Trump’s Examples Of How His Trade Wars Will Work Are Good Illustrations Of Why They Won’t
The President Has A Message For U.S. Corporations Complaining Tariffs On Hundreds Of Billions Of Dollars In Goods From China Will Hurt Their Business…
Example #1: Ford
Ford planned to sell its Chinese-made Focus Active model in the U.S. starting next summer. Trump’s Tweeted suggestion is all well and good, except Ford says it’s not going to do what the President suggests. The automaker explains:
“It would not be profitable to build the Focus Active in the U.S. given an expected annual sales volume of fewer than 50,000 units and its competitive segment. Ford is proud to employ more U.S. hourly workers and build more vehicles in the U.S. than any other automaker.”
Still, no harm no foul, right? Not exactly.
Ford isn’t ruling out importing the car from elsewhere. Potentially setting up a game of high-stakes whack-a-mole with the President. Because Ford can import cars from a lot of countries Trump hasn’t yet slapped with tariffs.
And if Ford can’t figure out where and how to shift its production quickly enough, U.S. consumers looking for a new small economy hatchback will look elsewhere. And who tends to make cars in the same price, size and fuel efficiency range? Korean and Japanese manufacturers. So now the American consumers who might’ve bought the Chinese-made Ford cars are likely to buy vehicles imported from Korea and Japan instead. Which doesn’t help improve the U.S. trade deficit at all: it just shifts a piece of it from China over to Japan and Korea. (Not to mention the fact that the Chinese-made car might’ve put competitive pressure on Korean and Japanese carmakers, forcing them to offer better deals to American consumers.) Creating a situation where Trump might then feel the need to put tariffs on Korean and Japanese carmakers in order to prevent U.S. consumers from buying any product that will increase the trade deficit. That seems particularly difficult to do with South Korea, since Trump just did a new trade agreement with them. Although he has yet to sign it. So does he just open that agreement back up as it suits him?
Or maybe it’s enough for Trump to say he’s been successful at cutting the trade deficit specifically with China, and people won’t notice that it’s just been redistributed to other countries around the world…
Example #2: Apple
That’s Trump’s push-back against Apple’s push-back against his China tariffs. The company saying those tariffs could lead to a 25% increase in the cost of many of its products to American consumers. But let’s say Apple could easily shift production to U.S. factories, as the President suggests. There’s still no way it would shift production for overseas markets to the U.S. as well, as long as it’s still cheaper to make its products overseas, and especially since it’s more than likely China and other countries will maintain retaliatory tariffs for all goods made in the U.S.A. And that could create a situation where consumers in the U.S. pay more for Apple products than elsewhere in the world. So in effect, the tariffs boomerang and turn into a tax on U.S. consumers.
(Yes, the yet-unspecified “tax incentives” Trump mentions in his Tweet could help soften the blow; it would help if he told us what those are.)
Meanwhile, China’s Trade Surplus Continues To Soar
Widening to a record last month, which might spur Trump to turn up the heat even higher. (And also indicating his $34-billion in tariffs on China so far — which include cars BTW — have had minimal overall impact.) Most of the gains attributed to U.S. companies stocking up on goods from China before Trump’s next round of expected tariffs kicks in. But also for a simpler reason: the U.S. economy is booming and since American consumers have lots of money to spend, demand for all kinds of goods is high.
And China’s government isn’t sitting still, saying it will give tax breaks to companies that export a lot, in order to partially make up for the expected new tariffs.
Trump this weekend told reporters he’s got China tariffs worth “another $267-billion ready to go on short notice if I want.” That in addition to the $200-billion on Chinese goods we’ve already heard about, and which he says will “take place very soon, depending on what happens…”