Tariff news coverage makes me want to scream!

The simple-minded, sound-byte news coverage of the tariffs on China just makes me want to scream.  “Trump lied!  China isn’t paying for the tariffs!  American consumers are going to pay!  It’s going to cost every household $1,000 per year in higher prices!  A million jobs will be lost! China will retaliate with tariffs on American imports!  American farmers are getting killed by the loss of exports to China!”

I could go on.  The list of ways in which the sky is falling is endless as every business failure or challenge is now blamed on the tariffs on China.

The problem with the warnings that I’ve singled out above is that there is some truth to all of it – but only a half-truth.  Less than half, actually.  But the media sees an opportunity to stir up Trump hysteria, and hysteria always stirs more interest than factual, balanced reporting.  It’s the very reason that the evening news on every channel begins with a frantic proclamation of “BREAKING NEWS!!!” delivered breathlessly by a news anchor in a tone of voice that sounds like he/she just stopped in to the studio while fleeing the apocalypse to warn us all to run for our lives.  Then you find out it’s not breaking news at all, but some damn thing that happened earlier in the day – something of little significance to 99.9% of the viewing audience – that some reporter just found a new little twist on the story.  And so it is with the story about the tariffs on China.

So I’m here to lend some balance to the tariff story.  Let’s take the above claims one-by-one.

1.   “Trump lied!  China isn’t paying for the tariffs!  Etc.”  Maybe he did mislead us a bit with this one, as it actually is the importer that will pay the tariff, not the Chinese exporter.  However, in some cases, those are one and the same, since Chinese exporters have set up importing companies in the U.S.  Regardless, China will pay in a big way and China will be hurt badly, much worse than the U.S.  Chinese companies will be pressured to cut their prices to offset the tariffs paid by the importers, and they will, in many cases perhaps offsetting the entire tariff.  They may actually sell their products below cost, wiping out all profit for the Chinese company and all revenue that the Chinese government would have collected.  Chinese exports will fall dramatically as American companies find new, cheaper sources for their products.  Unemployment and civil unrest in China will rise.  China’s ability to fund its military expansion will be badly crippled.
2. “American consumers are going to pay … $1,000 per year in higher prices!”  Yeah.  No one has ever denied that.  But what’s missing here is the fact that someone is going to give you $2,000 per year – maybe more – to cover it.  Who’s going to do that?  Your employer.  If not your current employer, your new employer – the one who just built a factory in your town to make some product that’s now too expensive to be imported from China.  Uncle Sam will be chipping in too.  Now that he’s collecting revenue from importers – that is, from people who still insist on buying the now-expensive Chinese imports, he has room to cut your income taxes without blowing up the federal budget.  Don’t like paying the tariff on the import?  Then don’t.  Buy the cheaper American-made alternative.
3. “A million jobs will be lost!”  This one isn’t even a half-truth.  It’s an outright lie perpetrated by globalist economists who don’t like American efforts to restore a balance of trade.  They arrive at this figure by assuming that consumers won’t be able to afford the higher prices and will stop spending, forcing retailers to lay off workers throughout the supply chain – shipyard workers, truck drivers, warehouse workers, people stocking shelves and working cash registers.  They hope it won’t dawn on you that people will immediately seek out cheaper alternatives and will quickly find them in new products provided by new companies and entrepreneurs who have seized on the opportunity.  Truth be told, if the trade deficit with China were completely eliminated, as it will be if both sides escalate their tariffs higher and higher, the U.S. would add several million manufacturing jobs to its economy, not to mention the jobs involved in building that manufacturing capacity.
4. “China will retaliate with tariffs on American imports!”  Maybe, but not if they’re smart.  Don’t forget that the real prize here to restore a balance of trade with China.  Any combination of imports and exports that gets us to that point yields the same positive benefit for the American economy.  If China wants to choke off U.S. exports altogether, then we can achieve a balance of trade by completely choking off Chinese imports.  We’re still the big winner and China will be an even bigger loser.
5. “American farmers are getting killed … !”  Hogwash.  While farmers’ exports to China may be taking a hit, the free-trade globalists don’t want you to know that farmers are more than making up for it by increased exports to other countries.  It’s easy to verify this for yourself.  Just look at the trade report published monthly by the Commerce Department.  Farm exports (including the much-publicized soybeans) were actually up in 2018 and year-to-date in 2019 are running ahead of 2018 exports.  I also read a story that blamed the demise of family farms on the China tariffs.  More hogwash.  Family farms have been vanishing for decades, unable to compete with the huge corporate farms that are swallowing them up.

