Tariffs (4) Supply Chain Management Major

 As many of you know I own a ski rack business Gravirax  We manufacture near Kansas City, with materials that are almost all made in the USA.  However, we really don't reach into our suppliers to demand that they source from America, they source from the lowest cost provider.  Our manufacturing process seems pretty straight forward and simple, but I am sure some parts of our powder coating machine come from overseas, some of our hardware or the materials in the hardware might also sometimes come from non American suppliers.  Supply chain management is complicated.  

I sold a rack to a family in December and the father proudly introduced me to his son who is majoring in ....Supply Chain Management.  Yes you can get a degree in Supply Chain management from over 100 universities.  This wasn't the case in the late 1800 and early 1900s.  Someone please tell President Trump things have changed.  The world has become one big market place, and sourcing materials from all over the globe is one of the reasons the standard of living has improved everywhere while inflation rates have fallen.  From 1990 to today US inflation was at all time lows, while from the 1960 to the early 2020s the average size of a home in America is up 50%.  A huge reason for that is global trade.

No company thinks, jeez I want to source parts from all over the globe from thousands of manufactures because it will be fun.  No 19 year old college student thinks, jeez I really want to major in supply chain management because its fascinating or cool.  Elaborate supply chains exist because capitalism drives companies to become more efficient, and leveraging global labor, economies of scale, concentrations of expertise all help to drive down costs.  Take a look at TVs or desk top computers.  Absolute costs are way down and what you get for your buck is so much better.  Why can you buy a TV that is 500% better for half the cost of what you would have paid 10 years ago?  Global trade.  Why can you get avocados in NYC, global trade.

Why is team Trump determined to end global trade as we know it?  That is the trillion $$$ question.  I will address that next, but lets just say there doesn't seem to be a true capitalist in the Trump MAGA Project 2025 team.  Kind of ironic when MAGA accuses everyone who disagrees with them of being a Marxist, Communist Socialist that they are starting a trade war which will hurt American consumers and businesses profits all to protect some American manufacturing jobs that they deem 'good'.  

Tariffs (3) Trump MAGA reasons

The Trump administration officials keeps talking 3 types of BS to justify their tariff policy

1. Tariffs will bring ‘good’ jobs back home ---this would indicate 
   1. Tariffs will stay in place
   2. will create inflation because manufacturing goods will use expensive US labor as opposed to cheap foreign labor
   3. Or other countries will drop subsidizes or barriers which will make domestic businesses more competitive (total BS)
2. Tariffs will generate tax revenue to help offset tax cuts and pay down debt 
   1. This means tariffs stay in place
   2. This assumes that we continue to import a lot of goods
   3. This assumes the global economy doesn’t take a digger
   4. That there isn’t a better way to raise revenue (like hiking taxes on the rich and a higher global corporate tax rate)
3. Tariffs are all part of the deal to get better trade deals
1. Trump is a notoriously bad deal maker---almost no bank would lend money to him prior to 2016
2. The best way to negotiate to start with consequences and work back from there (it isn't)
3. Seems to show the administration has zero understanding of other countries policies like VAT (will the world let Trump dictate their domestic tax policy—me thinks NOT)

I think many in the administration have talked themselves into believing some version of the above, but its all BS. What are these tariffs good for? Trump based grift. Each company can/should/will go and give Trump something to get relief. This isn’t about revenue or ‘better jobs’ or making the US economy more competitive (its going to make it less competitive per Monday's blog) ---it’s about Trump grift pure and simple. I also read someplace---I think the Economist that this will result in like 2.6 million new individual tariffs---with no government employees left post DOGEing who the heck is going to track and enforce this mess. But the opportunities for grift will be huge as will the attention afforded to Trump.  Tariffs are a win for Trump and a loss for USA and the world.

Tariffs (2) yea they are inflationary

 to paraphrase Milton Friedman ' tariffs are always and everywhere inflationary'.  

Why?  First there is the 1 time hit of raising prices by the amount of the tariff.  Cars cost X today and 1.25X after a 25% tariff.  Many in the Trump administration are of course idiots and are trying to position this as a one time hit to prices (things costing 25% more), and then no more inflation due to tariffs.  They also claim that the 25% hit will be paid for by foreign companies or governments and be used to pay off the deficit.  This is wrongheaded in so many ways it makes me glitch---but that is an argument for another day.  Regarding the inflationary impact of tariffs, per yesterdays blog post, tariffs will protect businesses from competition and that is what will increase long term rates of inflation.  Protecting companies from global competitors will increase inflation.  Full stop.  If ACDelco doesn't have to compete with LG and other S Korean flat screen producers the new screen in your Jeep will cost twice as much and perform 50% worse.  That is inflation.  And that is bad for consumers.  BAM (aka mic drop).

PS this is a long term cost which financial investors and consumers will be slow to realize, but in a decade when our companies are less competitive than the rest of the worlds you can thank Trump's tariff policy.

 

Tariffs part 1 or is Team trump learning business from Marx

 I am going to spend many hours writing blogs about Trump/MAGA which is probably not good for my health and a waste of time and energy, but I do find many folks asking me things and being the thoughtful guy and excellent economist I am going to share.   I am going to provide a daily series of bite sized tidbits about tariffs to start.

Ask a macro economist what the singular most important factor is for a country to achieve and maintain a high standard of living and they will tell you productivity.  If you can produce more with less then you will have a higher standard of living.  There are many things that help an economy be more productive, from infrastructure to a highly educated work force to rule of law and even the old Protestant work ethic (can I say that without risk of being canceled?).  Something that absolutely makes an economy more productive is having to face competition.  Its a basic tenant of capitalism--think Adam Smith and animal sprits and creative destruction and all that stuff.  If a business (or an entire country) is sheltered from competition what drives them to innovate?  Guess what protects businesses (and entire countries economies) from competition?  Tariffs.  Want to see an economy that is protected from international trade--take a peak at North Korea.  When team Trump talks about tariffs being a tool to make America great again--more like make our businesses less competitive by protecting them from global competitors.  And that will lower productivity which will slowly but surely eat away our standard of living.  Make America Great Again is clearly a great slogan but Tariff man would be more accurate to say Make America More like North Korea.  MAMLNK---an ugly word just like tariffs.