One way to prevent U.S. manufacturing companies from moving their production out of the U.S. is to place a high import tax or tariff on their products. The economic theory is that the high tax or tariff will raise the price of their products to approximately match the price of similar product made in the U.S. Thus it will cancel out the advantage of lowering the cost of manufacturing by moving production out of the U.S. The basic point is to prevent U.S. job loss by companies moving production out of the U.S. Preventing good paying jobs from leaving this country will make our economy stronger, and that will help all businesses and consumers.
Preventing jobs from leaving this country can be done by either a “carrot or stick” approach. The use of import tariffs to prevent job losses is called protectionism and it is a “stick” approach. It is pure economic punishment. A “carrot” approach would be to lower taxes and roll back regulation on U.S. companies, so they can lower their prices and incentivize consumers to buy more of their products. This is done on the theory that taxes and regulations are somewhat excessive, so taxes and regulations can be reduced without harming anyone.
Proponents like to regard the punishment as being inflicted directly on the companies that want lower their manufacturing cost by moving production out of this country and then selling their cheaper products back into our domestic markets. However, the punishment actually falls on the U.S. consumer. They are the ones who directly pay the import tariff if they purchase a product that bears that tariff.
I haven’t thought about how this would affect the railroads.
If paying for higher wages, worker protection, and environmental protection hurts the economy, can we conclude that higher wages, worker protection, and environmental protection hurt the economy?
Are the benefits to the consumer and corporate profits a result of externalizing these costs to other countries and people who will have to deal with polluted soil, water, and air, adverse health effects, etc.?
I remember some years ago watching the head of the US Chamber of Congress testifying before some congressinal committee. He enumerated what needed to be changed so that companies could be “competitive” and keep jobs here. Things like eliminating the minimum wages, eliminating laws allowing collective bargaining, eliminate laws regarding pollution, consumer protection, product and food safety. And of course reduce or better yet remove taxes.
In essence, for the US to be competitive they stated that it needs to turn itself into a third world country. I was shocked. Not that the mouth piece for business would think that way, but that they would actually come out and say those things. I suppose they felt safe doing so because it was on C-Span and most people would rather watch the adventures of the latest celebrity du jour. That and many don’t care if manufacturing jobs go away. They don’t want (for themselves or their children/grand children) to do any type of work that might cause them to get their hands dirty or break a sweat.
There never will be enough carrots for some business people no matter how many bunches you throw at them. They will always find a reason for more.
I actually think that the railroads would rather have manufacturing done out of the country. If it returned to the US, they probably figure most finished product, as well as inputs, would move by truck.
World business is already decrying that 3rd World employees actually want to get paid enough to feed their families and are now looking to the 4th World for thier slave labor.
Jeff H said [in part] :"…There never will be enough carrots for some business people no matter how many bunches you throw at them. They will always find a reason for more.
I actually think that the railroads would rather have manufacturing done out of the country. If it returned to the US, they probably figure most finished product, as well as inputs, would move by truck…"
Jeff
Sounds like a reasonable resource for that kind of comment. IF Yhe hmanufacturing jobs WOULD return here(THe USA) and those plants would start back up…That would seem to put the railroads a a disadvantage at that point.
All those nice, point to point through jobs would be dipped into a sea of ‘local’ service operations, which would be underfoot of the ‘long distance trains’. I would gues that dewell time in yards, and enrot delay would be a constant headache for those dispatch personnel charged with ‘getting traffic over the road’.
It might even result in a flurry of new construction to ‘unclog’ bottlenecks resulting from new business with switching jobs that would be required to go agains the flow of traffic to drop and pick up? Just my [2c]
Congress should carefully examine the effect of previous high tariffs, such as the Smoot Hawley Tariff–which brought economic troubles to our nation as other nations increased their tariffs on our products.
I have no idea whether this talk of a 35% import tariff is just posturing for negotiation or if it will be actually put into effect under the assumption that it will bring back manufacturing. If it is the latter, it is mighty strong medicine, and if it backfires by pricing consumers out of the market, it could wreck the economy.
But yes I agree that the larger potential problem is an international trade war. The problem with tariffs is that the targets always retaliate. They don’t just go along with it.
History proves that trade wars can degenerate into shooting wars. Is there any wonder of why all the General’s are being appointed to cabinet positions?