Higher prices that are more than offset by higher wages are a good thing, not a bad thing.  That’s the very mechanism that has enabled our standard of living to advance.  We all pay higher prices for every product than we did in the past, but we have a higher standard of living because the demand for labor has driven our wages higher.  “Wages aren’t higher today,” you may say.  Yeah, and why is that?  It’s because of our huge trade imbalance, the very thing Trump is tackling with these tariffs.

If all Americans understood the truth about trade and the damage that huge trade deficits do to an economy, we’d all be cheering for Trump – Republicans and Democrats alike.  We’ve been in a trade war for decades and have been losing badly.  Finally we have someone willing to take up the fight.  That’s the truth.

March Trade Report Shows Signs that Trump Trade Policy is Working

Click to access trad0319.pdf

The above-linked March trade report is showing signs that Trump’s trade policies – particularly the tariffs on Chinese imports – may be beginning to yield positive results for the U.S. economy.

The overall trade deficit held steady at the same level as February at $49.3 billion, the lowest level since June, 2018.  More importantly, the trade deficit in manufactured goods fell $1.1 billion to $68.2 billion, also the lowest level since June, 2018.  More encouraging is the way in which it fell, with imports falling $0.9 billion while exports of manufactured products rose to their highest level since May, 2018.  Here’s a chart of the trade deficit in manufactured goods:  Manf’d Goods Balance of Trade.

In the past few months there’s been a lot of volatility in the data as U.S. businesses stocked up on Chinese imports to avoid the tariff.  Perhaps the March data reflects a slowdown in imports as businesses now find themselves overstocked, but I think that’s not likely.  I thought that when the February data was released, but it seems unlikely that such an overstocked condition could persist for three straight months.  It also wouldn’t explain why manufactured exports are at their highest level in ten months.

Most encouraging of all is that the trade deficit with China fell dramatically in March for the fifth straight month to $20.7 billion, its lowest level since March, 2014 – an unusually low deficit that year – a level more typical of the monthly deficits with China back in 2007.

Trump’s trade policies – attacking our trade deficit with tariffs – is working.  As I write this, on the very day that the tariffs on $200 billion of Chinese imports were more than doubled to 25%, the stock market has shrugged it off, recovering all of its early losses.  Investors are beginning to sense that all of “the sky is falling” warnings of dire consequences of the big, bad, scary U.S.-China trade war is a bunch of baloney.  They’re beginning to look past it, looking for companies that will benefit, and they’re finding plenty.  The fact is that China has been a huge drag on the American economy and even the global economy, and investors are beginning to see it that way. That’s China’s worst nightmare and a dream come true for Trump, now more  confident in pressing these policies even further.

Huge Opportunities in the New Post-China Environment

https://www.reuters.com/article/us-usa-trade-china-consumer-analysis/trumps-tariff-push-squeezes-businesses-and-consumers-idUSKCN1SD09Z

There’s plenty of news stories like the above-linked Reuters piece with all kinds of dire warnings about rising prices for businesses and consumers alike when tariffs rise on Chinese imports.  Not mentioned in any of them are the huge opportunities that this creates for other suppliers, including established companies and entrepreneurs right here in the U.S.  So that’s the focus of this post.

Yeah, prices for products made in China are going to rise substantially.  No surprise there, and it’s exactly what we want to happen when we slap tariffs on imports.  The purpose is not to tax consumers but to provide incentive to make products domestically.  If you’re a business owner, what do you do if your competitor suddenly finds it necessary to raise his prices?  You start licking your chops because you know that you suddenly have a big competitive advantage and that you’re going to make a killing.

What do you do if you’re an aspiring entrepreneur?  You see an opening to start a business and start supplying a product where cheap imports had previously shut you out of the market.   Let’s look at the example cited in the article – Samsonite luggage that’s currently made in China and is now subject to a 25% tariff.  Maybe you’re a company that makes thermo-formed parts for someone – perhaps interior parts for the auto industry.  Here’s an opportunity to diversify and provide thermo-formed luggage “clam shells” for Samsonite, a customer that you didn’t have a chance with previously.  Or maybe you’re a company that makes small casters for other applications, and now you have a chance to supply Samsonite with casters.  Heck, maybe you’re an even smaller company that just makes little injection-molded parts.  Now you have an opportunity to supply that caster-maker with the little polyurethane injection-molded wheels used in those casters.

