Down Four Lanes of Highway

I think we were all expecting to see some of the companies impacted by the developing trade war start moving production outside of the US. Whether or not the new tariffs on steel and aluminum will actually help the U.S. companies that produce those materials remains in dispute, but the retaliation coming from the EU, Canada and China does not – and those counter-punches are going to hurt. For example, Harley-Davidson is facing an estimated increase of $2,200 per unit it exports to Europe – which is an increase from 6% to 31% if that helps. Company and industry sources both claim that Harley-Davidson was already considering moving more production off shore, but this gave the idea greater appeal. It’s a predictable response to a difficult situation. Unless you’re the President of the United States, apparently…

Both the BBC and CNBC are reporting on the move, and both of them are citing a tweet from our President saying that he is surprised and disappointed that Harley-Davidson is “surrendering” instead of waiting for the supposed benefits of this trade war to help make up the difference. How, exactly, a trade policy that protects US steel and aluminum manufacturers from foreign competition will help a company that makes motorcycles is a little tenuous. Granted, American metals companies could lower their own prices if they had less “unfair” foreign competition, but in general, companies lower their prices as a result of greater competition, not less of it. And even if our domestic producers were somehow inclined to lower their costs, there is no reason to believe that they will – or that it would be enough to offset the tariffs being placed on motorcycles by the EU and other to follow…

A much bigger question, at least from where I’m sitting, is why anybody would find either of these developments surprising in the first place. Random, arbitrary, and inexplicably high tariffs are going to provoke retaliation, just like any other hostile action. Make them high enough, arbitrary enough, and combine them with enough ignorant and belligerent rhetoric, and people are likely to see such measures as economic warfare – because that’s exactly what it is. And while I will concede that there are some conditions under which tariffs (and other sanctions) are justifiable, or even sensible – a trade war is still a better idea than an actual war, in almost every possible case – suddenly declaring a trade war on countries that have been your stable trading partners for decades makes about as much sense as attacking them without warning any other way…

I realize that this post is drifting away from business and towards politics, which I would prefer the blog not do, but by the same token this is very much a matter of strategy, and in this case, applying the wrong ones. As a matter of international business or economics this move makes no strategic sense for anybody except a handful of American metals companies, and we should note that if there is an economic crisis because of this trade war their business will not prosper either. The only category under which this qualifies as an actual strategy is in the case of appealing to a reactionary political base, or rewarding owners of newly-protected companies who happen to be current or potential campaign contributors. Which is really the point…

To put it simply, I don’t comment (much) on politics because having business interests attempt to direct national policy is a colossally bad idea – and that is what is happening here. I do not have any evidence that would prove that members of our current administration are allowing their own business interests, or those of their political supporters, to direct our national policy towards a potentially disastrous trade that can’t possibly do anyone on either side any good, and may ultimately be bad even for the handful of companies supposedly being protected under such a policy. I just can’t fathom any other explanation…

This won’t end well. It never does…