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U.S. News: Washington among states at most risk from China tariffs

We’re accustomed to hearing about our state’s status as having the nation’s most trade-driven economy. So, it was a surprise to read the U.S. News headline: Southern States Among Hardest Hit by China Tariffs. But the surprise gave way to the usual confirmation that, yes, Washington is among the states at most risk from a trade war with China.

The report by Andrew Soergel measures the effects of the China tariffs on several dimensions, recognizing that they are applied to specific goods and that the share those goods represent of overall trade vary among the states.

For many states, agriculture and automotive vehicle exports are among the most commonly shipped products to China, but the Asian economy’s tariffs are poised to hit a wide array of industries. In Washington, for example, tariffs threaten an aluminum waste and scrap industry that saw nearly $50 million in product exported to China last year. In New Jersey, the duties stand in the way of certain types of U.S. paper supply companies that shipped more than $30 million in product to China in 2017.

But Alabama stands as the state with the greatest potential for business disruption as a result of Chinese tariffs targeting 333 individual U.S. export products valued at roughly $16 billion. Of the nearly $3.6 billion in commodities Alabama shipped to China last year, tariffs threaten to raise prices on more than $2.3 billion worth of exports.

According to the report, Washington has the fifth highest value of exports to China threatened by tariffs and ranks second for total trade with China. Here’s the snapshot.

Acknowledging the risk, it’s good to see signs of progress as reported by the Wall Street Journal last Friday. 

Chinese and U.S. negotiators are mapping out talks to try to end their trade standoff ahead of planned meetings between President Trump and Chinese leader Xi Jinping at multilateral summits in November, said officials in both nations…

The talks represent a clear move by Beijing to get relations with Washington back on track that were cordial early in the Trump presidency and involved coordination to rein in North Korea. Those relations have soured, especially after Mr. Trump’s initial tariffs on Chinese imports, which he said were designed to punish Beijing for alleged intellectual-property violations and technology theft. The resulting tit-for-tat of trade threats and retaliation has hit China’s currency and stock markets.

The trade conflict was the focus of discussion at the recent Association of Washington Business (AWB) 2018 Federal Summit. According to The Lens,

The event focused on Washington’s business community and its stake in international trade, taxes and other federal affairs. Featured speakers discussed the trade relationships between Canada, Mexico and the U.S., the status of tariffs and their effects on the Washington economy, as well as where Washington should focus its efforts to best benefit business owners both large and small.

Read the whole article to get a good sense of the concern. This speaker sums it up nicely.

Kristin Kershaw is the Director of Corporate Affairs for Domex Superfresh Growers and Kershaw Companies, a Yakima-based agrobusiness that is one of the largest suppliers of apples, pears and cherries all over the world…

“Asia is poised for some phenomenal consumption-driven growth, and we want to be there.

“When we start talking about trade …and barriers to trade and tariffs, what we are really saying is if we can’t resolve it…we really don’t want to participate – that we are going to sit out the largest explosion of middle-class growth and potential consumers the world has ever known.”

A swift resolution to the dispute will benefit all concerned.

 

 

 

How far does $100 go in Washington state? Not as far as it does in 41 other states.

Few surprises in this Tax Foundation comparison of the purchasing power of $100 in the 50 states and DC. But we find it interesting, nonetheless. As the map below shows, $100 here is worth about $95, ranking us #42. In No.1 ranked Mississippi, $100 buys about $116 worth of stuff.

That there are cost of living differences among the states is old news. Similar differences, of course, also exist within states. Your house hunting budget goes further in Eastern Washington, for example, than in King County. Regional and interstate variances matter, though, and people with options will consider them. 

The Tax Foundation explains,

Prices for the same goods are often much cheaper in states like Missouri or Ohio than they are in states like New York or California. As a result, the same amount of cash can buy you comparatively more in a low-price state than in a high-price state.

The U.S. Bureau of Economic Analysis has been measuring this phenomenon for three years now; it recently published its data for prices in 2016. Using this data, we have adjusted the value of $100 to show how much it buys you in each state.

Further,

Regional price differences are strikingly large; real purchasing power is 34 percent greater in Mississippi than it is in New York. In other words, by this measure, if you have $50,000 in after-tax income in Mississippi, you would need after-tax earnings of $67,000 in New York just to afford the same overall standard of living.

But the the cost-of-living also affects compensation. 

It’s generally the case that states with higher nominal incomes also have higher price levels. This is because in places with higher incomes, the prices of finite resources like land get bid up. (This is especially true in cities.) What is also true is that places with high costs of living pay higher salaries for the same jobs. This is what labor economists call a compensating differential; the higher pay is offered in order to make up for the low purchasing power.

