The cost of tariffs

Last September, I wrote about the Trump administration's latest round of tariffs on Chinese imports. Fast forward a year and to quote Ronald Reagan, "There you go again."

At press time, the U.S. was about to impose another 10-percent tariff on some $300 billion worth of Chinese-made goods (although tariffs on electronics and other consumer goods have been delayed until December to shore up holiday sales). That's on top of other tariffs already on the books. So, have all of these tariffs really had the effect of leveling the playing field, bringing manufacturing back to the United States, and curtailing the theft of intellectual property? The simple answer is—well, not really. You see, it's rather complicated.

In the short term, the tariffs are quite painful—although not necessarily for the intended target. While the tariffs are meant to punish the Chinese government, China does not pay any actual tariffs. Those are levied on importers of Chinese goods, with the costs typically passed along to American consumers.

The hope is that China will be affected indirectly, as companies pull manufacturing out of China and bring it back to the U.S. So, how's that been going?

According to a study released by the U.S. Chamber of Commerce in May, 41 percent of member companies were "considering or have relocated manufacturing facilities outside of China." But less than 6 percent of those members are reshoring any of their production to the United States. Instead, they're going to Vietnam, Indonesia, Thailand, India, Cambodia, and Mexico. Hasbro, for instance, is moving some of its toy manufacturing from China to factories in Vietnam and India.

To make up for the loss of American manufacturing, China has been marketing its factories to companies from Europe and other Asian countries, and in many cases, undercutting costs to keep machines humming. This makes it harder for American businesses that manufacture elsewhere to compete.

Anticipating the tariffs, many companies scheduled holiday orders to arrive before the September tariffs hit. Ports have done a brisk business. In fact, in July, the Port of New York & New Jersey leapt past Long Beach to become the nation's second-busiest port, with some of that business coming across the Atlantic from countries like India and Pakistan. It remains to be seen whether the pattern will continue once peak season ends and the latest round of tariffs takes full effect.

So, while the tariffs are driving some business away from China, the shift is coming at a high cost. I believe the Trump administration would do better to learn to negotiate rather than bullying its opponents to get what it wants.