For Many People, the Tariff Debate Is a Distraction with Potentially Dire Consequences

If you’re confused about President Trump’s trade policies, I suggest you revisit the transcript of a March 2011 interview, where Mr. Trump put forth his views clearly and succintly. Here’s an excerpt:

Now, most economists don’t like this reasoning, not one bit. They think it’s ludicrous for people to pay more for products and services than they’d have to pay if the market was allowed to find an equilibrium unencumbered by tariffs and other trade barriers. In other words, why pay $2,000 for a sofa made in North Carolina when you can purchase an equivalent one made in China for half that price?

Understandably, though, people who’ve lost they jobs to foreign producers see it differently. Being unemployed, or severely underemployed, tends to frame most issues in a deeply personal way. Their concern is jobs, plain and simple. They don’t much care whether shoppers at Walmart will have to pay more.

This is a gross oversimplification of the issues, of course. Economists could and have written entire books on the subject. But people tend to see issues in pretty simplistic and stark terms. Nuances and complexity don’t count for much when your job is at stake, whether you’re a domestic worker or a foreign one who’s making products for the U.S. market.

The one thing most people can agree on is the need for fair trade. And, admittedly, many of the trade rules aren’t fair by any reasonable standards. It’s not that some people and companies, including Americans (including most consumers who have good jobs), haven’t benefited from the rules as they are. They have. But that’s merely an acknowledgement that, no matter what the rules are, there are always winners and losers.

From my perspective as someone who may be retiring soon, the tariffs aren’t a welcome thing. My income will be relatively fixed (depending on my investment returns) while the costs of goods will increase due to these new taxes and the inevitable upward pressure on prices, and downward pressure on quality, caused by less competition and imbedded structural inefficiencies.

But, of course, the tariffs may be welcome to some people, namely, those who may secure jobs that are supplanting imports. However, the number may not be significant, and they may be dwarfed by the number of people who lose jobs due to retaliatory tariffs imposed by other countries. Even without the offset of lost jobs, the number added may not be as significant as some people believe.

The reason is simple: technology. Robots and computer-assisted machines and processes already have displaced many workers, including many of the workers who mistakenly think they’ve lost their jobs to foreign workers. And this phenomenon is just getting started. It’s likely to spread farther through the ranks of both blue and white-collar workers no matter what happens with tariffs.

Which brings me to my main point: young people shouldn’t be distracted by the tariff debate. Rather, they should focus on that which they can control and influence, namely, their own learning, knowledge, and skills in the context of a world in which more and more human activity will be taken over by computers and computer-assisted machinery, no matter what tariffs are in place.

This transformation has huge implications for people. No one can be sure how it will all play out; however, it’s likely it will result in a further stratification of workers and even less equal distribution of income and wealth.

When I was teaching, I tried to challenge my students to address this question when choosing a major and potential career path: What will you be able to do that computers won’t be able to do better? Not only today, but in the decade ahead.

American workers’ stiffest competition in the years ahead won’t come from China: it will come from digital technology. Mr. Trump’s mindset is stuck in the 1950s. When you’re a 71-year-old billionaire, there is little risk in that. If you’re in your 20s and aren’t a billionaire, there is a whole lot of risk.

The aging Baby Boomers who are hostage to mindsets formed in the 20th century will be consumed by debating the president’s policies. The smart young people of the 21st-century will focus on the things they can control. And will be preparing for a future than will look very different from the past.

A War That No One Will Win

The war is on. History tells us no one wins such wars. But the U.S. is throwing caution to the wind and proceeding nonetheless. Its president says he’ll win this war. But he’s a fool. No one of any substance believes him.

The war is picking up steam quickly. It started about a month ago with the U.S.’s announcement of new tariffs on steel and aluminum imports. China shot back with a list of 128 U.S.-produced products that would be subject to new tariffs.

The next battle in this war started last night, when the White House unveiled new tariffs on 1,300 additional Chinese products. It’s a long list. I found myself in bed scouring the list to see if a products that compete with any of my clients were included.

The Chinese struck back quickly. It took them only a matter of hours (by the time I got up this morning) to impose new tariffs on 106 categories of goods presently imported into China from the U.S.

The war is now on. In full force.

If you want to see a list of potential losers in this war, all you have to do is scan through the list of products that will be subject to these new stiff taxes and then start working your way backwards to determine who their producers and their suppliers are. Or wait for the inevitable news reports of layoffs and other financial hits that will be taken by affected industries and producers as well as their employees.

Prices may be affected, too. In certain cases, prices could rise due to lessened competition; in other cases, prices could fall, at least in the short term, due to oversupply. It’s too complicated to model in one’s head. We’ll have to await the economists’ modeling or be patient enough to observe price changes for ourself.

There may be other winners, including some domestic producers and other importers who now will have less competition from China. We’ll have to wait and see how this plays out.

Some people who have assessed the list of new tariffs imposed by the Chinese say it appears the Chinese have intentionally targeted states that supported Mr. Trump in the election. I hope so. It would only be fair to the states that didn’t support him. Targeted fallout is always preferable to generalized impact which, by its nature, ends up with innocents taking collateral damage. It’s only fair that those who voted for Mr. Trump bear the brunt of his reckless actions.

Based on everything the president and his minions have said to date, it appears unlikely this is the final battle in this new trade war. It’s likely our neighbors in North America will get pulled into this war as well as our Allies in Europe, especially Germany for whom the president seems to harbor ill-will.