It’s important from a public policy perspective, as well.

This has substantial implications for public policy, which is often progressive with respect to income. Many policies–like minimum wage, public benefits, and tax brackets–are denominated in dollars. But with different price levels in each state, the amounts aren’t equivalent in purchasing power.

Route Fifty also reports on the TF comparisons.

Can Washington sustain its long run as a top economic performer? Let us know what you think.

Today’s Friday Roundup takes a look at several views of the continued strength of the national and state economies. You doubtless have other sources and perspectives on the question. Please don’t leave this post without sharing your views by answering three brief questions.

This roundup was prompted by news that the state unemployment rate had reached an 11-year low and tax collections were coming in 2.2% above the June forecast.

At the same time, some analysts are predicting an economic slowdown. Mixed signals and alternative scenarios are nothing new in economics, as Harry Truman famously groused. (“Give me a one-handed economist,” he said. “All my economists say, ‘on the one hand…on the other.’”)

And while forecasting is difficult, policies and plan are based on expectations of what’s likely to occur in the future. Here’s a bit of what we’ve been reading, including some of our recent blog posts.

From the blog:

Latest monthly collections report shows revenues coming in above forecast (again); also, jobless rate reaches an 11 year low.

As the national economy continues robust growth, Pacific Northwest looks good: Perspective from Oregon Office of Economic Analysis

Some (mostly) upbeat reports:

Geek Wire: Washington state’s economy ranked highest in the nation despite relatively low investment per capita

Washington state’s technology industry isn’t always considered in the same league as California’s. But a 2017 study getting renewed attention this week suggests that Washington is actually punching well above its weight.

Credit reporting site WalletHub compared all 50 states and the District of Columbia across 27 metrics for economic health and opportunity in the report…Washington ranked No. 1, driven by factors like strong gross domestic product growth, exports per capita, and percentage of high-tech jobs.

The Conference Board: The Conference Board Economic Forecast for the U.S. Economy

The second quarter of 2018 showed the US economy in full flight, illustrated by 4.1 percent GDP growth, which compensated for a modestly disappointing first quarter to bring first half growth to 3.1 percent. With tax cuts continuing to support growth and budget increases kicking in, federal spending along with high business and consumer confidence should drive growth to a 3.3 percent average during the second half of the year. This will likely represent a peak. Less support from monetary and fiscal policy, and a weaker global economy will gradually slow the economy to below 2.5 percent growth by the end of 2019.

CNBC: Fed raises 2018 outlook for U.S. economy

The Federal Reserve raised its outlook on U.S. economic growth on Wednesday [June 13].

The median real GDP forecast rose to 2.8 percent, up from 2.7 percent, for this year. There were no changes for 2019 and 2020, and the longer run median forecast remained 1.8 percent.

Economic activity has been rising at a “solid” rate, the Fed’s statement said, marking an upgrade from “moderate” in the previous statement.

Deloitte Insights: United States Economic Forecast, Q2 2018

Our scenarios are designed to demonstrate the different paths down which the administration’s policies and congressional action might take the American economy. Foreign risks have not dissipated, and we’ve incorporated them into the scenarios. But for now, we view the greatest uncertainty in the US economy to be that generated within the nation’s borders.

The baseline (55 percent probability): Consumer spending continues to grow. A pickup in foreign growth helps to tamp down the dollar and increase demand for US exports, adding to demand. Fiscal stimulus from the tax cut bill and the budget agreement pushes growth up to close to 3.0 percent in 2018 and above 2.5 percent in 2019.

And some less upbeat assessments:

Market Watch: There are signs the U.S. economy is approaching its speed limit

Few are arguing that the economy is about to enter a tailspin, but there’s some evidence to suggest the rate of growth may be approaching its limit, if it’s not already there.

Thursday’s set of data on jobless claims, housing starts and the Philadelphia manufacturing index certainly raise the question of whether the U.S. economy is running as strong as it will.

The numbers are by no means bad. But particularly in housing, it looks like there are headwinds to further growth.

Seattle Times (Talton column): We’re seeing the biggest threats to the economic expansion in years

Market turmoil spreading from Turkey, a low-grade corporate bond bubble, slowing housing market, inexperienced Fed… Throw in a trade war, and we have the biggest threat to the expansion in years.

The worst may not happen. Gross domestic product is forecast to grow a healthy 3.1 percent this year, according to the Congressional Budget Office. But that outlook was recently cut from 3.3 percent in April. And even with this optimistic look, growth would tail off in 2019.

