A short while ago I spent several weeks in Switzerland, which included several weekend trips to Milan, Munich, Innsbruck, and even little Lichtenstein. I’m a Harley guy, have a couple, and went to Harley dealers in these places to look. Needless to say, pricing in these European locations was significantly different than for Harley’s sold in the U.S., even factoring in the cost of international shipping. Why are they different?
One of the most memorable lines in President Trump’s address to Congress this week was when he cited Harley-Davidson as an example of a great American product facing as much as 100% tariffs in one country abroad — in this case, in India. Trump didn’t mention it, but India is not the only country that discourages Harley’s international sales. Thailand imposes 60% tariffs and China 30%, levels not seen in the U.S. since the 1930s following the infamous Smoot-Hawley Tariff Act that raised tariffs to marked highs. Members of the European Union do not level large tariffs on many U.S. products, but there are tariffs imposed. And it’s not just on Harley’s. In the interest of fairness, however, we must note that the U.S. imposes tariffs on European automobile imports that come into the U.S. Virtually every government on Earth that imports goods into their country imposes tariffs. It is a central government revenue stream upon which many countries rely for financial survival.
So why all of a sudden did President Trump raise the conversation about U.S. tariffs to be imposed on the U.S. import of steel and aluminum?
The Commerce Department is urging President Trump to consider hefty tariffs and quotas to limit the import of steel and aluminum, after concluding that the rising flow of those foreign-made products constitutes a threat to America’s national security. The recommendations were contained in a report released by Commerce Secretary Wilbur Ross, whose agency tapped a rarely used provision of U.S. trade law in investigating whether steel and aluminum imports could pose harm to the country’s defense or security interests.
Trump has promised to take more aggressive trade actions to protect American manufacturers, and the findings by Commerce give the president wide discretion to curb imports, although he could decide not to take any action at all. Trump has until mid-April to issue his decision. Domestic steel and aluminum manufacturers, along with lawmakers from big steel-producing states, have been pressing Trump to apply stiff measures against foreign producers, particularly targeting China.
The Commerce Department’s recommendations to Trump listed three options for steel: a 24% tariff on all imports from all countries; a targeted tariff of at least 53% on imports from a dozen trading partners, plus quotas on steel shipments from other nations; or a global quota that equals 63% of each country’s steel exports to the U.S. in 2017. Ross also recommended three options on aluminum tariffs and quotas, although they were less restrictive. It is expected the President will announce those tariffs in the next few days.
The President’s announcement of possible tariffs has set the World on fire. Foreign leaders, members of Congress, American business leaders, and of course the Media, have all weighed-in. Most of their comments have been negative, promising financial doom for the United States that imposing import tariffs would initiate. There IS precedent. President Bush implemented significant tariffs in 2002 similar to those proposed by President Trump:
“President Bush took some of the broadest federal action in two decades to protect a major American industry today, imposing tariffs of up to 30 percent on most types of steel imported into the United States from Europe, Asia and South America. The tariffs will last three years, he said, to give American steel producers time to consolidate operations and stem layoffs.
Mr. Bush’s action is likely to send the price of steel up sharply, perhaps as much as 10 percent, a cost American consumers will ultimately bear in higher prices for autos, appliances and housing. The United States imports about a quarter of the steel it consumes, though Mr. Bush exempted steel made in Mexico, Canada and developing nations from the tariffs announced today. The nations hardest hit are Japan, South Korea, China, Taiwan, Germany and Brazil.
Within minutes of the White House announcement, America’s European allies and Japan said they would almost certainly challenge the action before the World Trade Organization, setting the stage for a major trade fight with many of the same countries Mr. Bush is trying to hold together in the fractious coalition against terrorism.”
The results of the Bush tariffs were mixed, as are most all international economic policy results. In this case it depends on who is speaking.
The levy of tariffs result is NOT certain as many who are against tariffs claim. No one can predict their success or failure if/when the President assesses them just ahead. But I am not certain President Trump really intends for tariffs IF assessed will be severe and permanent. And he in direct contravention of his messaging may NOT implement levies at all. Let me explain:
- First, the current import-export process is not working for the U.S. American businesses and ultimately citizens pay massive tariffs for goods we import while foreign governments get by virtually scot-free.
- How is it not working? Last month the U.S. trade deficit was $56 Billion! That means (including foreign tariffs) more was paid by the U.S. for its goods than foreign entities paid for our goods.
- The American government has historically touted tariffs as a way to level the playing field. Is there anyone who can support a narrative that says the current import-export system is fair for the U.S.?
Donald Trump is a salesman. He has demonstrated a fundamental sales tool again and again since taking office: negotiation. When one negotiates, an offer to sell is always higher than the seller is willing to accept; an offer to purchase is always lower than the buyer is willing to pay in both first offers. Negotiations almost always occur to reach a satisfactory mutually acceptable price to sell and to buy. Regarding tariffs: DONALD TRUMP IS NEGOTIATING!
- “If” tariffs are actually put in place, it is to send a message to our international trading partners: the U.S. is willing to be a “good” trading partner for any and all countries, BUT, trades need to be restructured so as to be fair for BOTH trading parties. Trade Fairness is what defines “good” partners. Almost all of the U.S. international trade deals are one-sided — and not one-sided for the U.S.
- “If” tariffs are actually put in place, they can easily be adjusted or even cancelled in a moments notice by the President. If they happen to work for the benefit of the United States, why not give them a try? Specific financial results will be verifiable in 30-45 days.
- Here’s a novel idea: what if doing so can slash that 1-month $56 Billion trade deficit pretty quickly — maybe not eliminate that deficit but cut it sharply. In this present scenario, wouldn’t it be nice to cut it to “just” $10-$20 Billion?
- Some countries will simply stop importing and exporting to and from the U.S. because of unsatisfactory tariffs charged by the U.S. government. But many rely on American goods to be brought into their countries, and obviously rely heavily to sell THEIR goods in the U.S. market. That means, of course, American manufacturers, automobile dealerships, produce operations, and many other business types will see the market demand for their products skyrocket. Why? Supply and Demand: the lifeblood of the Free Market System will kick in immediately. That means quickly a need for more jobs, people to fill them, new orders by manufacturing firms which will demand increased production, much increased sales and management personnel hiring for distribution operations increased demand.
- The threat of tariffs could simply be President Trump’s “line in the sand.” He has already shown a different concept than his predecessor used in Syria — that famous Obama “don’t make me come back there” threat regarding Syria’s use of gas on its citizens. They crossed Obama’s red line and Syrian people died from Syrian government gas. Obama did nothing about Syria’s stomping all over his red line. Trump is not Obama.
I have laughed over and over again watching and listening to anti-tariff Americans forecast gloom and doom for the American economy with tariff implementation. And it’s not just Leftist Media members and Democrats. A bunch of Republicans are beating the same drum.
Give it a rest, guys! Regardless of your fired rescue flares hoping the President will see and respond to, there is NO reason for panic. (unless, of course, their doing so is purely for political and election purposes — which is likely) Pretty much every policy Donald Trump has proposed that ends up in place has been amazingly successful — especially his economic policies. To that end, why not give him a shot? As I said above, they can always be removed as quickly as they are put in place.
Tariffs are NOT the end of the World.