As someone who has contract manufactured thousands of items in China, let me tell you how this works.
First of all, anyone who is still manufacturing products in China for the US market is either a fool or clueless. After the random tariffs of the last go around, anybody with half a brain that had production there solely for the US market got their stuff out to Vietnam and other close countries to China.
Vietnam was the 1st choice because of geography and the ability of companies to work the product trail so it looks like it's made in Vietnam. Many would ship nearly fully made product to Vietnam from China, finish it, and it became Made in Vietnam. Same happened with the Made in Cambodia goods.
Lots of other companies used Taiwan as their re-shoring option. Again, this was easy. One could ship almost completely made product from China to Taiwan, package it, and viola, it becomes made in Taiwan and random duty-free! This has been going on for decades to evade anti-dumping duties on items. It's just been expanded.
I'll tell you the extent companies will go through to circumvent tariffs. About 30-years ago, Sri Lanka was a duty free exporter to the US. An item that had 9% duty from Taiwan was being shipped to Sri Lanka and packaged, where it became Made in Sri Lanka. I bought them from there for about 4% less than the Taiwan product. That was for 9% duty. What do you think companies do to get around 25% or the egregious 60%.
Also, the last time around with the duties, China devalued their currency proportionately in order to reduce the impact of the duties. They are going to do the same this time, but not to the same extent. This would only account for maybe 7% of the duty increase.
The US has been losing manufacturing jobs since 1955. It's been a steady drop down. People who think it's a recent phenomenon are not paying attention. It doesn't have to be off-shoring that cuts the jobs. Take a 3% productivity gain and annualize it over 7-decades and you get 3-people doing what essentially used to take 15 people, either through improvements in design, automation, engineering, and other things like quality improvements. Higher productivity leads to higher wages. It just also leads to job losses in that line of work.
Ski is a doc, so when I say the tariffs rates being kicked around are the highest since bloodletting was standard medical procedure in the US, it should resonate. There's a reason why nobody does this stuff anymore, including bloodletting.
Jobs are not coming back to the US with tariffs. China has manufacturing in Africa. They're developed ports, industrial parks, and invested boatloads of money there. Some light manufacturing can go there to get around tariffs. There a billions of ways to circumvent them. There are also lots of ways to cheat and make things appear to be Made in USA or Mexico when they're really made in China.
I dealt with about 500 factories at a time in China. Not a single one would ever pay US tariffs. Nobody does this. You buy the goods, and then what happens once they're on a boat or plane headed to you is your problem. That's how it works. Community college teachers know this, as does 99.9999% of the business community who do international business. Nobody that exports from the US to Canada pays the Canadian VAT. Nobody who exports anywhere pays another country's duties. It makes as much sense to an exporter as paying the income tax and payroll taxes of the export customer you are selling to.
The tariffs will be nothing more than a regressive tax on Americans. They will not be offset by growth. It will just cause a bunch of supply chain musical chairs and cheating that will be proportional to the potential gains from cheating. It will cause front-running, which I personally am doing to avoid this ridiculousness with my job. It will also not pay for the tax cuts that are coming.
Anyone who sees manufacturing coming back to the US without massive government subsidies should let us know. I've not seen it.
Oh, lots of stuff that is "Made in the US" is actually made off-shore. You see, to have something called "Made in the USA", you only need to have 50% or more added value to that product. There is a lot of creative accounting that goes on that can make 10% look like 50% added value, so hundreds of millions of Americans who think they are being patriotic by buying US made products are often times being fooled by companies who work the gray in the laws and rules, or just plain out cheat and lie.
I am not going to change anyone's mind about this, as once a person with a strongly held belief is presented with evidence that contradicts that belief, science says they double down on their belief. This post will only do one thing to those who love the proposed tariffs....it will make them love them even more! Enjoy!
Oh, and T/A says there will be a rapid and short recession in 2026 that reverses hard mid-year in a v-shaped recovery. I suspect a failed bond auction may be one of the components of this episode, as things are shaping up to support that outcome. |