There’s clearly some uncertainty overlaying the extended state and national economic growth. Consumers feel good now, but are concerned about the future. Trade, labor supply, and residential construction worries – along with the coming midterm elections – complicate planning and policymaking.

So, what do you think our economic future looks like? 

Latest monthly collections report shows revenues coming in above forecast (again); also, jobless rate reaches an 11 year low.

The latest economic and revenue update from the state forecast council again finds tax collections coming in above the official June forecast.

Major General Fund-State (GF-S) revenue collections for the July 11 – August 10, 2018 collection period came in $33.6 million (2.0%) above the June forecast. Cumulatively, collections are now $75.0 million (2.2%) higher than forecasted.

These monthly reports contain useful, accessible discussions of the national and state economy. Right now, things look pretty good. 

The national economy continues to expand with strong second quarter GDP growth, an increase in employment, lower initial unemployment insurance claims and continued expansion in manufacturing activity. However, residential construction activity slowed and auto sales weakened.

That ‘however’ means we can’t take continued strength for granted. Another caution comes in the report’s discussion of national consumer confidence.

Consumer confidence was essentially unchanged this month but remains at a high level. Consumers responding to the University of Michigan consumer sentiment survey reported a mix of both positive and negative expectations, resulting in a slight 0.3 point decline to 97.9 in the sentiment index in July. However, 35% of respondents expressed concerns that tariffs would have a negative impact on the economy. The Conference Board index of consumer confidence increased marginally in July, rising 0.3 points to 127.4. Consumers were slightly more confident about current conditions but slightly less optimistic regarding future economic conditions.

Our state continues to do well.

Total nonfarm payroll employment rose 18,100 (seasonally adjusted) in June and July, which was 6,300 more than the 11,800 expected in the June forecast. Thevariance in employment growth was mostly due to the private services-providing sectors, which added 15,300 jobs compared to 9,400 in the June forecast. Manufacturing employment increased 1,700 in June and July boosted by an increase of 1,300 aerospace employees. Construction employment decreased by 500 jobs while government payrolls expanded by 1,600 jobs.

But also shows declines in residential construction.

Washington housing construction declined in the second quarter of 2018 and fell short of the June forecast. The number of housing units authorized by building permits decreased to 43,200 units (SAAR) in the second quarter of 2018 from 49,200 units in the first quarter. 

More good news in the state employment report. The Seattle Times reports,

Washington’s jobless rate in July was 4.6 percent – its lowest point since June 2007 – as strong employer demand continued to outpace growth in the working population.

An estimated 12,400 new jobs were added in July, with professional and business services, retail, manufacturing, wholesale and information leading the way, according to the Washington Employment Security Department.

The map of county unemployment rates continues to show urban-rural disparities, but the improvement is widespread.

Seattle Times business columnist Jon Talton offers a bleaker look at possible threats on the economic horizon. For now, we remain concerned about trade and tariffs, but cautiously optimistic overall.

Does a high minimum wage dampen job and earning opportunities for low-skill workers? Evidence suggests it does.

The $15 minimum wage experiment continues to provide evidence that the higher wage depresses job opportunities and earnings for lower-skilled workers. That finding, reported in June 2017 by a University of Washington research team studying the phased-in Seattle minimum wage hike, seems backed up by a couple of news items in recent days.

The Puget Sound Business Journal reports,

The Shake Shack restaurant opening in the heart of Amazon’s headquarters campus will have an automated ordering system to keep labor costs down.

High labor costs matter.

The Shake Shack planned for 2115 Westlake Ave. in Amazon’s South Lake Union headquarters campus will have one cash register and seven self-serve kiosks that let customers enter their own orders, the restaurant chain confirmed Tuesday.

The kiosks cut expenses in markets with high labor costs, such as Seattle and the Bay Area, Shake Shack Inc. CEO Randy Garutti said last week

Similar news about McDonalds, reported in the Seattle Times.
More than 170 McDonald’s restaurants in Washington are getting a new look as part of a $6 billion chain-wide upgrade that will include automated ordering systems and parking spaces for pickup of food ordered and paid for via mobile devices.
Arguably, the increased minimum wage just gave topspin to tech innovations already underway. But it’s hard to contend it had no downside effect on wages and employment.
 
Meanwhile, in D.C. – not known as a conservative hotbed – the City Council is moving ahead on plans to overturn a minimum wage initiative adopted by voters in June, according to the Washington Post.

In June, D.C. voters made a surprising but decisive choice. By a 12-point margin, the District approved raising the minimum wage to $15 an hour for restaurant workers and others who earn tips.

