one of the worst deals ever. Our jobs are being sucked out of our economy. You look at all of the places that I just left, you go to Pennsylvania, you go to Ohio

“. . . Our jobs have fled to Mexico and other places. We’re bringing our jobs back. I am going to renegotiate NAFTA. And if I can’t make a great deal—then we’re going to terminate NAFTA and we’re going to create new deals.”

Trump’s message resonated with American workers, which catapulted him, to the shock of many, into the White House. And now as president, he is acting on his perpetual belief to the consternation of most economists, who contend that such protectionist measures could damage economic growth worldwide.

Some NAFTA Progress

Believe it or not, some progress actually has been made in negotiations between the U.S., Canada and Mexico to rework NAFTA, a 24-year-old, $1.2 trillion treaty which Trump has threatened to walk away from unless major changes are made to benefit American interest.

In the latest (and seventh) round of negotiations which began last week in Mexico City, the three countries have agreed on regulatory best practices. With that done, on top of work on anti-corruption measures, rules for small- and medium-size businesses and for competition now done, it’s taken six months to complete four of the roughly 30 chapters likely to form the updated deal.

Rules of Origin Stumbling Block

And while nobody thinks these negotiations will end anytime soon (An eighth round of talks is being planned for Washington later this month), as long as the parties are at the table, well, progress is progress.

But there remain big hurdles ahead. Agreeing on new rules of origin for autos is just the latest. Under the current treaty, 62.5 percent of the net cost of a passenger car or light truck must originate in the NAFTA region to avoid tariffs.

Trump wants that threshold raised to 85 percent, and add a U.S.-specific requirement of 50 percent.

Again, reflecting his binary view on trade as win or lose, the president last week said the U.S. was probably losing $130 billion a year to Mexico. The U.S. 2017 trade deficit in goods with Mexico was $71.1 billion and $17.6 billion with Canada.

A False Assumption

Apparently, the president is under the belief that if trade deficits go down, economic output rises. Most economists say it doesn’t work that way. Having a trade deficit — which happens when a country imports more than it exports — reflects more about robust U.S. consumption than about unfair trade.

When calculating a country’s Gross Domestic Product, it is true that economists will count a trade deficit as a negative, but that is more a matter of accounting. Most economists believe a trade deficit does not cause GDP to be smaller.

Unintended Consequences

What they will also tell you that raising import taxes on goods (which is what tariffs are) can have all sorts of unintended consequences. Research by economists Nicholas Bloom, Mirko Draca, and John Van Reenen indicates that while exposure to Chinese competition did destroy U.S. jobs, it also forced U.S. companies to innovate faster and become more productive.

Erecting trade barriers and protecting domestic industry groups tends to inhibit innovation. In other words, the shielded companies get fat and lazy while consumers pay more for goods and services.

To be sure, corporate America was happy to see a reduction in the corporate tax rate from 35 percent to 21 percent. We have not seen a spate of new capital investment because of it yet, but it is still early. U.S. companies have also been quite happy with the Trump administration’s attitude toward reduced regulation.

But a trade war would be a bridge too far. Let’s hope we don’t go there.

Dean Barber is the principal of Barber Business Advisors, LLC, an economic development and corporate location consulting firm based in Dallas. Dean is available as a keynotes speaker and can be reached at Visit us at to learn more.



Let Us Keep the Essence of America

In Corporate Site Selection and Economic Development on February 26, 2018 at 4:04 pm

There is a robust African community in Dallas and my wife has been on a kick lately for Ethiopian restaurants, to which there are many. Being that we are married, well, I get to tag along.

The last restaurant we went to was not Ethiopian, but Eritrean, which was a part of Ethiopia but broke away in the early 1990s after a decades long civil war. After our meal, the owner approached us to ask if we liked our meal.

We assured him that we did, and then the topic of how and why he opened his business came up. It turns out that he and his wife came to the U.S. three years ago via the Diversity Immigrant Visa program, a government lottery program for receiving lawful permanent residency, informally known as a “green card.”

The Essence of America

He was a lawyer and a judge back in Eritrea. While I will not use the same terminology as our president in describing any country (President Lyndon B. Johnson referred to Vietnam as “that damn little pissant country.”), I can tell you that a casual reading about Eritrea indicates that it is a very repressive country, rivaling that of North Korea.

