Trade Hearing Highlights Staggering Number of Losers From Trump's Tariff Plan
Trump wants tariffs on 1,300 Chinese-made goods. Dozens of American businessmen and women are in Washington this week to explain why that's an awful idea.
A proposed tariff on ovens used for baking biscuits and proofing bread, Brian Smith tries to explain, would place "little if any pressure" on China to change its trade practices. All it will do, the CFO of Washington State-based LBC Bakery Equipment says, is make it more expensive to buy and maintain the ovens—and will increase the price of everything that comes out of them.
Smith is the 89th person to address The Office of the United States Trade Representative's special committee on tariffs this week. Nearly all of them deliver the same message: If the United States goes forward with plans to place tariffs on hundreds of Chinese-made goods, the committee is told over and over and over, it will be American businesses and consumers who bear the brunt of the damage. Smith gets five minutes to say his piece, just like the dozens of business owners who went before him and the dozens more scheduled to come after.
This week's hearings are something out of a version of Atlas Shrugged penned by Franz Kafka. It's a glimpse into a world where business success depends on currying favor with the government—at least enough of it to avoid the president's trade hammer—and where doing so requires pleading your case in a pallid courtroom within a boring office building on E Street SW. Do the sleepy-eyed bureaucrats listening know that you are any different from the 88 people who already spoke? Ding, your time is up. Next, please. And so on down the line.
The procedure is a reflection of just how many number people have come to D.C. this week to speak against the tariff proposal—or, as is often the case, to ask for exemptions for specific items. Three days are hearings are scheduled. The sheer volume of the opposition almost gets lost within the rote, monotonous process.
No cameras are allowed inside Courtroom A and streaming of the hearing is forbidden. The Office of the U.S. Trade Representative promises that a transcript will be made available, eventually. Even if video was provided—as it should be, since this isn't a court of law but supposedly an open, democratic process—it's not the sort of thing that would pull down record ratings on C-SPAN. But it is something that people should watch, because it's hard to imagine how anyone who identifies as a small-c conservative or small-l liberal would not be disturbed by it. If not by the process, then by the underlying policy, which is not acurately described as either conservative or liberal but rather as centrally planned economics wrapped in jingoism.
This exercise in democracy is happening because President Donald Trump called for imposing a 25 percent import tax on roughly 1,300 Chinese goods, and laying those tariffs requires approval from the U.S. Office of the Trade Representative's interagency Section 301 committee, which includes one official from all the major departments and agencies in the federal government. Allegedly, those tariffs will bully China into being a better trading partner, or at least will convince its government to stop stealing American intellectual property. How a 25 percent tariff on bakery ovens or wrenches will prevent China from coping our notes about microchips and AI remains unclear.
"Our products are hardly new technology or subject to fears about intellectual property theft," says John Constantine, president of Apex Tool Group, a North Carolina company that sells wrenches, ratchets, and other hand tools.
Ratchets have been around for more than a hundred years. Wrenches for longer than that. Both are simply variants on one of the oldest tools in the history of mankind. Constantine's company has nothing to gain from the imposition of tariffs designed to stop the theft of uniquely American intellectual property. There is no tariff plan that allows him to win, only variations on how badly he will lose. His company must be sacrificed to appease an angry president who does not understand trade.
Still, they try. Michael Kersey, owner and president of the American Lawn Mower Company, talks about how tariffs could produce a shortage of the parts his business needs to make various consumer products. In the event of a bad winter, a shortage of snowblowers could be a particularly serious problem for the independently living elderly, he stresses, as if a shortage of any product is not significant unless it can be shown to negatively affect a protected class of people. Such thinking is necessary, of course, only when government is involved.
John Hoff, president of Global Point Technology, an upstate New York company that designs and sources manufacturing components, says his company pays more than $40,000 in import taxes every year. Trump's proposal would increase that amount to more than $1.3 million. "Imposing these tariffs would not be punishing a Chinese company," he says. "It would be punishing a U.S. company." There are at least 14 items—each with it's own eight-digit code, as all U.S. imports have—on Trump's list that Huff says his company regularly purchases from China. Given the time constraints, he only has time to talk about two of them: numbers 84799040 and 32906180—or was it 32906810?
You cant help but feel for Hoff, Smith, and the rest as they are shuffled through the process. It's not necessarily because some of them might be put out of business by the stroke of a presidential pen. There's that too, of course, but what really sticks with you is the way they're forced to humiliate themselves.
These are people who have built and run companies, large and small, that survive because they provide some necessary value to someone—directly to consumers in many cases, but often to other businesses along the supply chain. They employ people, sometimes hundreds and sometimes just a dozen or so, who are able to put food on their tables every night thanks, in some small way, to a global supply chain. Yet here they are, paraded one by one in front of a small microphone under pale florescent light to prostrate themselves before a bunch of unelected officials and beg for the survival of their businesses and their employees' livelihoods.
"We have no ability to compete with a 25 percent tariff on our supplies." "It will run us right out of business." "It's a competitive market; margins are small."
The humiliations don't end there, because of course there must be a periodic question and answer session, to give the impression that the committee is listening to what's being said.
What other foreign sources could you consider using as suppliers, committee members ask easily more than a dozen times. Have you thought about ways to change your supply chain to avoid the tariffs? If it were only that simple, come the replies. Hoff's company in upstate New York owns part of a factory in China. Moving it would be prohibitively expensive. Nearly the entire world's supply of component parts for microscopes come from China, explains Ernest Tai, president and CEO of LW Scientific, an Atlanta-based medical device manufacturer. "We would not be able to move our sourcing out of China, period," he says. Costs would be higher elsewhere. Investments have been made. One after another, the businessmen and women show that, yes, they have considered those options and, no, they are not sufficient.
"Is your company in a position to source products from other countries?"
Rather than demonstrating enlightenment, though, the questions merely confirm how right Friedrich Hayek was when he diagnosed The Knowledge Problem. No government official can know as much about a business as the people who run it, but that wont stop them from meddling. Or, as is the case today, from asking pedantic questions.
What will all this accomplish? Probably nothing.
Take, for example, what Jason Oxman, president of the Electronic Transactions Association, tells the committee about cash registers—another of the hundreds of items on Trump's tariff list. There are more than 55 million Chinese-made cash registers and payment devices shipped around the world every year, but only 10 percent of them are imported into the United States. The proposed tariffs would force American businesses to pay higher prices for new cash registers (and in the midst of the ongoing upgrade of registers to accept chip cards and mobile payments) but the loss of a small portion of U.S. sales would hardly put a dent in Chinese manufacturers, and they would easily make up the difference in other markets.
Trump's tariff plan might start a trade war between the U.S. and China. It might draw the European Union into the conflict too. It might cost hundreds of thousands of American jobs and drive up prices for just about everything Americans buy. For now, though, it's already imposing unseen costs on American businesses, large and small, and forcing business leaders to play politics just so they can get back to doing what's actually important.
"Believe me," Constantine says, in response to another repetitive question from the committee about how tariffs would affect his bottom line, "I've had to learn more about this than I ever wanted to know."