What it is: The United States has proposed a “temporary” tariff of 25% levied on goods manufactured in China, Mexico, and other countries. This action marks a radical policy departure. In fact, every President since the New Deal has backed efforts to minimize or to eliminate trade barriers. This action has effectively promoted economic prosperity as well as has contributed to improved relations between nations.

What brought it about: Economists seem to generally agree that these trade agreements or disagreements are a long shot attempt to strengthen U.S.-based manufacturers. It is viewed as a forced attempt for Americans to buy American. This scheme is actually short-sighted as many manufacturers, such as those in the automotive industry, send raw materials for steel manufacture to Asian countries. Detroit’s automakers then buy the finished, foreign-made auto parts to assemble their vehicles. This process sounds convoluted but in truth is far less expensive than it would cost if those same parts had been made in the U.S.

Look closely at that Subaru you drive. See the little decal in the back side window? Yup. It is assembled in Oklahoma, U.S. A. from parts, some of which have been manufactured abroad to keep the vehicle’s sticker costs down. The only question that remains: Will an Outback that costs 15% more still be attractive to American drivers? Can hardcore Asian-import drivers turn to GM? And just what percentage of the vehicles manufactured in Detroit are actually fully American-made?

What it brought about: Tit for tat on a global scale. No sooner had the levy been announced than opposing nations levied similar tariffs on American-made goods. Gentlemen, it would appear the U.S. has sparked an international trade war.

What it means to U.S. Consumers and Businesses: Basically, for the duration, or until these tariffs are lifted or reduced, everyone is going to have to ante up for roughly 15% more than they would have paid for the same goods prior to these restrictions being imposed. That is because even though the tariffs have been raised to 25% for imported goods, the U.S. had already been charging 10% for goods imported into the country.

Items are going to increase in cost, but not value. It will have multiple effects: fewer new imported cars will be sold, and quality used vehicles will increase in value. And we will all receive an economics lesson when we learn just how many products that Americans cannot do without are manufactured in Asia: Here is a partial list:

• Electronics- computers, audio systems, cell phones, home security systems, lawn mowers, we already covered automotive, but let’s not forget trucks, especially long distance trucking vehicles.
• Clothing and apparel, footwear.
• Household goods such as beds and bedding, furniture, appliances, vacuum cleaners, decor, luggage, tools, and recreational equipment.
• Food: According to Fortune, 70% of our vegetables, and 40% of our fruits are imported from Mexico. Fresh food will cost consumers more at the checkout counter. A possible solution would be to establish a victory garden and grow one’s own food, or to support local farmers and, just like our ancestors, can, preserve and store food for the non-growing season.

Who is most likely to be impacted? Big box stores that maintain 40K worth of different products. These source most of their inventory from China. Since these stores are known for the relative quality of their products for the price, raising prices might cause their consumer base to turn elsewhere.

Small manufacturing businesses. American manufacturing is also its economic backbone. However, in just about every town there are small businesses that create parts that combined with parts by other manufacturers around the country, are purchased by major manufacturers for use in machinery as well as on production assembly lines. The range is varied and includes: drill presses, gauges and calibration equipment, construction equipment such as backhoes, and excavators, equipment used in materials manufacture such as extruders, and polishers, etc. These need to be manufactured and maintained and for that one needs new and used parts.

Consumers: As for consumers, economists dismiss that China will be paying for the imposed tariffs. Instead, they claim that U.S. taxpayers will foot the bill by paying higher prices for the products and services they need. Buying will become more needs-based, with far less impulse buying that accounts for a percentage of overall consumer sales. There is already a trend towards buying used clothing and accessories. Not only does it bring that designer handbag within reach, but the movement is a step towards decluttering landfills, said to be almost entirely composed of used textiles. Consumers will consider leasing their vehicles. Some who are committed to car ownership will hold on to their cars longer, and learn to bypass the dealership for OEM replacement components turning instead to secondary markets and quality used automotive parts when their vehicles need repairs.

What are the Benefits? Long term, will the tariffs increase sales for American-made goods and services? Possibly, but only if the quality can justify the spend. Also, as implied previously, due to trade agreements, many U.S. manufacturers collaborate with foreign firms to create products that are sold in the U.S. if not wholly manufactured Stateside. Will the tariffs create more jobs in the U.S.? That remains to be seen, but is a possibility, however remote at this time.

The post A Tale of Trade Tariffs: What These Sanctions Mean for U.S. Businesses and Consumers appeared first on Newton Search.