But what impressed me most about our host was his positive outlook about this country and becoming an American. To him, America was still very much the land of opportunity, of freedom, and where hard work would pay off for him and his family. He had every intention of living the American Dream.

Back in the car driving home, I told my wife, “My God, we need more people like this in our country, not less. This man represents the lifeblood of America, the essence of what this country is about. We cannot lose this or we will lose ourselves.”

Nativist Movements

If you look at our history, we have had our share of nativist movements. The subscribers of this organized xenophobia hold a shared belief that immigrants pose a threat.

During the late 1840s and the early 1850s, there was The Know-Nothing Party, also known as the American Party, empowered by fears that the country was being overwhelmed by Catholic immigrants who were hostile to American values and controlled by the Pope in Rome. The Irish in particular were singled out. (Watch the movie Gangs of New York.)

In 1875, Congress passed the Page Act, also known as the “Asian Exclusion Act,” and in 1882, it passed the Chinese Exclusion Act, which was renewed in 1892 and 1902. In 1890, Wisconsin passed an act known as the “Bennett Law,” which threatened to close hundreds of German-language elementary schools.

In the 1920s after World War I, the nativists focused their attention on Catholics, Jews, and south-eastern Europeans. A book by Madison Grant, The Passing of the Great Race, gained notoriety, in which Grant argued that the American racial stock was being diluted by an influx of immigrants from southern and eastern Europe.

In the 21st century, the Tea Party shifted its primary focus from deficit reduction to immigration, declaring President Obama’s decision to enact immigration reform through his executive powers as “amnesty for millions, tyranny for all.”

Which brings us to today’s political climate.

Stubborn Things

But before I go there, how about a few facts to chew on? President John Adams said, “Facts are stubborn things,” and, indeed, they are. But sometimes, they show us the way.

Analyzing data for 2017, the Center for American Entrepreneurship found that 43 percent of Fortune 500 companies were founded or co-founded by an immigrant or the child of an immigrant. CAE found that the occurrence of first- or second-generation immigrant founders is significantly higher among the largest Fortune 500 companies – accounting for 52 percent of the top 25 firms and 57 percent of the top 35 firms.

Immigrant-founded Fortune 500 firms are headquartered in 33 of the 50 states, employ 12.8 million people worldwide, and accounted for $5.3 trillion in global revenue in 2016.

These American powerhouse companies founded by immigrants or their children include Dow, AT&T, DuPont, Levi Strauss, Anheuser-Busch, Pfizer, Goldman Sachs, Sun Microsystems, Google, Yahoo, eBay, YouTube, PayPal, Tesla, Facebook, and LinkedIn.

What the heck, let’s name a few more – Home Depot, United Parcel Service, Northrup Grumman, General Dynamics, Procter & Gamble, Comcast, Kraft Heinz, Lockheed Martin, Merk, Costco, Apple, Walt Disney, and the current holiest of holies, Amazon.

Job Creators on Main Street and Wall Street

Immigrant entrepreneurs have also made their mark their mark on Main Street. Among small U.S. businesses, almost 20 percent were founded by immigrants.

At a time when the number of new firms as a percentage of all firms has fallen near a four-decade low, immigrants are twice as likely as native-born Americans to start a new business. Though just 14 percent of the population, they account for a quarter of all business owners.

According to an analysis by U.S. News and World Report, immigrant small businesses are responsible for 10 million jobs in this country. If you extrapolate that to large businesses, it means immigrants and the children of immigrants are responsible for 50 million jobs. That’s 40 percent of all jobs attributable to less than 14 percent of the population. That, my friends, is economic development.

Think about that Eritrean restaurant owner in Dallas for a moment. The idea of leaving one’s home country to go to a different country, with a different language and culture, that in itself is the epitome of risk taking. That takes, forgive me for using a rather course but accurate Mexican-American slang word, cojones.

Pushing Entrepreneurs Away

In his State of the Union speech, President Trump stressed the need for a “merit-based immigration system — one that admits people who are skilled, who want to work, who will contribute to our society, and who will love and respect our country.”

