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EC SD | This tariff plan is about solving our national emergency in manufacturing. It has cratered, over the last 30 years, to the point that we are unable to survive the next world war. We don't have the factories, skilled labor, materials, etc across the whole supply chain anymore. That includes computer chip making, circuit board making, and basic medicines, as well. We learned of this weakness during covid, yet very little progress, if any, since then. Some would say "good" then there won't be a WWIII, but that is really naive. The next world war will happen, someday, because humans just love to wage war. Hopefully we can avoid it for many decades, but the world is far from peaceful.
Ukraine was another wake up call. We depleted our stocks of artillery shells, and other armaments, to support a minor skirmish (compared to a world war anyway). Capacity to produce armaments at the pace needed for a larger war is woefully lacking, and the timelines are long, many years, to ramp up manufacturing. We cannot just convert peacetime production to wartime production if there are no peacetime production facilities and workers to convert. We barely build any peacetime ships anymore, so we pat ourselves on the back when we build a handful of warships in a decade. It is no better story in any of the NATO countries either. Together we have collectively surrendered our ability to manufacture. What abilities that remain are crippled by global supply chains, that would collapse in any large scale war.
Secondly this tariff plan is about "reciprocal trade", and not about "reciprocal tariffs". That may seem a subtle change in words, but it has huge meaning. To avoid the announced tariffs, our trading partners need to reduce their current trade imbalance with the US. The news that some countries are offering zero tariffs, is not meaningful to reducing the assigned tariffs placed on them. To reduce tariffs, the countries must take actions than reduces the imbalance. That means buying more "stuff" from the US, instead of buying their inputs from elsewhere.
The Vietnam example of shoes. They are great at making shoes, and have factories and labor, etc in place. They can export those shoes to the US with much lower tariffs, if they buy a larger portion of their cotton, chemicals, rubber, food, energy, etc. from the US instead of China, India, Saudi Arabia, etc. They are already buying these goods from outside their country, even more than is necessary to balance the trade with the US. So just pay a little higher price, or freight, or such to make their US trade "reciprocal". This would qualify them for the floor level, 10% tariff.
If Nike wants to avoid that final 10% tariff, they would need to relocate factories and labor to the US instead of Vietnam. That part seems unlikely to me, since the capital cost is high and timeline long.
Is this good for American farmers? I would say yes, because it would give our production preference to South American production. Will South American production rot in the field now? No, some other countries that don't have a trade surplus with the US will certainly want to buy it. | |
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Borrowed tariff thoughts
