Well you know … there is this saying … “put your money where your mouth is”
so lets quickly look into why so much manufacturing went to countries with cheaper wages.
For many CEOs the main KPI is investor value. so if you can increase your profit margin by moving out production to cheaper countries, then you get more bonus and your investors get a higher payout. (which started in the early 80ies btw)
Customers want cheaper cheaper cheaper. Which is also partly caused by companies keeping more and more of the profits for them self and their investors instead of having a fair salary growth for their employees.
Even the MAGA campaign failed at the “put your money where your mouth is” bit by using merch produced outside of the US.
So lets say we want to revert this and move manufacturing back to our countries:
Things need to get more expensive or we will end up with highly automated production (not many jobs gains. just more money extracted from consumers towards companies)
Things dont get more expensive. So we get now fellow citizens who should live in your country by earning as much as someone in South East Asia? Will work just fine eh?
So if you are “My country first” … why didnt those people buy only locally made things to begin with? why only being forced through tariffs?
Why didnt all the CEOs, who are now bending their knee to the government, hired Americans first? If they didnt find enough talent in america why didnt they start training their own instead of having brain drain weakening other countries? And I found it highly amusing that some CEOs, who were a bit involved in the government, wanted to kick out all immigrants, except those working for their companies.
And you think all the farmers will find now Americans who want to do all the hard farm jobs? because they have to. The people, who used to do the job got deported.
Some already plan to revive the whole prison industry thing, where they “rent out” inmates as farm helpers. I am sure this will go well. Or you know teenager, like in Florida.
And btw you could have all that seen happening after brexit already. they suffered the same worker shortage afterwards.
Same goes to the customer side. If you are truly about “I want to support to support local industry” then you will have to pay that “locally produced tax” because wages are higher. You could have done that all those years already.
It is always good to also look at the systemic issues that lead to the situation we are in now.
And in the case of “our local manufacturing died” it is something we did to our self in the name of greed. It will be interesting to see how many customers are willing and able to pay for reversing this.
Also please look at the tariff wars in the 1920ies and where this lead us. We have been here already.
A good example in Europe is automakers, they laughed at Tesla when it was starting out and didn’t invest in their tech, instead they decided to make their petrol cars more and more luxurious. Now BYD and other brands are shaking the market with cheap EVs and the EU already wants to tariff all chinese electric cars by 50-100% so they are forced to open factories here. But the EU seemingly doesn’t seem to blame the automakers, who priced out 90%+ of europeans, but china instead. Greed all the way down.
Hi Darix. I actually agree with almost all of what u say in your post and I’m certainly not arguing for these tariffs. This is not a matter of blaming one country or another.
Countries, or constituents of countries, will do what’s in their interest. The gains in terms of human welfare of the rise of China (after its disastrous fall) are undeniable. The export-led escape route (including “theft” of IP) is a legitimate route to development that was used by the U.S. itself (including the IP theft).
The problem is that this policy can be hard to unwind. The CCP knows it needs to shift to a consumption led economy like (most) other advanced nations. It’s just hard to do because there will be many powerful losers in the interim. The Soviet Union failed after everyone thought it was beating the West in the 50s because it’s investment-led spurt died and its consumers became impoverished. Japan has taken more than 30 years to transition to consumption through decades of stagnant growth and a decline in its relative prosperity.
On the prospect of US consumers buying local, the abject failure of “Buy American” “Buy British”-type campaigns in the face of pocketbook interests anywhere on the planet seems to militate against that, while humans are perfect hypocrisy machines when it comes to changing their tune in the face of material interests.
On CEOs keeping production in the U.S. and failing to maximise profit, this is literally against the law and/or civil court rulings and against executives’ fiduciary duty, as I understand it. As an aside, this fact may well have contributed to a crisis on the centre right of politics in which the deal for their voters was business-favourable policies plus overt nationalism & social conservatism. The contradiction that resulted from the shift of profit making to the global sphere ultimately may have fractured this deal after a period of tension for many years. And so here we are.
On that last point, I disagree with a lot of this post from 2016, but it makes some decent if debatable points:
Funky: Erste Berechnungen: 700 Dollar mehr für ein iPhone wegen Trump | heise online
This article says that iPhones will rise in price due to the tariffs as it is an “international” product. On Friday I just ordered my hopefully last fruity product (an iP 13) for my wife. Lets just hope that within the next 5 years there will be a good linux based phone which is also easy to repair. Hope never dies I assume.
I am not saying the European car makers are blameless (far from it, they are really good at regulatory capture and collusion), but leapfrogging an existing technology is a very common pattern for innovation, in which case the incumbent with the old technology is usually in a similar situation as EU automakers. This is a normal process.