And yet, the Trump administration is considering rescinding the International Entrepreneur Rule (IER), which allows foreign entrepreneurs to build their businesses in the United States if they meet certain criteria and are vetted by the Department of Homeland Security.

In a letter to the president, the National Venture Capital Association, along with 31 other business groups, urged the president not to rescind the IER.

“Twenty years ago, our country’s share of global venture investment was 90 percent, but that number has dropped precipitously to 81 percent in 2006 and to 53 percent in 2017. In 2016, China was home to six of the 10 largest venture capital investments in the world. If we continue to push entrepreneurs overseas, our share of global investment will continue to decrease.”

In a recent analysis of a immigration reform plan offered by the White House, the Cato Institute concluded, “The plan would cut the number of legal immigrants by up to 44% or half a million immigrants annually—the largest policy-driven legal immigration cut since the 1920s. Compared to current law, it would exclude nearly 22 million people from the opportunity to immigrate legally to the United States over the next five decades.”

Note that we are talking about legal immigrants.

Final Thoughts

Nativism, the basis of which is prejudice against immigrants due to their color, ethnic and religious backgrounds or country of origin, does not make logical sense. It certainly makes no economic sense.

And it is also counter to who we are as a people. I actually believe in American exceptionalism. I believe in the everlasting dream, the promise of America. If you take that dream away, we are no longer what Ronald Reagan called “that shining city on a hill.” We’re just another country.

I’ll see you down the road.

Dean Barber is the principal of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. Dean is available as a keynotes speaker and can be reached at Visit us at to learn more.

That Was the Week That Was

In Corporate Site Selection and Economic Development on February 11, 2018 at 9:07 am

Wall Street had its freak-out and a new space race was born. What a week. With a little bit of luck, I can bring these interesting new developments “down home” and show how they may affect us all.

Let’s first look at the wild ride last week on Earth, on Wall Street to be precise, leaving many of us scratching our heads and wondering what was going on.

What we have learned is that good news on Main Street – that the U.S. economy added 200,000 jobs in January and that wages grew at the fastest pace in eight years — can be viewed bad news on Wall Street.

For investors, the long dormant fear of inflation was revived – that bigger paychecks might mean bigger price increases and eventually bigger rate hikes on the part of the Federal Reserve. That would be bad for business and the economy at large, which means most of us.

No doubt, investors had become a bit complacent with the stock market rising and never suffering a bad loss. The Dow and other major stock market indexes hit record highs on Jan. 26. The S&P 500 was up 7.5 percent in 2018, with the Dow industrials up 7.7 percent and the Nasdaq 8.7 percent. Amazon and Netflix had sprinted 20 percent and 43 percent.

But last week was crazy. The Dow average experienced two drops of more than 1,000 points and two gains of more than 300 points. The Dow and the S&P 500 both ended the week 5.2 percent lower, their worst performance since January 2016.

What are We Seeing?

Wall Street uses different words for a drop in the markets, all with different shades of meaning. Are we seeing a “dip,” a brief downturn from what has been a long-term uptrend? Or are we looking at a “crash,” a sudden and very sharp drop in stock prices, which while rare, do happen after a long-term uptrend.

Perhaps we are experiencing what most analysts are calling a “correction,” defined as a 10 percent drop in the market from recent highs. Then again, we might be in the early stages of a “bear market,” a long, sustained downturn in which losses will surpass 20 percent from the market’s most recent high.

I doubt that anybody truly knows right now. I cannot help but recall the words of John Kenneth Galbraith who said, “The only function of economic forecasting is to make astrology look respectable.”

A Lack of Serious Leadership

And while the fundamentals of the economy appear to be very good, I do worry that our nation’s debt, now at over $20 trillion and growing, is not being addressed in any serious manner by policymakers in Washington, D.C.

And therein may be another underlying cause for the jitters on Wall Street – nobody, it seems, is minding the store, the ship of state, in a competent manner. I quote from the New York Times from last week:

“Republicans propelled themselves to power in Washington by promising an end to fiscal recklessness. They are now embracing the kind of free spending and budget deficits they once claimed to loathe.

“Congress is debating a bipartisan spending deal that would blow through the caps imposed by the 2011 Budget Control Act, unlocking $300 billion in additional spending for the military and domestic programs over the next two years. That comes on top of last year’s $1.5 trillion tax cut package and as the White House prepares to unveil Monday a $1.5 trillion infrastructure plan that would require $200 billion in government funding.

