Dear Carolynn

Dear Carolynn

From my mortal perspective, todays letter to you is about President Donald Trump’s tariff war–started by him, sold by him, changed by him, changed again by him, will be changed again and again and again by him–therefore how it ends nobody knows–but the end result will be on his shoulders. He either returns the USA to manufacturing powerhouse 2.0, or he turbo charges the inevitable crumbling empire.

For people who know me, here’s the big shock. I believe The Donald will return the USA to a bygone era–but that era operated with sticks and stones.

Carolynn, let me offer a nuts and bolts analogy as to why I believe The Donald’s plan can’t work in the short, medium and pretty long term–that is IF The Donald stays the course with this over-the-top tax on his people.

The Analogy – Part 1

I am playing the role of a guy who is considering a higher paying job offer, and I need to explore the pros and cons with regards to moving from one rental house to another rental house on the other side of my city because this is where my new employer is located. Firstly, I have to research where I wish to relocate;

1. Medical practices
2. Hospitals
3. Schools
4. Grocery stores
5. Gas, electric, solar or all of them?
6. Telephone/Internet service reliability
7. Road and rail transport infrastructure
8. How far away from work before travel is not cost effective?

With this list ticked off, I now must find a house;

1. Is it new?
2. Is it old and need of repairs, renovating or regular maintenance?
3. It must have certain amount of bedrooms, power points, good water pressure too.
4. Is parking adequate for my requirements?
5. What will my insurances cost me to move to this new area?
6. Is it prone to bush/wildfires, cyclones/hurricanes or flooding?
7. What are the council regulations?
8. What will the crime statistics tell me?
9. What are my neighbours going to be like?
10. What is the landlord like, and what will be a fair lease agreement? Is he or she likely to sell at anytime? Is he/she the type who will repair things that is a landlords responsibility to do so?

After I finally find the perfect place, I need to pay upfront costs;

1. Bond for the rental
2. A few weeks rent in advance
3. Hire a removal company
4. Pack everything
5. Sort out the new school for the kids as well as move them out of their old school
6. Alert friends and family of my new address and phone number
7. Change information with government (driving licence etc) and non-government entities (insurances etc)
8. Unpack everything
9. Acclimatise to the changes

Before I make that final decision, I will, of course have to be as certain as I possibly can that me uprooting and taking this job means I’m going to improve my current situation.

The Analogy – Part 2

I am now playing the role of an established American manufacturing businessman who lives in The US but produces offshore and exports back to The US and other countries. My business brand is the only thing that is operating in the US.

At this very moment, I feel as if I am being blackmailed into moving my entire operation back to the USA. Therefore, I am left with so many of the same types of risk/reward assessments listed above when moving house–only so many more….

1. Will I lose my business if I don’t move everything back to the USA? It’s likely most Americans will no longer be able to afford to buy my products because they have been hit by a massive domestic tax on the goods I and others manufacture from outside USA?
2. Will this tax-burden dumped onto US citizens stay in place a month or more from now? After all, The Donald is chopping and changing the narrative, sometimes on the same day, therefore I can’t be certain of anything
3. How many deregulations will make this move a smooth process?
4. Can there be a smooth process after the sacking of so many government workers?
5. How do I pay US workers who will want a higher wage than I’m currently paying?
6. If there is a push for higher wages, am I at risk of facing strike action? Even if striking is illegal.
7. What if I take the gamble but my supply chains don’t? Will my imports be exempt from these tariffs because I bought into The Donalds plan and reshore to the US?
8. What of my exports to other countries that have now whacked a retaliatory tax on goods being exported from the USA? Will I have to raise my domestic wholesale price to cover these tariffs thus reducing my ability to employ, thus reducing further my ability to produce.

The Flip Side

There is an incentive that might work for me and most other established (and to be established) manufacturers. The Donald’s ambitions are clearly defined by the people he has on his side. Tech oligarchs. The Donald himself says he wants to be ahead of China when it comes to AI and robotics. Who in this above pic will allow him to suddenly change his mind on technology? Therefore, I am confident I can manufacture my goods using AI and robotics, and I’m fairly certain this administration will offer incentives for me to purchase AI and robotic technology. However;

1. US AI is overpriced and not as reliable as the Chinese ones, and US robotics are miles behind China, but The Donald will impose a massive tax on Chinese technology, if not ban it outright
2. I am a manufacturer who wants to employ people, but to pay so many extra costs to manufacture, even I can’t ignore employing AI and robotics to fill the employment positions that are promised to willing US workers
3. Therefore, am I moving to a system that will create major civil unrest because the employment promises will not eventuate?

Can I risk waiting until at least the mid-terms to look around, see which way the wind blow? The Donald is all over the place with his plans–they are subject to change from one moment to another. And who knows if the voters will rebel against him by then and force changes to these tariff policies?

The truth is, The Donald and his billionaire class will lose nothing but a few billion, maybe their promised tax cuts and come out with slightly dented egos. Then again, they might well turn on each other.

The reality is that the risk is all mine. Do I stick with what I currently know are the known unknowns, or move manufacturing back to the unknown unknowns and hope the erratic Donald knows what he’s doing?

But what about the maths behind the tariffs themselves? How can The Donald slap a 10% tariff on Australia when it runs at a trade deficit? Punishment because the Aussies don’t want to buy US beef? He has also placed tariffs on an island that is only inhabited by penguins. I should have faith in this man knowledge and abilities?

And China is already opening manufacturing in Vietnam to bypass the massive tariffs imposed on China. What’s The Donald going to do then? Impose higher tariffs on Vietnam because China is employing Vietnamese people to stock Walmart with China’s cheap products American’s can now only barely afford?

Then there is BRICS. Sure, BRICS is not as solid as it needs to be, but Russia, China and Iran have nothing to lose by going it alone. The USA failed to destroy the Russian economy through sanctions, China has already been hit and is working on ways to bypass the large impact the tariffs that won’t hurt China that much, and Iran gets nothing from the USA other than threats from itself and Israel. Even Saudi Arabia is accepting other currencies to sell oil.

What if China takes Taiwan?

The Slow Rise and Rapid Fall of Rome

We are not looking at a couple of percent tariffs as right-minded voters would have been considering fair, and done over a period of time to slowly rebuild US manufacturing. The Donald is not only not introducing tariffs slowly, more importantly The Donald is rapidly not building certainty–and without certainty there’s no desire to invest.

What would I advise a young person who is looking to start a manufacturing business in the USA? Unless it is very good technology, DON’T! I’d advise going to the one sector that will be a job for life..the military. Not saying it’ll be a long life, though.

Writing now as me, my fear is less about the global economy and more about a man who will never settle for a failed legacy. This could very well lead to an outcome that is not healthy, an outcome of such magnitude that the USA will, as I wrote at the beginning, have to reboot its manufacturing economy by producing sticks and stones in place of its current greatest export items–destruction.

Final comment: my opinion is a thought experiment and not an attack on American people, particularly Trump supporters. I actually can’t find reasons to blame them for voting for him–that’s how much trouble the USA is in, and its ‘friends’ (such as Australia, which also doesn’t have political leadership to cheer about).

The question to ask yourself honestly, what would you do if you are in the shoes of those manufacturers?

Please feel free to comment if you wish.

Songs

LA Woman — The Doors (US Band)

Million Dollar Riff — Skyhooks (Australian Artist)

Fall of Rome — James Reyne (Australian Artist)