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The Grapevine: Tariffs, trade and angst

Published June 10, 2019

Tariffs, Trade and angst: Our much beloved industry finds itself in a pickle and we have company. The Trumpistas have declared tit-for-tat tariffs are good for America and from all indicators — at least at the moment — American consumers and our pusillanimous political class seem to care less. Outrage at Tariff Armageddon is muted. Midwest farmers are bearing the brunt, but they were temporarily bought off last year by a $12 billion taxpayer bailout and Congress is considering $15 billion more. This, by the way, is a gross example of social engineering whereby government causes a problem and then redistributes the nation’s wealth to correct it. The Republican Party has clearly lost its collective mind. Meanwhile, assorted small manufacturers of USA-Made stuff continue to work around Trump-imposed tariffs on aluminum and steel, squeezing margins where they can to maintain exports and U.S. sales. As for importers — think QBP, J&B, BTI and others. They are tracking deliveries from China, calculating and paying the tariff, and mulling whether to pass on the full hit to dealers who then must grapple with quizzical consumers asking, “How come so much?” Complicating all this is how long these tariff-driven prices could last if and when the Trumpistas conclude their current approach is a loser. Those higher priced goods must still wiggle their way from importers, to dealers and, lastly to consumers. Those higher costs live on, I’m sorry to report. They don’t disappear once a trade deal is reached. Talk about a headache. All this comes at a cost. Not to China per se, but to folks in the good old US of A. 

Tariffs, Trade and angst II: Our Commander and Dubious Businessman has, at best, a foggy view of economics in general (think tax cuts and deficits) and is blind to the intricate dance of foreign trade. Perhaps the hair spray he uses daily, and has for years, has clouded his vision or the fumes have congealed his brain. Who knows? It’s just a guess. So, here’s Trump’s recent unvarnished and unedited thoughts on trade:

TRUMP: Yeah, so you have no tariff to pay whatsoever if you're a business. All you have to do is build or make your product in the United States and there's no tariff whatsoever, so that really works out very well.

QUESTION: On the trade war, do you think we're winning the trade war?

TRUMP: I think we're winning it. We're going to be collecting over $100 billion in tariffs. Our people, if they want they can buy from someplace else other than China, or they can — really the ideal is make their product in the USA. That's what I really want. Yeah, we're winning it. You know what? You want to know something? Do you want to know something? We always win. What's up?

This borders on gibberish. As a red-blooded American I would like to see manufacturing return to the Homeland if it makes sense. It’s nuts to think otherwise. But the world is a complicated place and there are many things — from doo dads to iPhones and most bicycles, parts and accessories — unlikely to return to our shores. David Ricardo, born in 1772, a founding father along with Adam Smith of modern economic thought, discoursed at length on capital allocation and his theory of “comparative advantage.” To grossly simplify, nations should make what they make best to best benefit international trade. This, too, is lost on the Trumpistas. 

Tariffs, Trade and angst III: I suspect everyone’s forgotten already that in this tit-for-tat trade war, we face-slapped the European Union, Canada and Mexico as well as other allies. The Trumpistas ill-informed decision on March 23, 2018 to levy a 25 percent tariff on imported steel and a 15 percent hike on aluminum launched this mess. Adding insult to injury was Trump’s specious claim that he had to face-slap our best trading partners for national security reasons. No one believes that. The EU retaliated. It hit American-made motorcycles — mostly affecting Harley-Davidson — with a 25 percent tariff on top of the EU’s standard 6 percent duty. One result: HOG is expanding a plant in Thailand to dodge an average $2,200 hike-per-bike in EU tariffs. HOG also wants to sell more motorcycles in Asia, particularly in China. HOG management believes it’s better off slapping Made In Thailand stickers on its bikes rather than go broke in America. There are currently 180 items on the EU hit list tagged with the 25 percent tariff — stuff like orange and cranberry juice, corn, boats, makeup, clothing and whiskey. China, not to be outdone, lists 5,140 American-made products targeted for higher tariffs. Of that total 2,493 will pay a premium 25 percent tariff on top of regular duties, while the remainder gets tagged with a 15 to 20 percent hike. Think soybeans, pork, beef, seafood and whiskey. That will most likely grow. Canada and Mexico, not to be outdone, hit back at Trump’s bellicosity with its own tariff hikes. Canada tagged coffee and whiskey among other items, while Mexico went after such things as apples, potatoes and, you guessed it, whiskey. 

Tariffs, Trade and angst IV: It’s impossible to tell what our mercurial and policy challenged president will do with his next round of tweets guided by the invisible finger of his cloying acolytes. But no one who follows such things expects a farsighted and strategic trade policy emanating from the Trumpista cabal to make its way into public discourse. Of course, and I readily admit, I could be wrong. Still, I’m willing to cover any reasonable bet on the subject, holding to my position that farsighted thinking is not a Trump strong point. As for our always-challenged industry, no one has any idea how this will ultimately play out. Still, one thing is clear: supply chains are moving away from China to other Asian nations. That hurts China and raises costs. But those supply chains aren’t moving to the U.S. As I noted once before, Trump is Making Asia Great Again. I’ve acknowledged in the past that China has sinned grievously with its pernicious policies of dumping, trade secret theft, blackmailing U.S. companies, rampant censorship and its infamous Great Firewall among other things. Concerted action on the part of the world’s leading economies could have brought China to heel, as many diplomats and economists have argued. But we of the Trump Nation would rather go it alone, unilaterally igniting a global trade war with no end in sight. Of course, The Donald has reassured us saying, “Trade wars are good and easy to win.” Most people who took Econ 101 and who remember the advice of Smith and Ricardo know trade wars are not good and are not easy to win. In fact, no one wins a trade war. At best — once a détente is reached — each side goes off to lick its financial wounds in solitude as business and its customers tally the losses. 

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