“While the White House says it plans to offset that $200 billion through unspecified cuts, none of the other spending is paid for at a time when the nation’s debt already tops $20 trillion.”

Some day the chickens are going to come home roost, and I fear that it’s going to get very, very ugly.

Now let’s go onto something a little more uplifting.

A New Space Race

Somewhere floating out there in outer space is a red shiny 2008 Tesla roadster with a space-suited mannequin named “Starman” behind the wheel. Conceivably car and driver could be up there for a very long time. And the car will probably get a little dusty along the way.

“It’ll probably get hit with something the size of very fine sand every year or so, and get hit a few times an hour with 100-nanometer-size dust,” Andy Rivkin, a planetary astronomer at Johns Hopkins Applied Physics Laboratory, told The Atlantic magazine. “On average, we think it’d get hit by a fist-sized rock every several million years.”

Several million years. And to think, back here on Earth, Consumer Reports says the average life expectancy of a new vehicle these days is around eight years or 150,000 miles.

This Tesla’s life expectancy was extended by its billionaire owner, Elon Musk, the real-life Iron Man whose enthusiastic embrace of technology for technology’s sake and desire to push the limits of what is possible for private enterprise has ignited a new space race.

“We want a new space race,” Musk told a press conference in Cape Canaveral after the launch of his SpaceX’s Falcon Heavy rocket into deep space. “Races are exciting.”

Mind you, the original space race was between the old Soviet Union, which took an early lead with the launch of Sputnik 1, the first artificial Earth satellite, on October 4, 1957, and the United States, which came roaring back with NASA’s Mercury and then Apollo programs, which resulted in man setting foot on the moon.

Competition is the American Way

Last week’s launch of the Falcon Heavy, now the most powerful operational rocket in the world, underscores that we have entered a new era in which companies and not just governments are competing for a place in space.

And it comes at a time when the Trump administration is looking to restructure the role of NASA, ensuring that private enterprise and international partners work closely with the space agency. Musk is forcing the issue whether NASA likes it or not.

“He’s being Elon again. I’d call it competition, and competition is the American way of life,” said John Logsdon, professor emeritus at George Washington University and founder of the Space Policy Institute told the British newspaper The Guardian. “SpaceX has challenged the traditional launch industry in the United States and in Europe and in China and in Russia.”

Elon, Jeff and Richard

Now billionaires and their companies have ambitions well beyond government contracts but the commercialization of space itself. Virgin Galactic, the space company founded by Richard Branson, and Amazon founder Jeffrey P. Bezos’ Blue Origin are hoping to fly humans for the first time this year on suborbital jaunts that could reach the edge of space.

Blue Origin recently opened a facility at Kennedy Space Center in Florida to build the New Glenn reusable rocket system, named after John Glenn, the first American to orbit Earth, which will be even bigger than the SpaceX Falcon Heavy rockets. In a tweet posted Tuesday night, Bezos congratulated Musk on the launch with a “Woohoo!”

Branson, founder of airline Virgin Atlantic, established Virgin Galactic back in 2004 with the goal of provide suborbital spaceflights to tourists and suborbital launches for missions into space. There are also plans for orbital human flight.

“Elon is absolutely fixated on going to Mars and I think it’s his life mission,” Branson said on CNBC “Squawk Box” in October 2017. “Jeff and ourselves [at the Virgin Group] are more interested in how we can use space to benefit the Earth.”

So 49 years after the first man set foot on the moon, we have entered a new era, a new space race where the private sector may take the lead. While this may alarm some of the traditionalists at NASA, I believe this is a very good thing in the long run.

Along Florida’s Space Coast, most of which lies within Brevard County, there is a renewed excitement

“No question that other companies around the world, they are looking at establishing facilities in Florida so they can be near the center of space activity,” Space Florida President and CEO Frank DiBello told the Orlando Sentinel. “We want to drive all of those to create tourism and job opportunities for next-generation engineers and the space workforce.”

Musk was right. Space races are exciting.

I’ll see you down the road.

Dean Barber is the principal of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. Dean is available as a keynotes speaker and can be reached at Visit us at to learn more.