Thursday, August 22, 2019

Tariffs Are Not Advanced by Breaking All the Chin

Don’t confuse the headline with breaking the Chinese nation, I’m using the more common reference to bulls in china shops. Bullshitters in china shops will serve equally well.

Personally, I’m in favor of tariffs when they’re used responsibly to promote national interests and level certain playing fields. Economic responsibility pretty much went down the toilet when globalization made the economic world a flat-earth society.

But our current bull(shitter) is named Donald and he dropped a huge and amazing pile of bull-shit right in the face of our major trading partner. On a whim. Without a clue. China, the American diplomatic Service and all its associated agencies, the media, as well as you and I learned about it on Twitter.

Who runs a nation on Twitter? Yet that’s how this dude runs diplomacy, shooting from his uneducated hip directly to a social media site.

In 1972, Richard Nixon and national security advisor Henry Kissinger opened China to the world economic community and steered a communist nation toward capitalism. Nixon called it ‘the week that changed the world’ and he was not wrong.

But that surprise announcement was no surprise to either Chinese Premier Zhou Enlai or Chairman Mao Zedong. It followed months of secret back-channel negotiations that offered once-in-a-lifetime benefits to both nations.

Our own shitting-bull let loose the demons of huge price increases to American consumers (who will actually pay the tariff), unsettled trade alliances with China’s other trading partners, as well as ripping up long-standing Chinese agricultural agreements with American farmers—along with god knows what else.

The shit-pile continues to steam, the unknown result of a single thoughtless dump on international trade. Probably someone at Fox News thought it was a good idea.

One can’t blame a bull for shitting, but you can certainly blame an American President for doing the same.

Our leader is so ignorant of the facts that he has now graduated from fake news to alternative facts. There is no such thing as an alternative fact. A fact remains a fact. New information may change what was once a fact, but there are no alternatives unless that happens.

Yet our current man-at-the-wheel boldly states as a fact that China will pay the cost of tariffs against their products. That’s a lie, somewhere among the 11,000 (and counting) in the  2 years, 206 days, 7 hours, 16 minutes and 33 seconds that mark the writing of this line.

Let’s try to get a sense of who pays tariffs.

Let’s say you plan to buy a Volvo automobile that’s manufactured in China. In China? You kidding me?

Nope. China manufactures many foreign brands, including Volvo, Daimler-Benz and General Motors. The latter makes numerous cars in China in four factories, especially Buick, but also some Chevrolet and Cadillac models. Honda, Toyota and Nissan also have joint-ventures. BMW, Jaguar and Land Rover are in the game as well as Buick and Ford.

GM sold 4 million cars in China last year, a third more than in the American market.

So let’s suppose you’re looking at a Volvo. Sweden and Belgium still make a few, but Volvo is now owned by Chinese motor manufacturer Geely Automobile. They bought it from Ford, so it’s been a while since Volvo was under Swedish ownership, but it’s a nice car you’re looking at, selling for $30,000.

But suddenly, when you go to the dealer in Chicago the Trump 25% tariff prices the same car at $37,500. You quickly have second thoughts and who could blame you? The Donald promised it wasn’t going to cost us—the American buyers. Well, let’s chase that down.

China doesn’t pay that tariff. The Volvo manufacturer in China invoices it and the dealership in America pays it. And he doesn’t even get to keep it, he has to send it off to Washington and they keep it. So he can’t eat it, it has to go somewhere (aka the US government) and you (the buyer) has to come up with the dough. You are certainly not going to do that, so the American owned dealership goes bust. All it’s American employees go home, looking confused (who could blame them) and wondering how to find a decent job.

There’s more fallout.

Chinese motor manufacturer Geely Automobile is not all that happy about losing their American market and neither is the Chinese government. So they slap a retaliatory tariff on American cars, no matter where they’re made, even in China. They can do that.

There goes a 4 million car market for GM. All because of a Tweet followed by a lie, followed by an alternative truth.

Take the same trail of tears to other American markets. US farmers now have no market in China. China is among the top export markets for U.S. major agricultural commodities: #1 in soybeans, feed, animal hides, alfalfa; #2 in hay; #3 in dairy, poultry; #4 in processed food, pork, beef and #5 in wheat. They didn’t need to bother with tariffs, China simply stopped buying when Trump announced his plan. Now over $12 billion in American soybeans have nowhere to go, with another crop on the way and no available storage facilities.

How do Wal-Mart, Amazon, Apple and every major retailer in America deal with this? Virtually everything today is manufactured in China. While it used to be that gadgets, gizmos and other products were made in the U.S., Taiwan or a brand's home country, businesses are now outsourcing mostly to manufacturing facilities in China.

It’s called globalization, but it’s really a stampede to the lowest cost source.
Chase all that down to your own purchases and see if a tariff war really serves you well.

And while we’re at it, there’s another issue. Seems these days there’s always another issue.

The global economy is extremely fragile at the moment. China has problems of its own and the American economy smells and sounds very much like the years leading up to the 2008 disaster. Europe is facing its own downturn.

The powder is dry and it wouldn’t take much of a spark (or a Tweet) to explode.

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