Here’s a comment under a recent New York Times article about trade and tariffs. It was written by a small businessman from Kansas City.
“I own and operate a small manufacturing business that produces stereo equipment. About half of my sales go overseas. Since Trump has been elected, all sales are way down and most of my sales are now exports because domestic customers are too afraid to buy.
In electronics, virtually all component parts are made overseas, mostly in China. There is no US production capability. If Trump issues a blanket tariff of 10%, my distributors will have to raise all their prices 10% plus a multiplier for overhead and profit. That means all of my parts costs will go up at least 15%. I in turn will have to raise my prices plus a multiplier to preserve margins. My prices will have to then rise 20 to 25%. This will reduce sales to domestic customers.
If these actions increase the value of the dollar my export customers will have to pay another 10 to 20% for my products. If their country retaliates and levies another 10% tariff on US goods, the cost to my foreign customers will rise even more. The price of my exports could easily end up costing 50% more after this all ripples through. Result? I go broke.
Hurray for protectionism! Everyone loses and a few thousand people in Ohio keep their jobs until they are replaced by robots in five years.”
This is one of the unintended consequences of the economic policies proposed by the Trump administration. Voters who embraced Trump thinking he will bring business back to this country and make them money in the stock market may be in for a rude awakening. His lack of knowledge on economics rivals his cluelessness on just about every other topic of importance.
The simplistic notion that we can improve the American economy by limiting trade, e.g., rejecting the Trans-Pacific Partnership (TPP), a tactic proposed by both Trump and Independent turned Democrat turned Independent Bernie Sanders might ultimately do more harm than good.
Protectionism is as delusional as trickle-down economics.
For 25 years I sold Hong Kong oil paintings with Mexican wood frames for a small corporation that had art galleries in 12 states from Maine to Maryland. They were in resort towns—Newport, Rockport, Bar Harbor, Cape May, and Ocean City, to name a few. In the winter it rented space in malls in even more locations.
The canvases were painted in Hong Kong studios by female artists who painted the same scene over and over again from different angles with color variations and in different sizes. But none was reproduced and all were hand-painted, which made them “original.” That’s the way we advertised them, and it wasn’t a lie.
The loose canvases were shipped to a Brooklyn wholesaler, and they were brought back to our warehouse in Milford, MA, where the canvases were stapled to stretcher bars that would fit into our frames. The wood for the frames came from the United States and was shipped to factories in Mexico where they were carved and finished. We offered a choice of frame with each painting.
It was a very lucrative business because we sold a quality product at a very reasonable price. We made our money on volume sales. The local American artists hated us because they had 8×10 paintings in their gallery windows for $600, and we offered something just as good, at least to the average art customer, for $19.
The company employed over 150 people: salespeople who worked on commission, warehouse employees who also drove the company’s trucks to deliver paintings and frames to galleries and malls, and an office staff with bookkeepers and secretaries.
The employees made money they spent in other businesses, and that stimulated the economy. The company collected sales tax on every item sold, paid rent for their gallery spaces, paid taxes on its profits, and there was a positive snowball effect carried out by both the business and the employees.
If a Trump tariff had been placed on the Chinese paintings and the Mexican frames, we would have had to raise our prices so high we’d lose an extraordinary amount of business and would eventually have folded. All the employees would be out of work, and that revenue would be gone.
And for what? To protect American artists who couldn’t sell beer at Fenway Park, who have such an overestimated sense of self-worth they can’t compromise their art and sell paintings at affordable prices? If we weren’t in business it wouldn’t make any difference to their bottom line. They might sell a few more paintings, but the effect would be negligible. Their customers weren’t our customers. People would refuse to pay their ridiculous prices. They’d buy prints or wall hangings instead.
As the Kansas City commenter said, “Hurray for protectionism. Everyone loses.”
That sounds like a futuristic observation for this Trump presidency. Everyone loses.