On the EDge: From Harleys to yogurt, the US will surely lose in a tariff war

July 2, 2018 Utah Channel 3

OPINION – I’m hoping that somewhere, somehow there is a plan.

All I see right now, though, is the nasty tit-for-tat haggling as the first volleys of an international tariff war are launched.

Nobody is really going to win this thing.

In fact, it sets up a classic lose-lose result to an imaginary problem being exacerbated by a lack of understanding of the international market, the fragile interdependency of a league of nations being drawn ever closer in matters of trade and a major player unfamiliar with the subtleties of politics, manufacturing and diplomacy.

It is surprising, I would think, to those who bought into the hype that what this country really needed was a good, solid businessman at the helm.

Business, however, does not seem to be the strength of this administration.

While the guy in the big chair may have some familiarity with the ins and outs of commercial real estate investment and development, he clearly doesn’t have a clue beyond those tight parameters.

And he’s about to get hammered in the marketplace.

Harley-Davidson is the first major player to bail.

The tariff war, as it turns out, would hike the price of a new bike imported to Europe from the United States by more than $2,000 as a result of a 31 percent tariff. The Harley badge may be worth a lot to the weekend warriors who like to kick-start their fun but not an extra $2,000 worth. The bikes are simply not that good in comparison.

But bikes made in Europe will not be subject to the tariff, keeping the playing field somewhat level, which is why company CEO Matt Levatich is moving some manufacturing resources.

This, of course, did not play well in the White House, where the president launched a series of threatening tweets aimed at the company.

Levatich really had no choice, however. He answers to a higher authority, the investors who really don’t care where the bikes are made as long as Levatich keeps increasing their return on investment.

Other companies, however, are not so fortunate.

Those in the business of making lawn mowers, motor boats, ketchup, whiskey and yogurt will feel the initial bite of international tariffs set to counter the president’s unwise and unpopular decision.

Yogurt, you might ask?

Yeah, yogurt.

It is but one of the products Canada will hit with heavy levies.

Now Canada does not import that much yogurt from the United States – somewhere in the ballpark of $3 million a year.

So what message is being sent there?

Well, most of those imports come from a plant in Wisconsin, which happens to be the home state of Speaker of the House Paul Ryan.

The heavy taxes on whiskey are, of course, directed at Senate leader Mitch McConnell, who comes from Kentucky, where Jim Beam, Wild Turkey, Maker’s Mark and Woodford Reserve, to name a few of the most popular brands, are distilled.

And while these may seem like specifically targeted payback, there are many more dollars on the table, specifically auto industry dollars that could severely impact U.S. automakers.

Already GM has said that a 25 percent tariff on foreign-made automobiles brought into the U.S. being considered by the administration would result in blowback that would cause them to either raise prices on Chevys or move manufacturing overseas.

This, company representatives say, could lead to less investment, fewer jobs and lower wages that would in turn delay what they termed as breakthrough technologies that would threaten U.S. leadership in the field.

While there are those who would question U.S. leadership in automobile technology, the specter of less investment, fewer jobs and lower wages is not favorable with voters.

Times have changed and current attitudes most certainly invalidate the thinking of former GM CEO Charles E. Wilson who said, “What’s good for the country is good for General Motors, and vice versa.”

Add to that the trade mess the United States has gotten into with neighbors Canada and Mexico, both of which have new leadership that has already expressed its distrust of the Trump administration, and, well, we’ll find out soon enough just how an economy based on isolationism can survive.

We need the goods and services provided from offshore, whether it is in the form of hardware or intellectual property.

The United States simply does not make enough stuff any more. We don’t make computers or televisions or much of anything else and to try to ramp up and become self-sufficient would be impractical and just plain foolish.

Besides, as any economist will tell you, this whole thing about balance of trade or a trade deficit is terribly misunderstood and misrepresented.

What matters more than a trade deficit or surplus is the total level of trade, which is a far better indicator in this realm. That’s why free trade is more beneficial. The upper class will seldom be restricted in its consumerism, but the difference will be demonstrated by the middle and lower economic classes because free trade makes everything much more affordable, thus stimulating more trade, which leads to a healthier economy.

When the country is in economic recession it is desirable to export more than you import because it creates a greater revenue stream and more jobs. When times are good, an increase in imports serves as a form of price controls and a hedge on inflation.

Historically, inflation plagues Republican presidents, particularly during their first terms, as every one of them since Teddy Roosevelt has been responsible for a recession during their first terms. This could be why the president is pushing so hard for this, although I doubt that the administration and its minions have wrapped their arms around that fact and are definitely not prescient enough to actually do something to prevent it.

The overarching problem is that because U.S. consumerism is so high, there is no way to back up the president’s bluff.

Imposing major tariffs on imports will do nothing but hit us in the pocketbook, cost us more jobs and do little to keep investor dollars flowing.

This isn’t real estate, where prices and values can be manipulated and inflated to suit the high rollers who trade amongst themselves in some little insider’s boy’s club. This is global trading, where the stakes are higher and the players much more skilled.

I just hope the president knows when to hold ‘em and most importantly, when to fold ‘em.

I’m not holding my breath.

No bad days!

Ed Kociela is an opinion columnist for St. George News. The opinions stated in this article are his own and may not be representative of St. George News.

Email: edkociela.mx@gmail.com

Twitter: @STGnews, @EdKociela