But first, a little backstory: The Bureau of Economic Analysis recently reported that for the first quarter of 2018, manufacturing output in the U.S. reached an all-time record high of more than $2 trillion. That was actually the third quarter in a row (beginning in 2017:Q3) that U.S.Manufacturing reached record-high levels, surpassing the previous record-high level of U.S. factory output established back in 2007:Q3. That was before America’s and other countries’ manufacturing sectors were impacted by the Recession.

We all know, despite the views from numerous brokers on Wall Street and elsewhere, that the only finances and economic outlook that matters is yours. Since it is clear that Manufacturers wield the power and influence over so many of us, what is and where does the current state of Manufacturing leave most Americans? Again, depending on the reference, while there are possibly as much as 13% fewer jobs in the Manufacturing sector today than there had been in 2007, productivity has increased exponentially. This is due to numerous industries coming on line that have incorporated the latest technological advances, such as robotics into their processes.

A Wide Range of Industries

These industries, which range from automotive to pharmaceuticals, from delicate and precise calibration equipment and gages, to pianos, to giant earth movers, require fewer workers to produce greater output with greater accuracy and quality control. However, the demand for these technologies has shifted employment opportunities to these Manufacturing sectors. The need for more skilled workers has increased enrollment at brick and mortar colleges and universities as well as online schools.

There has always been strength in numbers. The aging of the largest population segment, the Boomers, has expanded the need for medical facilities, hospitals, practitioners, and specialized medical equipment. Review that last sentence and you’ll see just how much influence Manufacturing has on that scenario’s successful outcomes!

Numbers do not lie. If you have a hard time accepting the analogy laid out in the previous paragraphs, chew on this: Over the past five years the American Manufacturing sector has employed 12 million workers. But more importantly, it generated an additional 17.1 million indirect jobs. That figure makes Manufacturing the largest multiplier of any economic sector since each dollar’s worth of manufactured goods generates $1.40 in output from other sectors of the economy.

Perhaps most important Manufacturing metric may be the higher wages it provides for blue-collar (skilled but not educated) workers. According to recent Bureau of Labor Statistics data, jobs at goods-producing industries pay an average of $56,799 a year on average which is significantly more than other working-class fields like healthcare and education (averaging $45,676 annually) and leisure and hospitality ($20,879). Oh now you wish you had taken shop class in high school!

Another recent study of almost 400 cities, towns, and regions in the United States has helped to pinpoint where U.S. Manufacturing is thriving today.

• According to Moody’s Analytics, the San Francisco, CA area experienced the biggest gain in jobs and household income as a result, which surged by almost 14%. Industries are largely technology,engineering, and construction.
• San Jose, CA, which is part of Silicon Valley, enjoyed the second-largest job/income increases, at about 13% percent
• Technology positions influenced population increases in Austin, TX, where the jobs/income rose about 9%.

Where the Manufacturing Jobs Have Gone

What is interesting to note about the cities cited above is that two of them are not part of regional ‘tech hubs’ but off shoots. And where the jobs go, people seeking employment opportunities soon follow.

• The majority of U.S. cities/regions with the largest job/income gains are “tech hubs,” with concentrations of software architects, data analysts and cloud-computing engineers. These include: Denver, CO, Portland, OR, Provo, UT, and Raleigh, NC.
• Pittsburgh, PA realized a 6% gain in jobs/income thanks to increased technology and health care jobs.
• Oklahoma City, OK, where job/income are up by 5%, has benefited from oil and gas production, manufacturing, and refineries.
• FLA/USA: The state of Florida is booming thanks to ever-growing aerospace, aeronautics, and technology sectors that include NASA and Elon Musk’s SpaceX. And let’s not forget the hospitality industry’s inroads in and around the Orlando area. ‘Something to do with a mouse, the future…and now Hogwarts!

In a sad grace note of personal interest to this author, Rochester NY, which at one time led the nation in Manufacturing jobs/income placed at 70 in the top 100 manufacturing cities in the U.S.. This tumble can be traced to the loss of Eastman Kodak, the largest employer in the region. It also speaks to the rise of jobs and income increases elsewhere in the nation that are served by at least two major and different manufacturing industries. One trick pony towns, take note!

Historically, oppression has either destroyed empires or created diamonds. From this most recent economic downturn, we’ve seen that some long-time Manufacturing industry leaders fell by the wayside. Their loss negatively-impacted that region whose citizens either moved to another industry or out of the region entirely. These new industries were not like those they replaced. Instead, technology replaced old-time Manufacturing processes. The need for this technology created jobs elsewhere which boosted their associated regions associated. And so it goes. By remaining flexible and not only open to, but by embracing change, our Manufacturers, the American economy, and our Nation advances.

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