Trump orders U.S. firms out of China after Beijing sets new tariffs
reuters.com
reuters.com
The enormous electronic manufacturing in China isn't moving anywhere, there's just nowhere that has the scale, infrastructure,and the know how to produce cheap electronic products. If you think this is still all just people on the assembly line, you've got a very historical understanding of this process.
What a weird tone. Is that a thing in the US? Can the president (legally) order companies "home"? Doesn't sound like "land of the free" to me.
He's an authoritarian thug who still doesn't know how governing works.
Just because the President has certain powers, doesn't mean he will be allowed to abuse those powers and remain unchecked.
If Trump tried to force all American companies to stop doing business in China by declaring China a "national security threat," his efforts would be immediately met with a challenge from the courts and he would very likely be impeached or removed from office. What would not happen is the rest of the government simply throwing up their hands because "the president controls the defense apparatus."
If it really worked that way, Trump would already have declared Mexico a national security threat, forced the government to fully fund the wall, seized all necessary lands via eminent domain and started building it by now.
It's not so simple as, "Hey, lets pocket 500B - 130B = $370B and put it in the bank or spend in what we want".
First of all, prices will increase, and production will move to other countries.
If you ban imports from other countries, many things will become unaffordable to many people, which creates knock on effects. PCs and Smartphones getting more expensive means fewer people will use them, which means a smaller market for software. People will have less money to spend on, say, restaurants. People living off the $130B of exports will be out of jobs and some will go on unemployment and social welfare. Others will be hired with lesser pay, so will buy less. There will be so many knock on effects beyond this. Tesla is down 4% just today based on new tariffs announced by China for the future.
We are already paying new subsidies to farmers, from taxpayer money that can used to, say, build super fast trains in the US like China has.
https://www.latimes.com/business/hiltzik/la-fi-hiltzik-trump...
The tariff is scheduled to take effect Dec 15th. Tesla will be producing cars locally in China by then, or within 30 days of then. I believe Tesla China sales have already slowed in anticipation of the lower cost locally produced version.
If anything, Tesla stands to gain from increased import tariffs from US->China.
The only solution, and a much "simpler" one (because it does not involve myriad scrutiny of which products to apply tariffs to and how much, etc.) is devaluation of the dollar. We've been here before, where US domestic manufacturing faced pressures as dollar was too strong. The Plaza Accord [0] involved Germany and Japan taking measures to increase their currencies against the dollar (in some ways successfully in some ways not). But it did result in a few years of dollar devaluation.
A better way currently, given that there isn't the same coordination or appetite for China or others to allow their currencies to rise too much against the dollar (because they don't want to sacrifice their domestic industry) is for the federal reserve to bid for gold, at a much higher price. This will diminish the dollar and treasuries role as reserve and increase (which is already happening) gold's place as premier nuetral reserve asset (see global central banks declining purchasing of treasuries, increasing gold purchases, and decreasing $ fx reserves over the last few years).
The US can either run the global reserve currency or close its trade deficit. They cannot do both [1]. Weakening the dollar and bidding up gold will solve a lot of the trade imbalances affecting the world [2] as well as devalue the massive amounts of debt overhanging the US and world economies.
[0] https://en.wikipedia.org/wiki/Plaza_Accord
[1] https://qz.com/1266044/why-does-the-us-run-a-trade-deficit-t...
[2] https://www.nytimes.com/2019/06/16/opinion/elizabeth-warren-...
(1) the absence of any statute granting him the authority to impose export tariffs, and
(2) the fact that any statute which did exist purporting to grant him such authority would be invalid under the Export Clause, which explicitly prohibits export taxes and duties.
OTOH, he could prohibit pretty much any trade he chose with China under the International Emergency Economic Powers Act (the main law under which Executive-declared sanctions are instituted.) He just can't tax exports.
The constitution enables the institution of arbitrary import tariffs, but it offers absolute protection to American companies. Neither the president nor Congress is legally allowed to tax exports (Article 1, Section 9, Clause 5)
Incorrect, the president controls the defense apparatus, which can label any country they wish a "threat to national security", which according to laws enacted since 9/11 can prevent American companies to do business with other countries. In the post 9/11, trumpian world, economic freedom depends on the mood of the president.
The most relevant law is the International Emergency Economic Powers Act, which was passed 34 years before 9/11.
Anyone who knows more than me feel free to chime in!
1) Raise tariffs to absurd levels (like, 10000% tax on anything from China).
2) Some sort of national defense justification. He could probably put all employees, companies, and executives on terrorism or customs watch lists and make life difficult for them.
3) Use existing sanctions on other nations as a way to forbid doing business with various entities in China.