You make a valid point (this is a lesson that should have been learned), but there is an important difference. The 1920s tariff wars were about countries desperately trying to raise revenue, and ending up hurting everyone, including themselves. The current tariff escalations are bilateral, the US raising tariffs against everyone and getting some retaliation, but no tariff escalations between third parties so far, and there is no reason for them either. Developments may even motivate lowering tariffs between countries.
The problem is not leapfrogging, I understand that’s normal. The problem is arrogance and complacency (and greed for automakers), which Europe seems to be especially good at. Arianespace is the prime example of this arrogance.
A few years ago they were laughing at SpaceX and their efforts for reusable boosters, now they are suddenly feeling the heat and looking to develop their own reusable rocket (After billions for Ariane 6). Similarly other european agencies are looking to form coallitions to develop a replacement to starlink, but it’s too late now, we are at least 10 years behind if not more and not for lack of talent or capabilities but due to pure arrogance.
2024:
U.S. trade deficit $918 billion
China trade surplus $992 billion
EU trade surplus €147 billion
(Sorry Google AI but seems about right)
If, a big if, the US substantially reduces its trade deficit, the EU is not going to be able to absorb that Chinese surplus. And there are no other economic entities of sufficient scale.
you make it sound like this trade volume comes out of thin air and not because of demand. Also I would like to the Matt Parker video
because x < y
is not a very useful metric to decide if your trade deficit is actually good or bad. and especially not the bullshit math they came up with to decide how much tariffs each country gets. Hint: countries, which got a trade deficit with the US also got a 10% flat tariff assigned to them. isn’t that weird?
I mean one way to increase your exports would be having less shitty products. YT suggested to me a video where US truck drivers try a modern 2025 Scania truck.
you know what the o-ton is? “Scania needs to come to the US to bring some competition to the US. The companies here got complacent and are selling us the same shit for decades now. Not even the latest comes even close to this truck.”
The truck is more quiet ( can actually have a normal conversation while driving), more comfortable and less fatiguing. More Power and a transmission that can actually handle the load.
And people from Australia or Mexico were like “if you give us a choice EU truck vs US truck. EU all the way”
You got some places where you are still somewhat leading. But in many cases you got left behind.
That is not how it works. There is no “conservation of trade deficit”
Also, as @darix mentioned, it is not possible to just label these things harmful or beneficial based on some simplistic aggregate metric. There is room for industrial policy, but it is a much more complex question which requires an orders of magnitude more nuanced approach.
I am an economist with a PhD but trade is not my area so I don’t know enough about trade and industrial policy to say much. But at least I know what I don’t know, and that it would take me about 10 years to become an expert.
I find it surprising how many people voice a confident opinion though. Just like during COVID-19 the world was full of virology experts and epidemiologists.
Hey. Sorry don’t have time to go into this now. Also, it’s my own fault, but I probably shouldn’t have tried to have a discussion about complex international trade and capital account matters on a, checks notes, photography geek website. Lol.
Absolutely. As stated, I am channeling what I’ve been reading on these issues, mainly related to China, for about five years. Economists obviously have opinions to spare. I probably express too much certainty because I’m lazy and it’s easier to avoid too many caveats. Anyway, I have to dash. Thanks all.
you should be very careful with how you judge people and you never know where you meet interesting people? I did meet a nuclear physicist while playing games. A plasma physicists, who does machine learning to understand the state of plasma in a tokamak better. and many more fun things like that. I value all my friends a lot because I can learn a lot and bother them with questions.
Seriously. One time, I went to a pay phone business conference and met and had dinner with Gene Kranz, one of the men who had helped engineer the solutions that got the Apollo 13 mission back to earth. He was a very good conversationalist.
I think it’s absolutely fine to broach these topics as long as we’re all respectful and honest about our knowledge levels. Pretending we all know best is where a lot of modern problems around polarization lie. I have strong opinions about everything happening right now, but I’m also the first to admit that I’m not at expert at international trade. What I know I have learned over the last few months from reading what I believe to be unbiased expert articles. Which leads me to…
… from what I have learned, the above is absolutely true. Trump is using the “deficit” word to make it sound like it’s always a bad thing. Not only are the numbers being used dishonestly, e.g. not including services and individual products to paint a complete picture of overall trade, but also failing to account for the fact that deficits in large-population countries are not only to be expected but can also be a sign of a healthy economy.
You don’t have to be an expert in international trade to see the lunacy of reciprocal tariffs between the US and, say, Madagascar. And this line about poor America being taken advantage of and having to “subsidize” countries like Canada rings completely hollow. Let’s face it, the US has massive wealth. The current administration just doesn’t want to distribute it more equitably among its people.
And for the record, I have many friends who are US citizens, and I include those on this forum. My beef is with the current administration (and those who continue to support these policies).