Think about it this way. China exports close to 800 Billion dollars a year to the USA in finished goods. Now they charge us for importing materials into China a 45% tariff anything that they can produce in China. So our companies just have everything made overseas. Then to really make things fun for our companies the Yuan the Chinese currency is worth 10X’s more in China than they say it is overseas. You see how they screw us over on building things. They also steal designs flat out ignore patents and will reverse engineer anything they want and then sell the knock offs cheaper than the ones they are making for you.
So if the USA starts a trade war with China what will not be coming over from there. Things like Toys black pipe fittings cheaply made tools some consumer electronics clothes and other goods. Not exactly things we will die if we do not get. Regardless of what the tech geeks think if they do not get the latest I Phone.
What does China lose over 800 Billion a year in Hard Currency to pay for things like Oil Grain they import close to 70% of all their wheat 90% of their Oil massive unemployment we are talking about hundreds of Millions of people out of work. It would make the Great Depression we had in the 30’s over here look like a speed bump. What could happen War between China and the USA. Forces wise we have them outclassed above and below the seas they do out number us in Men however we have them dominated in the air.
The PRC is not going to want to start a fight with the USA in either trade or with armed forces. They need us more than we need them. Their whole economy is based on flooding our shores with cheap made goods. We shut them out and their whole house of cards will collaspe.
Import taxes would likely have the intended affect of discouraging foreign imports while incentivizing production in the United States. To what extent would be anyone’s guess. So those long hauls from Asia will be replaced with shorter hauls from Peoria. The net affect of shorter hauls will benefit trucking at the expense of rail. Worst case scenario for the railroads: All those double stack trains hauling containers to and from the ports may become a thing of the past. Hopefully there’s a plan B.
I don’t see how the tariff would incentivize production in the U.S. It would discourage foreign imports because consumers would reduce consumption of the products when the tariff raises the price by 35%. The massive loss of consumer spending will throw the economy into recession.
Less stuff coming in will shift production here to meet consumer demand. The products you use have to be made somewhere, and if a 35% import tax discourages imports, then that serves as a de facto incentive to domestic manufacturing (and that’s the whole point… Trump has been saying that all along).
There is a lot of elasticity in how people choose to spend their money buying the things they want. If they suddenly feel poorer, they will buy less. So prodution will not move here if there is not enough demand for the products suddenly priced 35% higher.
It is certainly true that a 35% tariff will dramtically reduce imports, but there is no certainty that the loss of imports will be compensated for by products made here. It may eventually evolve into that in 10-40 years. Then we will be an economic island with no imports and no exports.
One can’t assume that a 35% import tariff will lead to 35% price hikes. Higher labor costs here can be offset by lower transportation costs and automation. And some industries (like textiles) can forgo there 500% markup by shifting production from overseas to here too, with little price impact on the end consumer. I don’t think we’ll become an economic island, but there’s something to be said for regionalization verses globalization. Right now (IMHO) globalization has gone too far… when a simple snow shovel comes to us from India or China. Come on… where’s the logic in that? We can make those here and reduce our carbon footprint in the process. And so on for thousands of other cheap consumer products.
What also may be true is that those who propose new rules and regulations haven’t thought about the effect that these have on the US.
There is an old expression: “You can’t value something unless you are willing to place a value on it.”
We in the US have to decide whether we value worker protection, clean air, etc. and are willing to pay for it. Anything else is wanting your cake and eating it.
Yes, I agree that the cost of the tariff may be offset by other savings. One of the costs to moving production off shore is the difficulty in dealing with a foreign country and their methods, and difficulty in communications. Poor quality is also a big offset to the lower cost. I remember when a lot of companies began outsourcing their injection molding to China. For one thing, mold costs were much less over there. Why pay 6 times more for a mold made in the U.S. than one made in China. Both molds will mold the part to proper dimensions and tolerance. But molds are complex mechanical devices, and the cheap ones from China require more repairs and more frequent rebuilding. So you get fewer parts out them, which raises your part cost when you factor in the mold cost.
Nevertheless, why would a consumer want to pay $25 for a snow shovel made in the U.S. when they can buy one from China for $15 assuming that the consumer sees the same level of quality and life in both shovels? The logic is in the $10 savings.
I don’t like the effect globalization has on our manufacturing sector, but how can
Some CEOs have said they cannot find trained workers for some jobs here. Our post-secondary education (voc-tech in particular) needs to work more closely with employers.
Translation - They can’t find college educated Engineers willing to work for minimum wage. They can’t find journeymen machinest and tool and die makers that will work for minimum wage. They can’t find any skilled tradesmen that will work for minimum wage. It’s all about the Benjamin’s!