Less than 24 hours later, at least one council member was already trying to overturn the decision made by voters. “It’s not really the will of the people; it happens to be the will of the 17 percent of people who showed up and voted,” said Councilman Jack Evans.

Now seven of the council’s 13 members have sided with lobbyists for the restaurant industry and endorsed a plan to disregard Initiative 77. Even the mayor, who also opposed the measure, has said she would “really sit down and evaluate its impact.” They worry that eateries will go out of business because of higher labor costs and rising prices if the measure goes into effect. 

For a scholarly look at how minimum wage increases have been adopted across the country, we recommend this AEI report. Here’s the abstract.

This paper presents a dataset that tracks effective minimum wage rates across the U.S. states, including the District of Columbia, from January 1, 2011 to January 1, 2018. We link minimum wage changes to their underlying legislation or ballot initiative and document key dates in their legislative histories. The key dates we track include the dates on which each measure was approved by the legislature, signed by the state governor, or passed via ballot initiative. We then calculate lags between the date on which each minimum wage increase was approved and the date on which it came into effect. Comparing minimum wage increases implemented via ballot initiative to those passed by state legislatures, we find that minimum wage increases enacted through legislation tend to have longer lags to the first increase, longer lags to the last scheduled increase, smaller initial increases, and larger total increases than minimum wage increases approved by ballot initiative.

The decisions – and how they are made – matter. 

Fiscal impact analyses of ballot initiatives now available

The Office of Financial Management has published fiscal impact statements for the five ballot initiatives to be voted on in November.

Fiscal impact statements 

  • Initiative 940 – AN ACT Relating to law enforcement. 
  • Initiative 940B – AN ACT Relating to law enforcement. 
  • Initiative 1631 – AN ACT Relating to reducing pollution by investing in clean air, clean energy, clean water, healthy forests, and healthy communities by imposing a fee on large emitters based on their pollution.
  • Initiative 1634 – AN ACT Relating to the taxation of groceries.  
  • Initiative 1639 – AN ACT Relating to increasing public safety by implementing firearm safety measures, including requiring enhanced background checks, waiting periods, and increased age requirements for semiautomatic assault rifles and secure gun storage for all firearms; prescribing penalties; and providing effective dates.

Two of the measures directly affect tax policy: Initiative 1631 the carbon fee (tax) and Initiative 1634, the food and soda tax. Here’s what OFM says about each of them (just giving you the summary statement here; the statements are more detailed).

Initiative 1631 imposes a pollution fee on large emitters of greenhouse gases. The fee will raise $2,228,373,000 during the first five fiscal years. The additional Utilities and Transportation Commission regulatory fee will raise $9,685,072 during the first five fiscal years. A public oversight board is established to supervise revenue expenditures to reduce carbon pollution, promote clean energy and address climate impacts to the environment and communities. Twelve state agencies and two higher education institutions are estimated to expend $27,178,592. The remaining expenditures cannot be estimated until the public board approves investment plans. Local government expenditures are estimated to be $158,623,072.

And,

Initiative 1634 prohibits new or increased local taxes, fees or assessments on raw or processed foods, beverages or their ingredients, intended for human consumption except alcoholic beverages, marijuana products and tobacco, unless they are generally applicable and meet specified requirements. The initiative allows local government to continue to collect revenue if the ordinance was in effect by Jan.15, 2018. The revenue and expenditure impacts cannot be determined because the potential lost revenue is based on volume of product sold within the jurisdiction.

In The Lens TJ Martinell reports on AWB’s position on I-1631.

As the November election approaches, the state’s business association composed of 7,000 members representing 700,000 employees has come out against a proposed carbon tax via Initiative 1631, arguing that the move would indirectly raise energy costs on ratepayers and hamper ongoing private sector efforts to reduce carbon emissions.

In a July statement, Association of Washington Business President Kris Johnson highlighted Washington’s position as one of the lowest carbon emitting states in the country. Washington’s emissions make up 1.4 percent of total U.S. carbon emissions and .021 percent of total global emissions.

“This initiative will do little to reduce global carbon emissions while placing Washington employers, especially small businesses, at a competitive disadvantage with other states and regions that won’t have to pay the higher energy costs,” Johnson wrote.

Much more on all this in the coming weeks, no doubt.

Ramsey op-ed: “Seattle is today the principal city in the state partly because 120 years ago it continued to support its business class, socially and politically.”

