“For the Government, a front-bench spokesman said the agricultural tariff would have to be raised, and he fancied a bit. Furthermore, he argued this would give a large boost to farmers, a lot of fun for him, his friends, and Miss Moist of Knightsbridge.” – Monty Python’s Flying Circus
“As God is my witness, I thought turkeys could fly.”
Tariffs became a dirty word after World War II. And why not? The United States sat alone as the only manufacturing nation not bombed into oblivion, and had to do something to create jobs for the G.I.s who were headed home. Their solution?
I mean the Korean War, sure, but we could also build stuff. Houses. Appliances. Cars. Factories that were producing B-19s could be swapped over to make commercial airliners now that Boeing® had a pretty good idea how to make planes that didn’t fall out of the sky even when they were subject to being hit by cannon fire. Unlike Boeing of the 2020s, who keeps astronauts flying even when they want to land, and creates unscheduled landing opportunities for planes that were intended to keep flying.
Tariffs in 1946 or 1956 or 1966 were against the best interests of big business in the United States since it took decades to rebuild the rubble of Europe into something resembling a functional economy that could build a factory.
There was sooooo much money to be made. Tariffs were icky.
Your momma is so old she watched The Flintstones live.
But then as other nations started to industrialize, some managed to peak out and start producing amazing consumer goods, too. Televisions, stereos, cameras and cars from Japan. Heavy pumps and industrial equipment from Germany. These began a wave of imports that displaced American products.
In one sense, this foreign competition spurred the United States to increase quality, but in another, these products were often built in brand-new factories that were funded by the United States so that their host country wouldn’t succumb to communism, while the comparable product from the United States were sometimes built in factories that dated back to the dawn of mass production.
Tariffs, though, continued to be roundly hated for decades, even as they were used against us. There were “trade wars” and the United States lost. Bigly.
China, however, decided that they were tired of having an economy where making balls of mud was the best job available for most people, and started making stuff. Could their industries, stuck in infancy, even remotely compete with the world?
My cat, though, loves this guy.
No. They didn’t have a clue as to how to make a world-class steel plant. During Mao’s “Great Leap Forward”, in order to meet Mao’s aggressive steel manufacturing targets, people were encouraged to set up steel smelters in their backyard. Like most of Mao’s economic planning, it was a failure as the Chinese people melted down their precious farming tools. These were not tractors, mind you. Do you think we’re talking about Chin Lee Rockefeller?
No.
They melted down: Shovels. Scythes. Sickles. Saws. Scissors. Anything that started with S, really.
This “scrap metal” actually was necessary stuff, and lots of Chinese people starved because they tried to meet Mao’s quota.
Oops.
But then, China got smart. A lot smarter. The I.Q. of the country jumped 10 points in one day – the day Mao died. Someone got the idea that they wouldn’t centrally plan all of this, they’d just set up tariffs so that they could encourage creative Chinese to make steel mills (or whatever), and let them keep the profits from doing so.
Oh, and they’d move their way up the ladder, to increasingly more technical components. I remember being in WalMart® back in 1992 and looking at a radar detector. I was impressed by the finish, and looked to see what Japanese or Korean company had made it.
Nope. Made in China.
I made a belt out of old watches once. It was a huge waist of time.
Right then, I knew that China had made an actual Great Leap Forward. They went from a backwater country comprised of peasants to the place where now (2021 figures) they produce 30.5% of global manufactured products. The United States is down to 15%. By the way, the crossover point was in 2010, so it’s not that long ago that this happened. But, considering that China was at nearly zero in 1990, it’s an astonishing growth rate.
Is it low labor costs? No. Here is Apple’s® Tim Cook, “The reason to (manufacture in China) is because of the skill, and the quantity of skill in one location, and the type of skill it is.”
According to Cook, China stopped being the low labor cost country years ago. What they built instead was sheer dominance of the “how” to build. Innovate? Not their first priority – they were fine with stealing and catching up. The labor cost difference to build an iPhone® (this is an older number) was about $5 more in the United States than in China. Would a $5 tariff on an iPhone® have been enough to switch production over here? $10? Regardless, as a percentage of the cost of an iPhone© it’s infinitesimal.
Now, however, the Chinese have figured out how to build them, and that’s not an easy task – it takes tens of thousands of hours of smart people working together to create that know-how, plus a lot of failure along the way.
If China and Best Korea ever combined, would they call it Kim-Xi?
So, tariffs give an industry time to build skill. But there’s a deeper thread, too. When an employee in the United States works to build a widget, they are compensated. Generally, the more valuable and complicated the widget, the greater the wages.
That employee doesn’t keep that money in a box. Nope, they buy things like houses and cars and beer and steaks and PEZ™. Oh, wait, that’s my grocery list. But the point remains – they invigorate their local economies. And, they pay taxes – property taxes, income taxes, sales taxes.
So does their employer. Having a manufacturing base keeps communities alive, and the manufacturer pays all of those local taxes as well. Having an industry making valuable products makes the community more valuable.
If that industry is off in China? There is no benefit to the local economy other than whatever the sales tax and profit was on the iPhone™. And nobody learned anything.
It does matter if a country manufactures, and it does matter if the country manufactures potato chips or computer chips. Computer chips are far more valuable, and produce the knowledge required for sophisticated technology that creates outsized value for a country.
Sean only had cats. Training his dog to sit was too messy.
Is there a case for tariffs? Certainly. Will it increase prices in the short run? Also, certainly. It took China 20 years to catch the United States. Could we catch China in 10?
Maybe. It is important that we try, otherwise they’ll keep selling us things that we could make until we don’t make anything, anymore, and end up as a backwater nation that doesn’t make anything, dreaming of the days when our industry was supreme.
Building stuff sounds like a lot more fun.