There's probably also another way to do it that would, presumably, be illegal:
4) Unilaterally blockade the nation, since he's chief of the armed forces (this is an act of war).
It's not worth enumerating the illegal things that the President can do. It's not bounded by anything.
Whether the President commiting acts of war unilaterally is illegal depends on disputed Constitutional questions, such as the scope of Presidential inherent powers and the Constitutionality of the delegation of powers to the President under the War Powers Act.
It's an extremely weird tone, but this has been an extremely weird presidency.
[0] https://www.snopes.com/fact-check/donald-trump-sentence/
> Can the president (legally) order companies "home"?
He ordered them to start looking if you want to be pedantic, which still does not "order companies home," as was stated.
Furthermore, doesn't "hereby" mean specifically "this thing that you are now reading/hearing/seeing is the instrument of the order?" In other words is he issuing an order via a tweet?
In fact, if he thinks that Twitter is a legally valid medium and that anything he says is a legally valid order, that would explain a lot...
Notice how any country with the words "democratic" or "republic" in the name are actually dictatorships? And it's an extra tyrannical dictatorship if it has both.
The tariffs are exactly what will spur the investment in US manufacturing, and the marginal benefit of manufacturing in China and then shipping the end product halfway around the world eroded away.
Of course manufacturing is an ecosystem which builds up over time, with positive feedback loops where investment drives further efficiency throughout the supply chain.
All the more reason to raise tariffs now, and hope that they stay high for enough years to stop the ongoing atrophy in the US ecosystem.
It’s not just because China’s an unfair competitor from a labor rights and environmental impact perspective. It’s also a massive national security issue.
The choice isn't just "manufacture in China" or "manufacture in the US". According to Peter Zeihan's The Accidental Superpower (2014), manufacturing in China has gone from being one quarter as expensive as in Mexico to 25% more expensive. He expects that the US shale and natural gas boom will further reduce costs in Mexico and the US.
Also see "[Why China should follow Trump’s example and cut taxes](http://www.scmp.com/week-asia/opinion/article/2056874/why-ch.... Quote: "As far as manufacturing is concerned, according to Cao, everything is cheaper in America apart from manpower."
Well, yeah. But the problem is that China has such a huge head start in all this that all the stuff I said about moving manufacturing to America would apply to Mexico too in terms of having to import components and/or raw materials from China, at least at first.
That said, in terms of national security concerns and such, yes, it would be in America's interest for Mexico to be a manufacturing powerhouse at or near China's level, and I'm sure Trump and his fans would appreciate that a booming Mexico would probably mean less illegal immigration to the US.
This isn't an A or B only choice. There's so many other options than US or China. And it's not just labor/safety, it's building an actual factory (which takes huge time and money commitments) which might be less viable in about 17 months if Trump and his protectionist policy aren't still in office.
But once you’ve started considering that process, maybe you run the numbers and find the marginal cost (an economic term, not to be confused with “small”) of producing locally isn’t as high as you think.
Every company importing from China is doing this analysis. For some percentage of those companies, the numbers will make sense to move into the US. Whether they are building a new local factory or contracting for space on an existing US line.
And it’s not purely “is the US marginally cheaper today,” but the bigger question of; is it less risky overall to produce in the US based on what might happen in the future?
China and the US are not allies, and US companies should see some degree of risk in keeping their production in China.
And I even forgot to mention the rampant intellectual property theft and counterfeiting.
In that “Donald Trump being President and saying whatever he wants” is a thing in the US, yes.
> Can the president (legally) order companies "home"?
There may be statutory bases on which the President could adopt emergency sanctions which would have that effect (but probably not that effect alone), but a tweet simply ordering the companies to behave a certain way certainly is not, even if such authority exists, a valid way of invoking it.
> Doesn't sound like "land of the free" to me.
Donald Trump's statements often have no recognizable relationship to the legal powers of the Presidency, and often aren't, even when superficially announcing substantive action, even followed up with by any action by the administration (whether such action would or would not be within the law), or are followed up with action that is very different in substance than the statement would suggest.
“Hereby ordered to immediately start looking for an alternative” does not mean he is trying to say companies must cease importing from China, even if that’s what the headline will read tomorrow.
It simply says that companies need to start looking for alternatives to China.
Trump is saying it’s going to get increasingly expensive to import all our stuff from China going forward.
Can he make things increasingly expensive to import from China? As long as he’s President, yes he can.
"All my relatives are hereby ordered to depart a day early for the annual Christmas gathering, as storms are predicted for the I-80 corridor."
He’s putting companies on notice. He’s doing it with language which will get the statement widely reported (and unfortunately mis-reported).
But carefully reading what he is actually saying, you can see he’s not actually ordering anything. That’s the point.
