Chinese delegation will come to the US for trade talks after Trump tariff threat

the market is then working to ~~stabilize~~ lower the price of the can opener

Fixed it.

“what should happen is that you buy a $1.00 can opener made in say korea or the philippines, or perhaps but un likely the usa. in that instance, china loses the sale.
however what will happen is all can opener prices will rise to say $1.20 as other manufacturers are able to raise their prices”

I agree with you up to a point particularly if the primary objective is to get the can opener made in the USA. But wage costs in Asia are way too low to expect that to happen. The primary objective is to shift purchases away from China to places like Cambodia, Thailand or India that would not be saddled with the 25% tariff in selling to the USA and thus make it impossible for China to sell profitably to us. Cambodia, Thailand and India still have to compete vs each other in selling to us so that will keep the can opener price down. Personally I want the entire trade relationship with parasitic competitor/enemy gone and I hope Trump raises tariff on all their imports to the sky.From the standpoint of our exports to them they are an insignificant trade partner where we only export 150 billion annually to them of our 17 trillion annual GDP. Chump change.Their real game plan is to steal our tech secrets, build their own national industries based on the theft to sell to their populus domestically and to export to the rest of the world and then kick the West out of their markets.

Actually, his article prompted me to do some research on keiretsu, the Japanese habit of interlocking major corporations which makes the Nikkei so thinly traded and their Lost Decade so hard to recover from.

And how can you "be careful" of something you don't know yet?

Open up some. That's why we have judgement.

The Chinese aren’t trustworthy.

Maybe not. But they are sponge-worthy.

“You all should be hunted down”

What time were you supposed to take your meds?

Yes..... except, perhaps someone in Honduras will begin to make can openers in competition with the Asians

“Yes..... except, perhaps someone in Honduras will begin to make can openers in competition with the Asians”

That’s fine too. The more competition to keep prices competitive the better.Just so long as China is no longer garnering can opener revenues from the US. Probably even better to get the Honduran caravans making can openers rather than marching to the US. lol

This work should have been done before a monster was created. This is too little, too late.

The impact of the 25% is going to be a blow to small and mid-size companies and the consumer. It takes years to establish new supply-chain, regardless of what some believe here, that in a few months time re-source manufacturing to India, Vietnam and elsewhere.

America really lost this battle years ago because of the government not doing more for the manufacturing base.

You assume two things that are not based in reality.

1) Can openers are not made everywhere.

2) Tariffs paid become part of the Cost of Goods, and the way American companies work, they won’t sacrifice profit. The can opener that was at $1 cost and end food chain margin of 40% was selling to the consumer for $1.67. Maintaining the same margin at the $1.25 now brings the consumer price to $2.08. This is highly inflationary.

“The worst case - a dollar for dollar transfer of the tariff cost directly to the consumer - would be $30 billion dollars a year over a $20 trillion dollar economy. “

Tariffs of 25% will now be included in the landed cost of product, and as I mentioned above, become the base layer where margins are calculated. Stroll through WalMart or any other store for that matter, and look at Made in China stickers. This action will result in much higher prices being paid by the consumer, there will be no pass—through, there will be little sharing between the importer and Chinese supplier.

One thing you did say that I agree with is “major companies are now in the process of moving their production of of China”, true. However, what about the small and mid-size companies that rely on China to supply them their goods? Do you think THEY have the resources to establish presence outside of China?

If it doesn’t end quickly, this will result in consumer prices going up aka inflation.

“If it doesn’t end quickly, this will result in consumer prices going up aka inflation.”

Well the tariffs just went into effect, so the theory will now be tested.

Going from 10% to 25%, is 15% more than before. 15% of $200 billion is $30 billion.

A $30 billion increase in a $20 trillion economy, has limited inflationary impact - but it will be less than $30 billion, because competition exists, however imperfect, and China will absorb some of the cost to compete as well. Certain prices will go up, until competitive replacements are available.

How long will it take for substitutions to occur? That is a key factor (some quickly, some slowly, all eventually). Chinese production is not divinely ordained, or permanently enshrined in laws of physics - it is just a temporary condition, whose causes are fundamentally changing.

