UPDATE 8.11.19: U.S. farmers lost their fourth largest export market after China officially cancelled all purchases of U.S. agricultural products, a retaliatory move following President Donald Trump’s pledge to slap 10% tariffs on $300 billion of Chinese imports. Some say Trump is ruining our nation. [source]
Trump is forcing China to stop stealing intellectual property. He is seeking better terms for U.S. goods — this is a Trade War. China fights back by ending ALL imports. What is the complete story?
China is pulling out of purchases of around $15 billion. Yet Trump renegotiated trade conditions with Canada and Mexico (2018). Canada is buying about $10 billion more; Mexico is buying about $8 billion more; Japan is buying about $8 billion more. Korea, Hong Kong, Taiwan, Vietnam, Indonesia and Netherlands are all buying more.
This is if you believe the U.S. Department of Agriculture. Trump lost some to China (-$15B) but gained more in the other top nations of the world (+$30B). I would say President Trump is winning this trade war for us. What do you say now?
Americans are angry — at least significant minorities on the political Right and Left. There’s also anger coming from students, the lower Middle Class, blue collar workers, beginning professionals, and those who feel our promise of an American Dream has passed them by.
In response both Bernie and Donald Trump promised to rescue the Middle Class. One way Trump is doing this is imposing tariffs on imported products from China. Most people do not understand how tariffs work or why a nation implements this trade policy.
The fact is prices go up for Americans when Trump adds a tariff. Why? Let’s say it takes three hours to make a product. American workers want $15/hr; Chinese workers will do the work for $5/hr.
If Americans make the product it costs $45; if Chinese workers make the product it costs $15. Which do you prefer? Most of us choose the less expensive Chinese item for $15. This is good for us individually. It’s bad for us as a country, because we do not have factory work here. Factory jobs pay better.
The inner areas in most America cities are economic “dead zones.” Black workers, their families, Brown workers, their families, have suffered the most. Trump adds tariffs to imported products to return factories to the inner cities. Democrats claim Trump is a racist. Bernie would do the same thing. We must stop playing politics and offer decent-paying jobs to all Americans. We need more factories at home again.
It’s a complex challenge. What is better for you? What is better the nation?
Real Life Example from Hawai’i
Kristen Consillio, StarAdvertiser, wrote how “China tariff increases take effect on local businesses.” She says Chinatown wholesale merchant Hong Pan of A1 Trading LLC is feeling the pinch of trade tariffs. This is not quite true. [source]
Pan is not being affected much by the tariff. As a wholesaler, she has to raise her prices, but retailers are willing to pay the higher price. The 12-year owner, who imports nearly all her merchandise from jewelry to trinkets from China, said business is suffering as a result of President Donald Trump’s trade war with America’s largest source of imports. I wrote to Kristen:
Aloha Kristen,
I’m an economist. In another excellent article, you wrote, “A couple of months ago, Pan had to raise the wholesale price of the magnets she sells to $1 from 80 cents with retailers turning around and selling them for $3 instead of $2. The increase was the result of the tariffs.”
Pan raised the price 25% to $1 from $0.80. This is a $0.20 increase in cost to the retailer.
What did the retailer do? The original price was $2.00. Rather than adding the true cost of $0.20, making the sale price $2.20, the retailer added $1.00 — making the price to the consumer $3.00 — and giving the retailer an additional $0.80 in profit.
Then the retailer BLAMES Trump and tariffs for the higher cost, while putting MORE into her pocket. Consumers who would have paid $2.00 for a magnet will pay $2.20. Consumers do not want to pay $3.00.
Trump’s tariff increased the price $0.20. The retailer increased the price of the magnet an additional $0.80 — or four times the amount of the tariff.
Who’s the THIEF here? The retailer added FOUR TIMES the cost to the product compared to President Trump. Consumers aren’t buying because the retailer is “jacking up prices” unfairly and unwisely.
Trump is tariffing China to BRING GOOD PAYING jobs and factories back to America. Retailers are RIPPING off consumers. Retailers who are willing to buy a magnet for $0.80 will pay $1.00.
Consumers willing to buy a magnet for $2.00 will pay $2.20. They will not pay $3.00. It is the retailer who is hurting sales. It’s the retailer, not President Trump, who is hurting Pan’s business.
“The trade war puts a gray cloud over the economy in that people are more fearful about what will happen in the future,” said Nathaniel Hartmann, associate professor of marketing at the University of Hawaii Shidler College of Business.
“(But) there’s always a lot of sides to a tariff story. There are positives in that it does help our companies long-term protect some of their intellectual capital. It’s really hard because consumers do pay a price for it, but it’s a price that may be worth paying.”
Nathaniel Hartmann, University of Hawaii Shidler College of Business
How many magnets do you need? How many t-shirts? We can have fewer items at slightly higher costs to ensure our neighbors have good jobs or we can have a closet full of unwanted clothes, and refrigerators covered with magnets, while our neighbors live in a tent on the street.
Remember the words of John Kennedy, “Ask not what this nation can do for you; ask what you can do for the nation.”
Americans are asking collectively that we buy Made In U.S.A. or Made In Hawai’i. We must share sacrifice and work together if we want a strong economy for all. Do we care about each other or simply about ourselves?
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