Steven Smith, owner of Luggage & Leather Depot in Bethesda, Maryland, said a jump in tariffs to 25 percent “would absolutely kill our business.” He said his sales are off as much as 20 percent after he raised prices to reflect the higher costs.

The fact is that every retailer of Samsonite luggage (and other brands made in China) are faced with the same issue, and people still need to buy luggage somewhere.  Those businesses that don’t adapt and gain a competitive advantage by finding new, cheaper sources, will likely be “killed.”  The others, the ones who immediately start looking for new suppliers and different brands that won’t be subject to the tariffs on Chinese imports, will be the ones who thrive.

This same story applies to thousands of products currently sourced from China.  The opportunities created for domestic manufacturers are suddenly almost limitless.  It was easy for everyone to move their production to new suppliers in China.  It won’t be that hard to now source them from somewhere else.  Those with the drive and imagination to adapt will be big winners in this new post-China environment.

Trump Threatens China with More Tariffs

https://www.fidelity.com/news/article/top-news/201905060845RTRSNEWSCOMBINED_KCN1SC0MF-OUSBS_1

As reported in the above-linked article, Trump has suddenly taken a more harsh tone with China, apparently frustrated with the slow progress in the trade talks with China.

It’s difficult to know what’s really going on here.  Last December, at a G20 meeting in Argentina, Trump announced that he was holding off on ratcheting up tariffs on Chinese imports which had been set to go into effect on January 1st until at least March 1st, pending the outcome of a new round of trade negotiations with China.  March 1st came and went as the trade talks dragged on endlessly, as they always do, which is precisely what communist dictator Xi wanted in the first place when he worked his charm on Trump at the G20 meeting.  He couldn’t care less about an agreement – something they’d never abide by.  All he wanted was more American inaction.

It seemed to be working.  But something has happened.  Reportedly, China back-tracked on some things they had agreed to earlier in the negotiations, perhaps calculating that it would result in more time wasted renegotiating what had already been negotiated.  Again, that’s all China wants – more wasted time and more American inaction.  One can only hope that, this time, they’ve miscalculated.

“What is of vital importance is that we still hope the United States can work hard with China to meet each other half way, and strive to reach a mutually beneficial, win-win agreement on the basis of mutual respect,” Geng said.

OK, Geng, let’s meet each other half way.  We’ll buy from you as much as you buy from us.  Nothing more.  Nothing less.  A balance of trade.  That’s all the U.S. is asking for.  That’s fair.  That’s real “trade” versus the mercantile relationship that you’ve enjoyed at Americans’ expense.

That’s not really what you want though, is it?  You want the U.S. to agree to a few token concessions in exchange for maintaining the host-parasite relationship that you currently enjoy, sucking the life out of the American economy while fattening your own.

We can only hope that Trump stands tall this time and puts the new tariffs in place, ratcheting up the existing tariffs and slapping 25% tariffs on the remainder of Chinese imports.  What’s at stake here is more than low prices for American consumers.  We can work through the short-term pain of that.  It’s not an exaggeration to say that America’s very existence – and perhaps even the future of mankind – is at stake.  It’s become clear that China is using its trade-fueled wealth to build itself into the world’s preeminent power – not just economically but also militarily – bent on world domination.  What’s at stake is mankind’s future as a free people vs. living under the thumb of a totalitarian communist regime.

All of the dire warnings about a U.S. – China trade war doing irreparable damage to the global economy is a bunch of baloney.  China is actually a drag on the global economy, sapping the life out of the manufacturing sector of economies around the world to sustain a labor force bloated by gross overpopulation and to stave off the civil unrest and potential collapse of its communist regime that would likely result without it.

End the negotiations.  A balance of trade with a badly overpopulated nation like China is something that can’t be achieved through negotiations because it would never agree to give up the huge trade surplus it needs for its very existence.  On the other hand, a huge trade deficit is something the U.S. can no longer endure if it wants to assure its own continued existence.  Maintaining tariffs sufficient to assure a balance of trade is absoutely crucial.