Stay tuned. And hope you don’t get caught in any cross-fire.

Did Trump Just Help or Hurt the U.S.? Look to Indiana for the Answer

My (new) home state of Indiana is the top steel producing state in the country. It’s also the most manufacturing intensive state. We manufacture a lot of automobile and truck parts here, parts that rely on cheap steel and aluminum. So when assessing whether the new tariffs imposed by President Trump will be good or bad for the country, Indiana’s may be the bellwether state. We may see the impact first — for better or for worse.

Meanwhile, I’m still grinning from ear to ear at the ways the Republican Party has been transformed under Mr. Trump. Who would have thought that the Republicans would become the party of protectionism? Not me. Or anyone else if they’re being honest with themselves.

I’m also taking delight in Mr. Trump’s recent desire to take guns from people without due process of law. All I heard during his predecessor’s administration was the ludicrous fear mongering from the right claiming that Obama was “coming for their guns.” And now it turns out it’s the Republican president who wants to come for their guns. I have to admit taking some perverse delight in the way the worm has turned.

But back to trade. This could well be a train wreck in the making. Or not. Only time will tell. But it’s hard to imagine a good outcome should other countries retaliate, which one would assume is likely.

Of course, protectionist trade barriers are nothing new. Every state in the Union already has them. They’re called licensing requirements, etc. They inhibit commerce across state lines, ostensibly to protect consumers. But that’s often a ruse. Usually, it’s to protect incumbents from competition, thereby propping up the income and wealth of the incumbents (to the detriment of others, of course).

Countries have protective barriers, too. Including the U.S. Just ask any farmer in Brazil or sugar cane grower in any other country. Or foreign producers of any of the myriad of other products that already carry stiff tariffs.

So, despite the impression the press may be giving people, the world isn’t new to tariffs and protectionist policies. That doesn’t mean they’re good. They’re usually not. And it doesn’t mean we should add more. But it does mean it’s not the black and white issue that many are projecting it to be.

Higher Prices Thanks to Trump

I thought I’d try to track, by category, some of the things that are going to cost you more due to actions taken by President Trump (punitive taxes on certain imports) and the retaliatory measures that are likely to be imposed by other governments. Here’s the starter list, which does not include any retaliatory tariffs*:

  • homes (lumber prices have already risen precipitously)
  • home renovation
  • any product or service purchased from a business that owns or rents a new building or office (due to higher construction and, therefore, higher capital and leasing costs)
  • autos and machinery
  • produce and other crops grown in the U.S. (due to higher machinery and fuel costs)
  • any beverage or food that comes in a can
  • washing machines, refrigerators, and other appliances
  • solar products
  • air fares (airplanes will cost more, unless airlines shift their purchases to the European producer and away from Boeing)
  • gasoline and natural gas (higher drilling and transportation costs)
  • baseball bats
  • tools
  • any other steel or aluminum-containing product
  • any other product that is transported by rail or truck (higher rail and rail car costs as well as higher truck and trailer manufacturing costs)
  • state and local taxes, which will have to be increased to pay for the higher cost of building and repairing roads and bridges (unless infrastructure is allowed to degrade further, which is a possibility)

What isn’t included in the above list are the following:

  1. If the tariffs result in a weaker dollar (as they did when George W. Bush imposed tariffs on steel), the cost of all imports will rise. Because a lot of the stuff Americans buy is imported (e.g., just about everything at Walmart), the cost of living would increase.
  2. Jobs will be gained and jobs will be lost due to these higher taxes. I have no idea what the net impact will be. Most economists say it will be negative; however, I don’t have confidence in macroeconomists and their models so I’m not about to endorse any of their opinions. We’ll know more in the months and years ahead.
  3. Trade wars can trigger recessions. If that happens, the cost to Americans will be huge (lost jobs, skyrocketing deficits, higher interest expense, etc.).
  4. Higher defense costs and the cost of wars are not included. Trade wars don’t always lead to shooting wars, but they frequently do. We’d be foolish to think it can’t happen this time; in fact, it’s prudent to assume it will. (For this and other reasons, I do think the U.S. is on a path to war.) Even if there is no war, Americans will pay more due to significantly higher costs for military equipment as well as higher logistics costs.

It’s also impossible to calculate how many of these higher costs will be absorbed by businesses versus passing them on to their customers. Certainly, due to the recent tax cuts, many corporations have room to absorb higher costs if they so choose. But that doesn’t mean it will happen, particularly since the capital markets will be expecting those costs to be recouped through higher prices. Ultimately, competitive forces will determine how much of the increased costs are absorbed and how much is passed on. The concentrated market power that exists in some sectors bodes well for companies that plan on passing the costs through to their customers.

In the final analysis, whether the higher taxes and higher cost of living are worth it is for each voter to decide for him or herself. At this point, a sufficient number of voters thought the tradeoff justified the higher costs and diminished purchasing power to elect Mr. Trump. Whether enough of them will change their minds in the days and months ahead remains to be seen. It will be interesting to observe human behavior as their living expenses rise and purchasing power declines. Whether they’ll still think the benefits (jobs saved in the protected industries) justify the costs remains to be seen.

*At the time of this posting, no country has formally announced any retaliatory tariffs; however, the E.U. informed its members that such tariffs would probably be assessed on American shirts, jeans, cosmetics, other consumer goods, motorbikes and pleasure boats; orange juice, bourbon whiskey, corn and other agricultural products; and steel and other industrial products. If they follow through on these threats, expect job losses in all of these areas in the U.S.