On Friday morning, Trump unveiled a tactic in the ongoing fight with the world’s most populous country.
“The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP,” he wrote on Twitter. “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA. I will be responding to China’s Tariffs this afternoon. This is a GREAT opportunity for the United States.”
It’s been a staple of Trump’s rhetoric for some time that he will entice companies to bring manufacturing back to the United States. On the campaign trail in 2016, he would regularly tell audiences that he would make pariahs of companies that manufacture overseas.
Friday’s tweets, though, do something different. First, they aim (futilely) to be precisely the sort of government control of the private sector that has been a focus of Trump’s most fervent recent criticism (albeit in the abstract). Second, it is a demand, in short, that businesses shift more of the brunt of the trade war onto American consumers — a group which Trump has claimed would be shielded from the economic fight.
The first point is fairly self-explanatory. With the 2020 election looming, Trump has decided to focus on the alleged “socialism” of his political opponents.
“A vote for any Democrat in 2020 is a vote for the rise of radical socialism,” Trump said at a campaign rally in New Hampshire last week, “and the destruction, the destruction of the American Dream.”
Trump’s colloquial use of “socialism” means, essentially, government social-welfare programs that cost money and don’t benefit his base. A July YouGov poll found that Republicans were more likely to see proposals such as free college education or universal health care as socialism — but less likely to apply that term to things such as Medicare or Social Security.
In reality, socialism is an economic system in which the public — generally meaning the government — controls production. (Which, Gallup found last year, Republicans are more likely to understand than Democrats.) In other words, a socialist system is one in which, say, an elected leader representing the public instructs how production should occur. By hereby ordering them to only produce in the United States, for example.
Trump’s not a socialist, of course. He’s mostly just angry that a trade war he once described as “easy to win” is not so easy to win after all. For decades, he was the CEO of the Trump Organization and could order his people to do things. As president, that instinct clearly remains even if that power doesn’t.
Even if Trump did have the ability to force business to bring production back to the United States (or “onshore,” as they say), there would be negative repercussions beyond just political hypocrisy.
He explained that the costs came in two forms. The first is that imported products subject to new tariffs necessarily get more expensive, since the government is now applying an additional tax to get them to consumers. Some of that cost will be absorbed by the companies exporting and importing the products, but some will be passed on to consumers.
The other form is that companies which use China as a source for components will look to other countries that aren’t affected by tariffs. Let’s say, for example, that a clothing manufacturer pays $10 per component to import from China instead of paying $11 to import from Vietnam. With a 25 percent tariff applied to the Chinese component, sourcing each item from China jumps to $12.50. It’s cheaper to get the product from Vietnam — though it’s still $1 more expensive than it used to be.
What’s more, there are additional costs to the company from switching: figuring out supply chains, shipping, legal issues and so on. In June, a National Retail Federation report explained how tricky shifting a supply chain could be. It reads, in part:
“The ability of U.S. retailers to shift sourcing from China to other suppliers is limited and could take years to complete. Retailers engage in a lengthy process to verify that potential new suppliers can produce the volume of products that are needed at the highest quality and at the most competitive price for consumers. These verifications include audits to ensure business partners meet various corporate social responsibility, labor, environmental, security and U.S. regulatory requirements."
Weinstein’s research suggested that Trump’s original tariffs cost American consumers $3 billion a month in direct tariffs and another $1.4 billion from the costs of shifting supply chains. When Trump expanded the tariffs, it made re-sourcing products a relatively cheaper option. As a result, fewer products would be imported (reducing that monthly total), but supply chain costs would increase to $6.6 billion a month.
Those are costs of the trade war paid by consumers. Despite what Trump said at that same New Hampshire rally.
“We’re taking in billions of dollars in tariffs and again, China’s devaluing their currency. They’re pouring out money,” he claimed. “The prices haven’t gone up, so that means we’re taking in billions of dollars. We’re not paying for it.”
Demanding that manufacturers rejigger their supply chains means increased prices apart from the prices that have gone up because of tariffs. Trump has no power to make such a demand, of course. His tweet ordering companies to produce goods using non-Chinese suppliers not only lack legal weight, they essentially lack any weight whatsoever.
Good news for Trump, given his views on socialism.