Recently, Mr. Trump made another harsh remark. He announced that he would impose an additional 10% tariff on Chinese goods to reverse the trade deficit between China and the United States.
At the beginning, everyone was very happy. They said that Chuanzi was pragmatic and obviously lowered his commitment during the election. But after a closer look, it turned out that he had increased his commitment by 60% and then added 10%, which was a bit hard to laugh.
According to Mr. Trump’s idea, raising import tariffs can reduce people’s dependence on Chinese goods. When foreigners’ goods become expensive, they will naturally find substitutes at home, which will stimulate the manufacturing industry and employment market in the United States.
Logically, there is no problem. Americans are also full of emotional values. But the problem is that if raising tariffs can revitalize the economy, it is estimated that Stanford professors can also be laid off.
So in this episode, let’s talk about what tariffs can bring? Is the high tariff promised by Mr. Trump the magic medicine to save the American manufacturing industry, or is it the bitter fruit of making people pay for it?
01
Speaking of tariffs, it’s actually quite interesting.
In the Qing Dynasty, although we didn’t have a concept of tariff, we had to pay every time a foreign merchant ship docked. We had to eat the card layer by layer, and the tax rate was too high for British people to work.
More troubling is that the Chinese are self-sufficient and have no feelings for the goods of foreigners. In turn, Chinese silk, tea, and porcelain are popular in the European market.
As a result, after several years of open trade, Britain’s income remained negative for a long time. Therefore, they rowed small boats to transport opium grown in the Golden Triangle to the Qing Dynasty, which achieved a trade surplus.
Later, as we all know, the British had the courage to launch the Opium War under the banner of maintaining free trade, and signed the Nanjing Treaty in the Qing Dynasty, which not only ceded Hong Kong, lost 21 million taels of silver, but also lost the pricing power of tariffs.
That is to say, since then, the charge of the Qing Dynasty needs to ask the British people first, so that foreign goods can enter the Chinese market.
However, this is not the most outrageous. Since the Qing Dynasty could not even figure out what the tariff was, it simply found a foreigner to handle the accounts. Hurd, an Englishman, became the first person in China’s customs, and has been working for decades. The customs system of the Qing Dynasty has been sorted out in an orderly manner, with surprisingly good results.
Previously, people didn’t understand why the Qing Dynasty had suffered repeated defeats and had only half a life left, while Empress Dowager Cixi was still able to lead the noble princes to free themselves and fight birds. In fact, the root cause was that Herder spent a lot of money on tariffs, which allowed the Qing Dynasty to survive for decades.
However, this also caused another practical problem. The Qing Dynasty had no tariff pricing power and had no ability to fight back against foreign goods, which led to the domestic small workshops being washed up in pieces, the Westernization Movement not being launched, and the national industry being suppressed for a long time. When Chiang Kai shek had gone to the island, China was still an extremely backward agricultural country.
Meanwhile, during the same period, the United States thrived on high tariffs, and their industrial giants did not have to worry about cheap goods from Europe. They closed their doors and vigorously developed key industries such as steel, textiles, and machinery. They quickly rose rapidly under the protection of tariffs, and by the time World War I broke out, the United States had become the world’s largest industrial country.
After World War II, Japan actually played with the same set of things as the United States, but later it was a bit rebellious and caused the collapse of American semiconductors, which was then pushed back by the Plaza Accord.
High tariffs are a good medicine for latecomer countries, but there are also those who go too far and completely get away with it.
For example, during the Great Depression in the 1930s, the Hoover administration introduced the Smoot Hawley Tariff Act, hoping to use high tariffs to protect the domestic economy and employment.
As a result, other countries have imposed retaliatory tariffs one after another, and the global trading system has almost come to a halt overnight. European goods cannot enter, American products cannot exit, the export industry has been beaten like a dog, and the wave of corporate bankruptcies has further exacerbated the problem of unemployment. The already hanging economy is now completely dead.
So tariffs, when used well, can help promote the development of domestic industries, but if not used well, it can lead to mutual hatred and collapse.
02
After the end of World War II, everyone deeply realized that although the reasons for war were different, high tariffs and trade protection accounted for half of them. In order to avoid a repeat of history, a multilateral cooperation mechanism must be established to reduce trade barriers among countries.
So in 1995, the WTO, also known as the World Trade Organization, was established with the core goal of enabling countries to negotiate and reduce tariffs, eliminate quota restrictions, subsidies, and other trade distorting policies, and help companies from various countries more easily enter overseas markets.
Translated into English, it means that whoever produces better products and has lower costs will be able to sell them more fairly.
Obviously, this set of game rules is perfectly suitable for first mover countries such as Europe, Japan, and South Korea. Previously, they needed to use warships and cannons to break through each other’s tariff barriers, but now they no longer do. As long as they join the WTO, it is equivalent to opening the market door for developing countries.
So we talked with Americans for several times on the issue of joining the WTO. Because China was a developing country that could only engage in primary processing, and had no ability or strength to be an international giant on the line, China adopted a protective growth approach, not only selling products to Europe and the United States at a low price, but also protecting the growth of its own enterprises.
