Trade Divide Grows Between Trump and Big Cities

Shifting patterns in how American companies sell to the world are opening a new line of conflict between the Trump administration and the nation’s largest metropolitan areas.

An important study released last week by the Brookings Institution’s Metropolitan Policy Program found that the nation’s 100 largest metropolitan areas are diverging from their small and midsized counterparts in what they export to other nations.

Those small-to-medium-sized localities still rely predominantly on exports of manufactured goods and commodities, such as fossil fuels or agricultural products. By contrast, the biggest metropolitan areas increasingly are exporting services—such as financial, management, and engineering expertise—and attracting foreign dollars for education and medical treatment.

Services now account for nearly half of all exports (47 percent) from the 100 largest metros, up from 40 percent just since 2008, Brookings found. Meanwhile, the 281 other metros still rely on goods for fully 80 percent of what they sell abroad.

This economic divergence separates the interests of the largest metros from the others in the ongoing policy debate over trade. President Trump reinforced his intention to turn away from free trade on Tuesday, when he openly declared that he will “end up probably terminating” the North American Free Trade Agreement.

Trump has repeatedly argued the United States must renounce free trade to protect the manufacturing industry. He justified junking the Trans-Pacific Partnership that President Obama had negotiated with 11 Asian nations by labeling it a “mortal threat to American manufacturing.” Trump has framed his opposition to NAFTA in similar terms. Though this tilt toward protectionism worries some manufacturing firms invested in international markets and global supply chains, it also finds substantial support among those primarily concerned about limiting foreign imports.

Service providers, on the other hand, more uniformly prioritize opening foreign markets. The Coalition of Service Industries, a trade association, strongly supported the TPP. Christine Bliss, the coalition’s president, told me service firms worry that with Trump rejecting TPP, Asian nations will negotiate their own free-trade deals that lock out American firms. And while service industries are encouraged that Trump is pressing China on stealing intellectual property, the association is warily watching his administration’s effort to renegotiate NAFTA. Even as Trump is threatening to withdraw, service industries “have seen tremendous benefits from the existing NAFTA agreement,” Bliss said.

These contrasting perspectives deepen the central geographic fault line in American politics. Trump won by amassing enormous margins in midsized and smaller metros, as well as rural areas, while facing overwhelming rejection in the largest urban centers nationwide. In office, Trump has hardened that division with an agenda that often directly opposes the interests of large cities on issues from immigration to policing to taxes.

Trade adds another wedge to that split. Many large metropolitan areas remain manufacturing powerhouses. But overall they are transitioning much more rapidly than smaller places are toward the postindustrial economy.

According to the MPP data, the 100 largest account for 69 percent of all exports but an overwhelming 84 percent of service exports. The smaller areas, by contrast, supply 40 percent of manufacturing and commodity exports, more than double their share in services.

The difference reflects the concentration of many of the most attractive services in bigger urban hubs: gold-plated higher-education institutions, medical facilities, and tourism, all of which count as exports when they attract foreign consumers; high-end legal, professional, and business services; and entertainment and technology products. “We are on a pretty significant industrial transition that, of course, has been happening for decades, but in our big cities it has been accelerating,” said Joseph Parilla, an MPP fellow who led the study.

Even midsized cities are effectively exporting some top-shelf services. Portland, Oregon brings together architectural, engineering, and legal firms to sell foreign cities integrated environmental-sustainability plans. Milwaukee has developed an expertise in water management that combines sophisticated guidance on redesigning roofs, roads, and wastewater systems with products like advanced water meters. (In November, a consortium of Milwaukee companies called The Water Council is presenting comprehensive water-management plans to local governments in Beijing and Nanjing.) “It is an asset for us to be able to say, ‘Here is … a one-stop shop that can provide every angle of what you are looking for,’” said Dean Amhaus, the council’s president and CEO.

Trump’s trade agenda slights these cities by working primarily to reduce the threat of imports to American manufacturing rather than trying to grow the service sector by opening foreign markets. “U.S. trade strategy cannot simply be a manufacturing strategy,” Parilla and his colleague Nick Marchio wrote in an online post releasing their study. “It’s no coincidence that the growing weight of services exports … is rarely, if ever, acknowledged in the Trump administration’s ‘Made in America’ stance.”

While the nation has faced a trade deficit in manufactured goods since 1976, services have generated a widening surplus in recent years. After rising during Obama’s early years, exports of manufacturing and other goods have slumped since 2014, especially from Midwestern manufacturing centers, the MPP report found. Service exports, while also slowing, have performed better: Just eight of 35 major industries have increased exports since then, and those are heavily tilted toward educational, medical, management, and legal services.

Parilla said he expects exports to revive for both goods and services, though he projected the latter will grow faster and increase their share of the overall export pie, particularly in the largest metro areas. Indeed, Parilla and Marchio project that in the top 100, services will surpass goods to provide a majority of total exports by 2020.

That transition will only widen the distance between Trump’s priorities and those of the nation’s biggest cities.