When the issue of Trump’s tariffs became a reality, I was one of those who got stuck on and bent out of shape over the domestic impact before investing some time to think through the details. After doing so, however, I can’t say that I’ve found anything that would drive a reexamination of my priors. But I realized there are some aspects of perceived trade problems that were overlooked.
Take this article from Reuters about the impact of US tariffs in China that was posted on CNBC:
Manufacturers have been feeling the squeeze as China shifts its priorities from lower-end manufacturing to high technology industries as part of a broader bid to upgrade its economy.
But with tariffs looming, “everybody finally woke up to the extent that ‘maybe I should face reality’,” he said. Manufacturers were increasingly worried that “the next group of tariffs would be the killer”.
Sloven is now stepping up efforts to trim his exposure to China, diversifying into growing manufacturing centres like Thailand.
“Thailand, Vietnam, Malaysia and Cambodia are countries that have potential opportunities,” he said. “However, it’s not going to be as easy as many may think. And you don’t know what’s coming next in China.”
Basically, some manufacturers who manufacture goods in China for export to the US are considering diversifying operations to other Asian nations that are not impacted by the tariffs. Some people may look at this and say that this might be evidence that Trump’s trade war tariffs are failing because, rather than diversifying to the US and bringing manufacturing “back home,” they are simply going elsewhere, and I think it could be rationally construed that way.
But if this rethinking of geo-strategy is happening on a larger scale, the phenomenon could be viewed at a higher level outside of the specifics of location for clues about what the behavior might imply about the wave of off-shoring and international relocation away from the US over the last few decades. Aside from other inefficiencies, trade barriers toward US trade goods may have been at least one factor in the build up of resources in China and elsewhere.
If you’re a multinational exporter, you go where it makes the most sense cost wise, and while labor is a large portion of cost there are still places in the US where labor is cheaper, like Alabama for example, and these were completely passed over. Perhaps there is somewhat of a complex puzzle involved in the story about the present that labor arbitrage alone can’t fully explain.
I remember reading an article about Apple trying to make inroads into the smartphone market in India, and it explained that Indian policy was such that for Apple to sell its devices in India, the devices were required to be manufactured or assembled there. And more recently, there were locality requirements imposed on Apple for the Chinese market as well. Anecdotally, assuming that Apple wasn’t singled out, these sorts of trade policies could stack up on the woodpile of “anywhere but the US.”
Of course, if there is more to any of this than musing, it wouldn’t get anyone any closer to understanding why Trump might believe that slapping high tariffs on foreign goods in specificity would help undo any perception of domestic damage caused by trade barriers that exist elsewhere. At least, the information in this article points in the direction that it is more “tit for tat” than it is any sort of solution.