Let’s take the most typical automotive industry as an example. Before joining the WTO, China’s import tariffs on automobiles were 100%, with Santana, Jetta, and Fukang filling the streets.
At that time, Chinese car companies had neither technology nor market, and could only act obediently as brothers in front of foreign giants. Consumers either bought imported cars at a high premium or chose joint venture cars with low cost-effectiveness as a second best option.
After joining the World Trade Organization, China’s import tariffs on automobiles have been reduced to 25%. Global car companies have set their sights on this blue ocean in China, but in order to enter the Chinese market, foreign car companies can only form joint ventures with local car companies, and foreign ownership cannot exceed 50%.
More importantly, cars must be produced in China, and there must be more technical aspects involved. Simply put, if you teach me the skills, I will help you buy a car, and exchange the market for advanced production, management, and research and development strategies from other companies.
Some companies think that learning too slowly is better than buying, such as Geely, which had nothing to ask for back then, but spent a huge amount of money to buy Volvo, which was on the brink of bankruptcy, and inherited decades of technological accumulation. As a result, Volvo is not dead now, and Gillette has grown from a grassroots car company to an international brand.
Later on, Tesla also brought technology in, but cultivated a group of industry competitors. In recent years, local brands have learned almost everything and started to reverse educate leading players, causing Tesla to also have to get involved.
Of course, there are also industries such as semiconductors, mobile phones, and home appliances. In short, there have been too many players to compete against in recent years, so we won’t explore them one by one.
So the United States fell into deep self doubt, promising to enter first and then slowly open up, so that they could seize China’s core assets. However, later on, they were surprised to find that exchanging technology for the market was a loss making business. The domestic manufacturing industry in the United States had all run out, while Chinese companies had already taken the lead and started punching their masters.
03
When Mr. Trump stared at the account book of the Sino US trade deficit, he thought it was all natural that the United States would buy hundreds of billions of dollars of things from China every year, almost twice as much as China imports from the United States.
Therefore, in his logic, as long as high tariffs are imposed on Chinese goods, even global goods, then Americans can buy fewer foreign things by raising prices.
This time, Mr. Trump will not only impose an additional 10% on Chinese goods, but also impose an additional 25% tariff on Canada and Mexico, which is afraid that Chinese manufacturers will go to these two countries to wash the origin.
But the problem is that there are still many places where Chinese companies can clean up, including but not limited to Vietnam, Indonesia, and even Latin American countries such as Brazil and Argentina. As long as there is a relatively cheap labor market, Chinese products can be labeled and sold to the United States.
The loss of enterprises is not big. It is nothing more than to let the goods go through several more processes. But the consumption experience of Americans is the same. If they want to buy things made in China, they have to let the goods go around the world more, which is to let the middlemen eat the price difference for no reason.
The reason for this is not complicated, because only China has such a huge industrial production capacity in the world. If China’s supply chain is completely excluded, the United States can only buy high priced products from other countries. As a result, China’s export industry is greatly damaged, but the damage to the US economy may be even more severe.
Without addressing debt, inflation, and unemployment rates in the United States, high tariffs are a ruthless tactic of killing one thousand enemies and harming oneself by fifteen thousand.
Mr. Trump’s favorite story is to make the United States great again, and the core of this great story is to let those factories that run to China move back to the United States, so that the red necked group can earn their jobs.
But the problem is that the wages of American workers are several times higher than those of Chinese workers, and the land and energy costs for building factories in the United States are much higher than in Southeast Asia. What’s even more troublesome is that American unions are leading the world, advocating for either an increase in money or a strike.
So American enterprises also understood. They pretended to move their factories back to the United States, and then secretly transferred their orders to Southeast Asia. As a result, American jobs did not come back, but forced bosses to turn to countries like Vietnam and Mexico.
In addition, high-end manufacturing such as chips, rockets, and cars will tend to be fully automated production of robots and black light factories in the future. Even if Mr. Trump can successfully persuade these enterprises to surrender, it will not solve the problem of low-level employment. But the result may be an increase in the wealth gap in society, leading to the resurgence of the white leftists’ equal rights movement.
Of course, Mr. Trump also has a big goal, which is to weaken China’s economic strength through tariffs. But now our main trade partner is ASEAN. Industries such as automobiles and household appliances are also gradually turning to the domestic demand market. Although the volume is a little, it will not be completely blocked.
Mr. Trump wants to cut off China’s milk, but China has transferred some industries to a third party, while retaining key links. The high tariffs of the United States will indeed make some export enterprises feel uncomfortable, but the core position of the global supply chain has not been shaken, and we are compared to each other for their large plate and long persistence.
In general, although tariff seems simple, it is actually a technical job. From the Opium War to the WTO to today’s Donald Trump trade protectionism, the times have changed, but the logic has not changed much.
However, it should be noted that Mr. Trump’s way of operation is too simple and crude, that is, unlike the isolationism in those days, and has not learned the Chinese strategy and essence.
Therefore, there is a great probability that the tariff war will become a war of words. Mr. Trump will not lose. We will suffer, but we will not lose.
