On Tariffs

I have been sketching out posts since January, in anticipation of launching this Substack… I would like to extend my thanks to Jeff Bezos, for helping me to choose this one to start with. And bear with me, while I drift a bit towards the political, I end with business! So without further ado… On Tariffs!

Before the 2024 election Trump said, “Tariffs are the greatest thing ever invented.” While it is typical Trumpian hyperbole, it is not wrong. Following almost 4 decades of globalists being hell bent on eliminating trade barriers, US trade policy supporting exporting US manufacturing to Canada/Mexico with NAFTA, or China with MFN and then accession to WTO (thank you Bill Clinton + Laura Tyson), the US has essentially been subsidizing other nations at its own expense. Tariffs are one of many tools that the US needs to start using to recalibrate its place vis a vis the global marketplace.

The globalists in Congress keep saying that Trump doesn’t know what he is talking about when he discusses who actually pays the tariffs.They say consumers pay the tariffs. Well, they are (partly) right and everyone knows this. What they don’t talk about is that unless the producers who have tariffs levied on them reduce their wholesale prices, the cost to the American consumer will increase by retail price + the tariff %. American consumers are smart enough to shift their buying preferences towards better value, alternative products or wait on purchases until alternatives emerge. American manufacturers will be motivated to bring manufacturing back to the US, since profitability is possible again. Everybody in America wins! At Davos a few weeks ago, even the pragmatic Jaime Dimon came out in favor of tariffs, saying, “I would put into perspective: If it’s a little inflationary, but it’s good for national security, so be it. I mean, get over it.”

Tariffs were a very effective tool for the US during the 1800s, and between 1861-1933 the US had one of the highest average tariff rates on manufactured imports in the world. Is it surprising that after 1933/New Deal, tariffs started to disappear while being replaced by income taxes, sales taxes and a myriad of social programs started to emerge? Tariffs can be raised, lowered or eliminated entirely as needed. But taxes and entitlements rarely disappear creating virtually unlimited budgets for politicians to tap into or steal. And while there is always the danger of a trade war, it looks like many ‘deals’ will get cut to decrease US trade deficits with targeted countries before needing to actually levy the tariffs.

Jeff Bezos, who I thanked in my intro, said today that he wants to shift the WaPo OpEd section to “emphasize advocacy for personal liberties and free markets.” This goes against the shift towards rebuilding in the USA, but signals that WaPo might not continue its onslaught against the current administrations efforts. The bottom line is restarting “Made in the USA” can launch a new Golden Age for the US economy.

So let’s talk about business opportunities as the US moves to rebuild its non-service economy! There will be massive demand created for skilled workers to facilitate the repatriation of manufacturing back to the US. Not only will factories need workers, but those factories need to be built with the latest technology. Particular attention needs to be paid to supply chain and distribution logistics. Highways, railways, transport will need to be optimised. This alone, will be like a repeat of the massive public works projects that occurred in the 50s-60s with a similar economic impact.

In addition to manufacturing, strategic resources like pharmaceuticals need to be made in the USA. Highly technical manufacturing, like chip fabs, need to be brought back to the USA from Taiwan. It should at least be considered to build networking equipment and consumer electronics in the US to prevent electronic eavesdropping.

Can the USA gain competitive advantage and lower prices with the most modern manufacturing facilities? Does the US education system need to change massively to give young people the necessary skills to make this renaissance happen? I will get to these questions in future posts.