“what about the small and mid-size companies that rely on China to supply them their goods? Do you think THEY have the resources to establish presence outside of China?”

Clearly if they got in to China, there must be a way out. Do you think that they will curl into balls and die, rather than seek out their best option and shift to that? When things must change, they will.

Agreed. But better to start to stem the tide than not to.

“Well the tariffs just went into effect, so the theory will now be tested.”

The tariffs will be on containers that left China on the 10th, so 20 days on the water and then time to deliver goods inland. I say give this about 90 days and you will see new prices on the shelves.

If you are calculating your consumer price based on landed cost (like all importers) then your cost just went up 25% and you’ll reprice your product based on the new cost. That’s right, companies will be making profit dollars on top of the tariffs. I don’t know why you think this has limited inflationary impact, it isn’t a pass-through.

As far as the small to mid-size companies getting into China, it was easy for them. Easy to source, easy to buy. Certainly, they will begin to try sourcing products outside of China, but it will take some time, and all the while the consumers will be paying for these tariffs at the cashier. This impacts the wallet of the voters, and Trump is putting 2020 at risk by upsetting farmers and consumers as they see only negative impacts to their buying and selling.

Better strategy would have been to offer substantial tax breaks for companies that either buy domestically in the USA or from approved fair trading partners. I would much rather see American companies given incentives to resource that don’t harm the buyer, or impact the economy in the way these tariffs will.

“I say give this about 90 days and you will see new prices on the shelves.”

That sounds about right. Timelines for each product will follow their own timeline - some will raise prices right away because of the companies financial needs or opportunity, some with big inventories or long timelines to final sale will lag. But a few months for the stuff just loading on the ships will probably be the bulk of stuff.

“I don’t know why you think this has limited inflationary impact”

For a few reasons.

1: Substitution with other suppliers. Some major producers have been preparing to move for two years already. Other products are easy to substitute, as soon as there is a small price advantage. The next order just goes elsewhere. They may pay somewhat more than currently, but not the full 25%. Other substitutes that are not yet ready, might lag a year or two, but more will come online over time, if the incentives are there.

2. Chinese discounting and currency manipulation. They are going to have to compete aggressively, and the Government has historically been reliable in manipulating their currency to manage trade. They depreciated the Yuan 5.5% to offset the 10% tariffs.

Sun7, on another thread (post #98 http://freerepublic.com/focus/news/3748230/posts?page=99#99), posted: “...analysis from the Economist which categorizes all the 25% tariffed goods and comes up with the result that China will pay 20% and the US (importers and consumers) will pay 5%, and that Chinese exports could fall by 42% as a result. Another estimate out of the European Union puts the numbers at China paying 20.5% and the US paying 4.5%.”

3. Total volume. Our total GDP is close to $20 trillion, but about half is services. So call it $10 trillion in goods. $200 billion (2%) of that will get this new 15% increase (0.3% price increase of goods overall, if there was no discounting, substitution or exchange rate offset). Some categories of goods won’t be effected much, like food and fuel, so prices raises will be more concentrated in other products like manufactured items, but the overall inflationary effect is small in percentage terms to our economy.

So while there will probably be some particular marquee items that could be highlighted to show a significant price rise to the consumer, the overall impact on the Consumer Price Index (CPI) would be a small fraction of a percent - far less than the effects of the Federal Reserves policy decisions. If the next (bigger) round of tariffs are imposed, the maximum impact theoretically might reach a full 1%, but I doubt that for the other reasons listing. Even if it did, it would be followed by reductions over following quarters, as substitutions are inevitably made.

“Better strategy would have been to offer substantial tax breaks for companies that either buy domestically in the USA or from approved fair trading partners.”

This has been addressed in a huge way, on the supply side. The first step was to make US production cheaper, and free up capital the investment needed. Then finally, after the alternatives are ready, Chinese goods would be made more expensive.

The historic tax cut package early in President Trump’s tenure made production in the USA dramatically more competitive. It also allowed repatriation of $2 trillion dollars of corporate earnings, which had to held by overseas subsidiaries under the old tax rules. The tax cut package also made it especially attractive to invest capital in productive plant and equipment in the USA, by allowing full expensing in the first year. Also, historical (and strategically targeted) reductions in regulations made it significantly easier/cheaper/quicker to invest, build and hire in the USA.

