New US Tariffs are Anti-Maker and Will Encourage Offshoring

Over time tariffs will spur increased domestic replacement manufacturing vs Chinese imports.

If the US were primarily harming itself with tariffs, other nations wouldn't be reacting the way they are. They all know the game is up and they're all desperately looking to hold onto their advantages.

US manufacturing costs are nearly on par with China at this point because of the vast inflation in costs that have occurred in China over the last 20 years, including in wages. That's particularly the case when you account for the cost of foreign transport/distribution.

Chinese manufacturing will only get more expensive over the coming decade, increasing US price competitiveness (whereas there was previously a vast gap between the two, eg just as recently as 2005).

It's ideal to begin competing with China using the same tactics they've been using to compete with everyone else for decades. China is no longer a tiny developing economy, they're an economic superpower and still rapidly expanding.

The US should spur domestic manufacturing, by increasing the cost of Chinese products. Over time, the net benefit will be to increase domestic manufacturing and reduce Chinese imports.

Worst case scenario, the US redirects trade to other developing nations, such as Vietnam, and away from China. That's also a dramatic benefit to the US, as Vietnam can never be a superpower rival.

I don't think it's controversial to say the decisions are rational and helpful, as long as you remember to include "to certain entities".

Winners:

•Manufacturers of Steel, Aluminum, Electronic Components in US.

•Consumers of goods under retaliatory tariffs (pork chops are now going to cost Americans a little less because the Chinese aren't going to import as many).

Losers:

•Consumers of Steel, etc., including manufacturers of assemblies, and retail consumers.

•Producers of goods for export that are subject to retaliatory tariffs.

If you look under "chicken tax" you'll see these kinds of battles are neither new, nor did they ever completely go away.

It's widely agreed that more Americans will lose their jobs from these policies than will be hired, but if we're somehow at full employment, that might not bear out. I don't see that happening, but if you believe in magic...

Food spoils and we can't predict how long a war will last.

>And I am not against free trade (well, with reservations), but I think this idea has been proven wrong historically. I think countries that try to do a bit of everything, be self-sufficient, and perhaps specialize only in some very specific areas are generally more successful.

Oh? Which countries have been successful as you describe?

>Just look at the U.S. as an example - if they followed Smith's advice, they would still continue to trade cotton. This advice will never let countries to build up an industrial base. (Or funny you mentioned LG - they were originally a textile corporation but the government forced them into electric industry.)

Wrong. Smith's advice isn't arguing for static stagnant maintenance of the status quo. Economies, markets and products are always evolving. There's always opportunities to grow and change. That doesn't mean there's always an opportunity at every moment to outcompete a dominant foreign manufacturer.

>In my view, a country should have as many diverse industries as much it can

Countries do this already. If it's a capitalist economy and there's opportunity people will give it a go. I think you're grossly oversimplifying this and don't really understand how huge the market is and the number of industries there are.

I think you'll find it's much harder to manage your fantasy in reality than you imagine.

>It's great if you e.g. produce agricultural machinery and you can talk directly to the farmer, who is going to use it. If you sell this machinery to people on the other side of the planet, with a cultural barrier, this gets much trickier.

And yet people do sell all sorts of things on the other side of the planet, all the time, because while it may be "trickier" it means they have a much larger market, and greater opportunities for revenue and growth.

Frankly if your vision was at all workable it would have been settled upon by now.

Why would that trust be necessary? It very clearly isn't. Which is not the same as arguing that trust can't be valuable or critical in international relationships depending on the context.

China has gone from a $1 trillion to a $13 trillion economy in 20 years, with vast barriers to trade (into their country) and extreme domestic protectionist policies (eg barring majority domestic business ownership, and most foreign acquisitions).

China is the greatest one-way mercantilist economic result in recorded history. There's very little trust in any relationship with China, they do literally whatever they decide fits their nationalist aims, whether that's annexing territory, stealing corporations (Ant Financial), forcing technology transfers, blockading foreign ownership, whatever it takes to buy time until China is impossible to resist. China is already buying up Eastern Europe, and buying votes within the EU (eg bribing Greece for favorable voting). Is that a premise of trust? Of course not, they're using their increasing might strategically wherever they can, and it's going to get a lot worse.

The fact is, all nations should pursue their self interest. When the US decides to act as everyone else does and pursue its economic self interest, it's denounced. And there's China parroting that they're in favor of free trade, while being aggressively against free trade in practice, and hardly being called out for the hypocrisy internationally.

The reason the US is denounced, is because the export gravy train is coming to an end, the easy exports into the US that many other large economies have enjoyed are going to get more expensive going forward. If that wasn't the case, all of these other nations wouldn't be upset about the US change in behavior: they all know the US is an immense global consumption engine that powers their domestic production.

Responding to psergeant's comment below:

> I wonder if you could help me understand Trump trying to rescue ZTE in terms of what you’ve just said?

The US got China to immediately sign off on the Qualcomm acquisition of NXP in exchange for the ZTE deal. That's an extremely valuable acquisition for the US tech industry.

Simultaneously the US has received $2.2 billion in fines from ZTE over time for their violations of US sanctions. Further on top of that, the US is getting even more compliance pledges from ZTE.

It's a substantial self interest win for the US. The US gets to eat one of Europe's valuable tech companies (of which they have relatively few), which then reduces Europe as a tech competitor over time. I'd call the ZTE deal a win, win, win, win arrangement.