By John F. Di Leo -
The American Left (along with the never-Trumpers who claim to be on the Right) are trumpeting two new studies, which reveal the shocking truth that the American people are paying President Trump’s punitive tariffs on Chinese goods, not the Chinese.
Well… Whoop-tee-doo. That’s a newsflash. About as much of a shock as learning that the sun rises in the east.
As with all taxes, the tax is paid by the person who pays it. I know that sounds like circular logic, but it’s the only way to put it. An importer pays import tariffs in import shipments. Of course.
Generally, we rightly oppose all taxes… but some taxes are needed, and sometimes, taxes can successfully further necessary policy.
There are two reasons that these tariffs have been a good thing, as painful as they have been:
China’s Trade Practices
First, we have long been trying to get China to ease up on their unfair trade practices – government encouragement of intellectual property theft, formal currency manipulation, horribly unfair requirements for American businesses that operate plants in China, etc. for years and years…
…But we have not been trying very hard… until President Trump arrived at the scene.
President Trump made this a priority.
While these punitive tariffs have been expensive, in the long run, they should be worthwhile in the end, for obtaining the victories that we got last week with the “Phase One trade deal."
This is not to say that China will stop everything that they agreed to stop, of course. We are not that naïve. But the Chinese government will greatly reduce much of it… and even that partial accomplishment will be a considerable improvement, because of the sheer size of our trading relationship with China.
If there is still counterfeiting, still unfair taxes, still meddling with foreign owned businesses… But only half as much as there were before, then that will be a huge accomplishment. President Trump, and US Trade Representative Lighthizer, too, do deserve great credit for accomplishing it.
The Global Manufacturing and Sourcing Map
Second, however, is really the most important thing long-term, not only for us, but for the whole world: the right-sizing of the distribution of global manufacturing.
For a very long time now, about 40 years, in fact, manufacturing has been moving to China. Not just American manufacturing… but Canadian and European and Mexican and Brazilian and Japanese… products that used to be made all over the developed world have slowly shifted, with China first as an alternate “low cost” source and then eventually becoming a sole source as non-Chinese manufacturers lost ever more market share and eventually gave up on this or that product line, or gave up the ghost entirely and went out of business.
We are talking here about all kinds of manufacturing: Big and small manufacturing of big and small products, from raw materials to finished goods, from consumer goods to industrial goods. All kinds of things have moved to China, and it is a terrible problem.
Normally, when there is a disruption with a foreign trading partner, such as a war, natural disaster, or other interruption of trade, you simply switch your sourcing practices, buying your products from a different country, until the relationship shifts back.
If we bought wine, steam irons, or furniture from German in the 1920s and 30s, and then we went to war with them in the 1940s… then we just made more wine, irons, and furniture here in the United States, or we bought them from other countries that made the same products… until the end of hostilities when trade routes reopened. That is the way it has always been. In a global economy, you should be able to change sources on a dime.
The crisis in international trade today, one that only President Trump fully appreciated, is that China is literally the only source for thousands and thousands of products. If we want to change sources today, it takes years to shift production, because new factories in other countries have to be opened, new machines bought, new employees trained to operate them, new molds or dies cut and new supply routes found for their raw materials.
We are not only talking about finished products, like televisions and cell phones… we are talking about the components that we use to make things here in the United States.
Look around your house at the “American-made” products you have today: your American-made washing machine and dryer, your refrigerator and oven, the car parked in your driveway.
Even if they are American-made, they likely include a number of critical components made in China, without which, those washer/dryer and refrigerator factories could not have made them… often, manufactured exclusively in China… because all the other manufacturers, all over the world, who used to make them too, have stopped making them or have gone out of business entirely.
That American washing machine factory is depending on motors from China… That car is probably depending on gearing and castings, pumps and belts, from China… That refrigerator may be depending on condensers from China.
Or even if those major subassemblies are made in the US, they themselves likely include components from China. Components that are only made in China… Components that would take a year or two or three to be made elsewhere, because other factories would need to tool up for them.
A personal admission from this writer: I opposed President Trump's tariffs when he started them. I did not realize myself, fully, just how bad this problem was. I have always been a free trader, believing that if a foreign country wants to sell us something cheap, we should accept it, naturally… and spend the difference on other things, increasing our standard of living. That is the standard libertarian line, the Milton Friedman argument for free trade. And it does make sense, generally.
However… the free trade argument simply does not anticipate a world in which one single foreign country eventually dominates so many key markets.
The United States, Western Europe, and in fact, the entire industrialized world are all dependent on China for the fundamental components that make their economies run.
This situation is unacceptable. This situation makes China the most powerful country on earth. And you don’t want an authoritarian, statist, communist regime to be the most powerful country on earth. You just don’t.
What President Trump‘s high punitive China tariffs have done, finally, has been to force our manufacturing world – from big to small, consumer to industrial – to finally start sourcing in other countries.
Purchasing agents from American factories are finally meeting with factories in other countries besides China, both here in the US, and elsewhere in Asia, and in both Eastern and Western Europe, and in Central and South America, to try to get these other companies to manufacture the goods that China dominates.
Re-sourcing – the process of right-sizing the supply chain – is a costly exercise.
And it is a long game, not something that can be done overnight. But we need twenty countries manufacturing lithium batteries, not one… twenty countries manufacturing small motors, not one… twenty countries manufacturing electric cable, not one. No more can we allow just one country to dominate the world market in all these and thousands of other areas.
Now that President Trump has started us on this journey… it may, hopefully, be unstoppable.
Finally, the world is going to have multiple sources for everything… And the world will be able to be independent of China.
The American Left may read this screed, and ask why we care. If we’re not creating those new jobs in the US, what does it matter which foreign country they come from… And this is a legitimate question. So, here’s the answer:
A wise country is dependent only upon itself, and if it is not independent, then it needs a broad variety of other countries upon which to depend.
If a country is entirely dependent on one foreign country, then it is not an independent nation at all… It is a colony of that supplier.
For too long, we have allowed ourselves – the once-mighty United States of America – to be subjugated by the Chinese politburo in Beijing. The Trump/Lighthizer campaign has finally begun to change that relationship, and help make the United States independent again.
Many assume that the Democrats have concocted the sham impeachment process entirely because of bitterness over the 2016 election, and their personal dislike for President Trump… but it may indeed be something else.
The Democratic Party has long been led by people with massive investment relationships with mainland China. Much of the Democrat leadership, for decades now, has had spouses, children, in-laws and friends who enjoy incredibly lucrative Chinese business positions, as distributors, consultants, board members, etc. The Democratic Party is run by families who take oaths to the United States, but live a lifestyle funded by Beijing.
President Trump has finally begun to make America independent of mainland China’s growing stranglehold on the economy. This, more than anything else, may be what terrifies the Democrat leadership, and has inspired their drastic, almost comically ridiculous behavior over the past three years.
Copyright 2020 John F. Di Leo
John F. Di Leo is a Chicagoland-based trade compliance manager, writer and actor. His columns have been regularly found in Illinois Review for eleven years now.
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