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Every Asian Tycoon we’ve examined got their start in a world with tariffs. They could thrive and adapt under severe uncertainty. So can we. Here’s how to calibrate for that world.
a week ago

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Tariffs Are Not Enough

The tariff sledgehammer has a role, but it's a limited one. There's an inherent tension in State-Corporate Capitalism. Proponents of the free market hold that any state Industrial Policy will fail because the State cannot pick the winners and losers as effectively as The Market. Yet Corporate Capitalism continually lobbies the State to lower interest rates and taxes, weaken the currency to make corporate products cheaper in overseas markets, erect tariff / trade barriers against mercantilist global competitors, etc. In other words, the State should butt out of the free market except when it serves our purposes. The other source of inherent tension is the State's responsibility for more than boosting private-sector profits. Enterprises have the luxury of focusing on one thing: boosting profits and "shareholder value." Governments have responsibilities far broader than boosting profits--for example, national security, which has been gutted by de-industrialization and the wholesale transfer of supply chains overseas. Steep tariffs are now being deployed to correct the corporate offshoring that boosted profits so wondrously. The problem is tariffs are not enough to reverse offshoring to reshoring. Tariffs act as a useful sledgehammer but a sledgehammer has a limited scope of utility. There are more moving parts in the decision to reshore than tariffs. What few realize is every State has a de facto Industrial Policy set by the entirety of State policies and regulations. This Industrial Policy is implicit rather than an explicit set of goals and policies, and so various pieces of this implicit Industrial Policy may actually be contradictory. Just as the State doesn't have the luxury of focusing solely on profit, corporations don't have the luxury of gambling the company's future based on one State policy that's likely to change. Enterprises must consider a great many factors before committing billions of dollars to moving supply chains and production facilities. These include: 1. Tax structures 2. Regulatory burdens 3. Environmental requirements 4. Workforce availability and cost 5. Cost of capital 6. Availability of credit 7. Cost of healthcare for the workforce 8. Automation / AI 9. Domestic and global market conditions and competition 10. Public sentiment The State's policies set many parameters that affect decisions about reshoring: the complexity of tax codes, the cost of healthcare, the cost of capital, environmental regulations, the relative ease or difficulty of doing business, the availability and skills of the workforce, and so on. 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Corporate taxes could be reduced for companies that source all components and assembly of their products in North America. There many ways to incentivize reshoring that are more reliable and actionable than tariffs alone. I've advocated shifting the tax burden from workers and employers (Social Security and Medicare taxes paid by all workers and employers) to capital via transaction fees on all capital transactions and the elimination of tax giveaways / breaks for capital. Since the top 10% own / control 80% to 90% of all income-producing capital, a policy shift from labor / employers to capital would transfer the tax burden to the wealthiest Americans, those who have benefited so richly from the de facto policies of hyper-globalization and hyper-financialization. I've also noted here many times that the current healthcare system will bankrupt the nation all by itself. 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