The headline on this post is a key sentence from an excellent Seattle Times op-ed by former business columnist and Seattle Times editorial writer Bruce Ramsey. (Yes, it’s a very long – too long – headline, but we wanted to be sure those who just skim these things on the blog readers, we wanted to be sure the message was delivered.)

Ramsey writes,

The Panic of 1893 slammed into the four-year-old state of Washington like a typhoon, sweeping away puffball investments in streetcar lines, hotels and entire new towns..

It was a calamity for the whole state. In pursuit of that story, for three years I dug through old newspapers, archives and court documents from 1893-1897, researching my book, “The Panic of 1893: The Untold Story of Washington State’s First Depression.”

How the region’s two largest cities — really towns then — responded set the fate for each and poses a lesson for modern-day leaders.

He draws a stark contrast between Tacoma and Seattle, one that offers lessons to today’s political, civic and business leaders. At the time of the panic, Tacoma was nearly as large and prosperous as Seattle and enjoyed some key advantages. But,

From my research, I came to the belief that its Populism was much of the reason why Tacoma fell behind Seattle in the 1890s. Populism was an angry, cynical creed — suspicious of bondholders, bankers, business leaders and successful people generally. It was particularly hostile to the immigrant Chinese.

We encourage you to read the short op-ed; it inspired us to buy the book. But, again, this significant takeaway.

The books say Seattle surged ahead of Tacoma because Seattle took advantage of the Gold Rush to the Yukon — which it did. But why did Seattle make the most of the opportunity when Tacoma did not? The atmosphere in Seattle was different. The psychology was different. Seattle was more socially united and focused on the possible. Tacoma was focused on blame. The editor of the Tacoma Ledger newspaper complained again and again of the “croakers” and “calamity howlers” on Pacific Avenue spreading gloom and bitterness toward Tacoma’s bankers and its business class…

He acknowledges that Tacoma has long since shed that legacy. Yet, he writes, the lost ground was not fully regained. Consequently,

Seattle is today the principal city in the state partly because 120 years ago it continued to support its business class, socially and politically. If it strays far enough from that, it risks being sidelined, becalmed, left behind.

History shows that the impulse to bring down the successful may bring down a successful town. In resisting that impulse, the people of Seattle have helped to sustain their city.

The clear question: Will they still?

Santayana famously wrote, “Those who cannot remember the past are condemned to repeat it.” Ramsey’s history lesson is a good reminder for us. 

Report: Washington college students increasingly majoring in STEM disciplines.

Seattle Times staff reporter Katherine Long reports on a sharp increase in STEM majors among Washington college students.

For years now, experts have hammered this message home to students:If you want your pricey college degree to pay off, you should major in a STEM field — science, technology, engineering or math.

A fresh release of higher-education data for Washington state shows just how well students have listened.

The information from Washington’s Education Research & Data Center released this monthshows that the number of students majoring in STEM disciplines has been growing at a ferocious pace since the end of the recession. (The trend is true nationally, too.)

The Seattle area ranks near the top for STEM employment among major metro areas, so pursuing the degree that maximizes employment opportunities just makes sense. As we’ve written previously, there’s clear evidence that the tech sector – STEM jobs – led the economic recovery since end of the great recession. Yet it took some time to see an enrollment boom.

Last year, we reported that increasing STEM enrollments was a high priority on the national legislative agenda.

We’ve written much about the importance of STEM education (science, technology, engineering and math), particularly as a pathway to enhanced career opportunities. A skilled STEM workforce is also critical for expanding economic opportunity. Washington has routinely ranked high among the states for its innovation economy. Nationally, legislatures are making STEM education a priority, according to the National Conference of State Legislatures.

The United States Department of Education’s STEM 2026 report, estimates that major American companies will need to add nearly 1.6 million STEM-skilled employees over the next five years.

Growing state economies is always a big focus for legislators and many are looking towards improving the STEM workforce as a way to address job growth in their states.

The competition to provide the best possible education for students across the county is a good thing, a competition in which the winners will be the students themselves.

The Seattle Times report marks significant progress. Long writes,

In 2016-17 — the latest year for which data are available — the number of students majoring incomputer science more than tripled. Related fields also saw boom times — the new discipline of informatics went from four graduates in 2012-13 to 190 graduates in 2016-17. (The University of Washington, which offers an informaticsprogram, defines it as “the study, design, and development of information technology for the good of people, organizations, and society.”)

Statewide, 370 students majored in biochemistry, a 75 percent increase from 2007-08. Chemical engineering was up by 77 percent, electrical engineering up 101 percent and mechanical engineering — one of the most popular of the engineering disciplines, with 502 graduates in 2016-17 — was up 132 percent.

Good news.