Companies were also briefed to expect this, so they could plan accordingly. The Trump Administrations had groups of companies rotating into the White House to give them the heads up, starting their very first week.

Our other major trade partners (Mexico, Canada, the EU, Japan and Korea) have all renegotiated their trade deals with the USA (unprecedented). A factor in all of those negotiations, was implementing measures to control trans-shipment of Chinese products (so-called “back doors”), as well as Chinese component percentages of products.

Conditions have been carefully set to make tariffs more effective by first closing such “smuggling” options, and also by preparing the US side to efficiently make the most use of the market opportunity. So now comes the step of making the Chinese goods more expensive, by putting tariffs on them.

Rather than subsidizing buyers to buy American (which is an illegal subsidy under the WTO, and would be a large perpetual cost to the Federal Government), the Trump Administration has made more efficient use of targeted tax breaks for investing in American manufacturing, and reducing costs to American manufacturing through de-regulation.

In the end though, without tariffs, the communist regime can continue to lie, cheat and steal their way to a competitive advantage. The tariffs are critical geo-strategically, in and of themselves. The revenues from unfair trade are nurturing a brutal dictatorship that is aggressively determined to dominate the USA and our allies. Either we pull back the fire hose of trade funding now, or the cost will be much worse later.

Tariffs on communist China are a cost we would be wise to pay, and which we can well afford. The initial costs will be repaid many times over through increased long term domestic business, employment and their resulting tax revenues.

The hype from the pro-Leftist press will be much worse the underlying bite to our real economy. We can expect a lot of Leftist media to run scare stories to attack President Trump, and at the bidding of the Chinese, through their paid for agents of influence in the USA.

I see BeauBo already had a very well-reasoned reply for you. Here are a few more points.

1. Whatever % of the tariff gets added to a business’ cost, it is unlikely the entire cost will simply be passed on to the consumer unless the business has a monopoly. Consumers can always switch brands or stop buying the product altogether.

On the other hand, a rise in energy prices is inflationary because it affects every business and individual, and no one can easily ‘opt-out’. But we’re not even remotely talking about energy prices here.

2. It is a myth that many businesses unaffected by the tariffs would use the occasion to raise prices. They may lose market share and risk pricing themselves out of the market. 16 oz. of Planters peanuts used to cost almost $5, but in the last couple years, it has come down to $2.5. Clearly it is an effort to regain market share lost to all the store brands selling for $3.

After tariffs are in effect, it is just as likely many businesses will see increased sale with their lower prices and will be happy to keep it that way. We just don’t know, so it shouldn’t be used as an argument against tariffs.

3. Your proposed tax breaks simply cannot get the job done. What is needed is a quick, high-power precision (economic) bomb over the target, so to speak.

But first, from your #51, objecting to the tariffs, you wrote, “However, what about the small and mid-size companies that rely on China to supply them their goods? Do you think THEY have the resources to establish presence outside of China?”

Does this not also argue against your proposed tax breaks? To wit, if a 25% tariff is not enough to incentivize these companies to move away quickly from China, what kind of tax breaks can you propose that can do the trick?

If you don’t already realize, the goal of the tariffs is to STOP CHINA. Buy American or buy from fair trading partners is just a nice side effect of it.

And you seem to have forgotten the degree to which the CCP controls every aspect of their trades. They can pay their exporters enough subsides to undercut any tax breaks we could ever provide. They can sell at a loss just to maintain their market share because the government is behind them. Where have you been all this time when we complain about their unfair trade practices?

There should be an urgency to stop them especially since a few years ago they launched the ‘Made in China 2025’ and the ‘Thousand Man Program’ (not official name) to help them transition from low-end manufacturing to become a producer of high-tech. These programs are essentially bribing programs aimed at recruiting top scientists in the west (mostly in US, of course) by offering them prestigious positions in Chinese companies or universities with high pay while they keep their jobs in the west, thus establishing a direct and seamless transfer of technology to them. I’m glad the President didn’t wait any longer to tackle them.