“President” Trump doesn’t seem to understand how tariffs work. He consistently states that imposing tariffs on imported Chinese products means that China will be paying the U.S. billions of dollars. It appears he thinks that the 10% in effect today and the possible 15% additional tomorrow is paid by China. How wrong he is.
In theory putting tariffs on other nations products will force that nation to lower prices to be more competitive. This has not happened with China. Let’s take a look at a common product imported from China, engineered hardwood flooring. Say I am an importer and I purchase a product for $2.00 per square foot from China. I then re-sell the product to U.S. consumers for $2.40 per square foot. Now add the tariffs. If the additional tariffs go into effect tomorrow then I will have to pay China the original $2.00 but also have to pay the tariff (import tax) of $0.50 to the U.S. government. Now my cost is $2.50 per square foot. Using the same profit margin I now sell to U.S. consumers for $3.00 per square foot. China still gets the same price, I still make my margin, the U.S. gets their tax and the consumer gets screwed. Or I have to lower my margins and take less profit. That means less pay to my employees which again screws the U.S. consumer (see a trend here?).
In addition China has put retaliatory tariffs on U.S. products from fish to soybeans. But instead of continuing to import from the U.S. to China they are now importing from other nations to bypass the additional cost of importing. Who does that hurt? Once again the U.S. consumer. Why? Because U.S. producers are losing business, laying off employees, defaulting on loans, etc..
I hope our “president” reads this or at the very least listens to someone who can explain it to him. Maybe it needs to be presented in an even a more simplified form. Maybe cartoon drawings with bright colors, big letters and very, very short words!
Don’t get me wrong, I think China needs to change their policies to make trade practices fair to both countries. But tariffs are not working and will not work with China. China can dictate to their consumers what nations can import to China. The U.S. is more open (and should be).
Then there’s the problem of capacity. Let’s go back to flooring. Waterproof vinyl flooring is the hottest product on the market right now. Almost every single square foot of WPC and SPC flooring is made in China. If tariffs make it feasible to manufacture in the U.S. then factories will be built. However the flooring industry has estimated that it would take approximately 1 decade to build out the infrastructure necessary to produce the quantity of flooring made in China today.
I would love to see us buy only U.S. made products but that is not feasible. Today’s market is global. If we buy only U.S. then why would any country import from us? Technology has made it so that any reasonably stable nation can build out the infrastructure and produce their own goods. At this point in history we need more cooperation with the people that share this world not less.
The Word By Namdoog Kir 