In your hypothetical example you would need to change two things. One, it would read “All my relatives are hereby ordered to starting looking at flights a day early...”
And two, you would have to be God, because in that example you would be the one controlling the weather.
That said, I would love if more US companies built stuff here in the US. Yeah, prices might be a little higher, but at least we aren't exploiting the labor of vulnerable people in foreign countries anymore.
Well, they will be jobless now.
Isolationism doesn't work without completely changing the paradigm, and what you're proposing is basically just saying "Good luck on your own" as if without American corporations these people would immediately shift to some sort of worker's paradise.
Companies play arbitrage with the costs of doing business in different countries all the time. Union issues at your plant in Mexico? Close it down (taking a "loss") and switch production to India, or China. It happens all the time as externalities change the profit equation, companies will and do react accordingly.
To the point of exploitation, why not use tariffs as a way to enforce standards AND protect economic interests? Instead of targeting specific countries, it could be a points based system where "Long hours without overtime?" +5%, "Poor safety standards" +10%, and so on. Not to say the US is necessarily perfect here, but as far as I can tell, it's a long way ahead of the typical places it outsources production to. Enforcement might be hard, but any resistance to inspection etc. could be met with automatic application of the suspected tariff.
This seems like it would satisfy the goal of advancing human rights, but also give a more incentive to just hire workers in the developed countries.
[1] https://en.wikipedia.org/wiki/Xinjiang_re-education_camps
I was curious about this, so I found a somewhat recent study that looked at how much it would cost for an "all-american" iPhone. The authors of the study think it would cost about $30-40/phone to do final assembly in the US (with Chinese and other foreign components), and sourcing all-US components would add another $30-40/phone. What is only lightly mentioned is the many, many billions of dollars it would take to build all of those production lines domestically, which makes it a non-starter. I could easily imagine it costing hundreds of billions of dollars.
https://www.technologyreview.com/s/601491/the-all-american-i...
Simply put, the US has nowhere close to the skilled labor force needed to 'bring it home'. In Flint, MI, as of 2017, journeyman die-makers pull about $130k. Yes, that Flint. [0,1] Yes, starting wages for a CS bachelors in SF. But for a person without a HS degree. In Flint.
Journeyman takes about 5 years of post-HS apprenticeshiping and the relevant CAD and math skills, FYI.
So, you may be thinking that in about 5 years time the US would be able to get back to where we are today.
We currently have ~70k tool and die makers in the US [2]. Though numbers are very hard to come by, as of 2006 there were about 3 million tool and die makers in China, about 1 million of which came at the expense of US jobs [3]. So, we need to grow the US tool and die makers in the US by roughly 1500%. Not 10%, not 100%, not 500%, but by ~1500%.
That, simply, is not going to happen without massive government financial input. That bill, to get all the tool and die makers that we need in the next 5 years at ~$15/hr that an apprentice makes, would cost about $145,000,000,000 in just wages. For just die-makers. Then you have assemblers, machinists, lathers, welders, etc. We're talking trillions at the low-ball numbers for the cost to re-educate the workforce. This will be a double digit percentage increase in the cost to manufacture anything that you pay for. The US consumer and the US government are simply not going to pay for that.
[0] https://www.industryweek.com/supply-chain/tool-and-dying-aut...
[1] https://www.payscale.com/research/US/Certification=Journeyma... US average wage for die-making is about $26/hr, FYI.
[2] https://www.bls.gov/oes/current/oes514111.htm
[3] https://www.uscc.gov/sites/default/files/moncrieff_statement...
Edit for spelling.
The U.S. can't go to war with China.
The U.S. can't ban Chinese imports.
The U.S. can't overthrow Chinese Government.
Just as U.S. has built their whole economy around imports, China has done the same with exports, they need to put people in jobs and keep the exports flowing, so they have no real incentive to rework a favorable deal.
So really the U.S. is relegated to performing a Symbolic Trade war: Declare China a Currency Manipulator, Stir the pot in Hong Kong, Requesting Companies return to the U.S.
All the while, the markets are pretending the Trade War is real, delivering massive swings for large investors capable to profiting from the volatility.
"Manufacturers Want to Quit China for Vietnam. They’re Finding It Impossible."
> ....My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?
Along with the use of "are hereby ordered" as nothing but bluster.
It has rare earth deposits, but more importantly as the Arctic undergoes drastic climate changes—particularly in the availability of shipping lanes—it becomes increasingly strategically significant.
Importantly, Greenland is a net economic loss to Denmark of about $500 million per year, so it would be saving Denmark a great deal of money to let the US take it off their hands.
By unclear, they mean no legal authority.
TLDR: dictators can't do whatever they want.