So, an apparently frustrated Dear Leader Trump tweeted on Friday that U.S. companies “are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA,” after increasing tariffs on previously levied products from 10% to 25%, and by year end, all imported Chinese products will be subject to some duty between 10-25%.
After everything he’s tried to turn the tide of the direction of product origination from outflow to inflow, he apparently hasn’t gotten much traction. There are many reasons for this that I can think of, but the most obvious is the same thing that most of the mainstream economics profession has been saying since the tariff wars started – tariff wars cause more internal harm than good. It’s like starting off with the stick approach to punish his own children for bad things the neighborhood kids are doing, and when unsuccessful in curbing the undesirable behavior, grabbing an even bigger stick instead of focusing on the right set of kids.
And most of us who have been parents these days understand that the stick almost never works as a behavior modification tool, except to place wedges between the parent and child that extends to the rest of the family as well.
Another problem here is that we’re talking about trade and not children. We’re talking about grownups who care about the cost of doing business, and they will never stop caring about that regardless of what some government buffoon says or does.
As I pointed out in earlier posts, these people have always understood the risks involved in doing business in communist China and they go there and/or stay there anyway out of whole damned world full of more peaceful and tranquil places to do business. They do not need big daddy Trump to save them from themselves by sending him to complain about and mete out punishments for Chinese property theft and expropriation policies, especially in such a narcissistic way as to hurt the domestic working people he says he’s trying to help by taxing the few pseudo-luxury goods they can afford, while also taxing them to increase farm subsidies doled out to the farmers who have been injured by the misguided tariff policy (Oh yeah, I got a nasty surprise in my tax bill for 2018 and it really pissed me off – rapage par excellence). All of this other-people’s-money does not simply grow on trees!!
Meanwhile, back at the ranch, the supply side problems generated by the Trump bull in the china closet has the productive capital running for cover. I don’t blame the entire catastrophe that has been the equities markets crashing for nearly a month on Trump, of course, but the stuff he does just makes it all that much worse.
So everywhere I happen to have looked, the unmistakable signs of Trump’s signature trade policy failure are screaming so loudly as to be extremely hard to miss. And yet again, Trump doubles down on the failure, upping the ante, as if his policy failure supposedly provides him with some divine right to issue orders to everyone and everything. He’s the President, not a king, and a huge joke of one at that because that is not the way to get help. Instead, many will be so tickled pink to flip the bird, however they may come by it, they will do it – and before Trump knows it, American companies doing business in China will no longer be American companies – mostly for cost and tax savings, but also for the thrill of standing one’s ground as to not be ordered around by a guy who needs professional help to recognize his own failures and to fix it before more economic damage is done.
Build up, not teardown.