On Tariffs, Retaliations, and Retreats

Are the proposed tariffs being used to bring manufacturing and jobs back to the US? Or, are they being used to bring attention and fixes to the border? Or is it both?

I am still unclear.

By now, we all know what has occurred this week:

On Tuesday, a 25% tariff on all goods was implemented by the United States against neighboring countries, and closest trading partners, Canada and Mexico.

On Wednesday, lobbyists from the Big 3 auto makers, along with others, met with the White House and tariffs on automotive goods were exempted, for 30 days.

On Thursday, all new tariffs enacted on goods produced in Canada and Mexico, tariffs that go back as a far as TWO DAYS AGO!, were also delayed for 30 days*

• We are learning this morning that the goods in question are USMCA goods, not “all” goods.

What will tomorrow bring?

Let’s take a look back, all the way to last month, when the same set of events unfolded. I mean, who could have seen this coming?

On February 1st, the administration announced this same set of tariffs, to go into effect on February 4th. This of course never happened. On February 3rd, they announced a truce of sorts and punted until March - where we find ourselves today - exempted until April.

Now what? Tariffs are paid at the time of entry into the country. So, technically, the importing entity pays the tariff. This can be a US company, or a foreign company, its simply the importer of record. However, as we are all well aware, that entity “passes on” the cost of the tariff into the wholesale price of the goods. Regardless of distribution, the cost of the tariff ends up in the final cost of the item.

And usually more that the cost, as most companies try to stay margin neutral.

Tariffs are not new, and have been in place here for as long as there has been new world. The Sugar, Stamp, and Townshend Acts in the 1760’s eroded trust between the Colonists and England. The Tea Act of 1773 led to the Boston Tea Party. These Acts were tariffs.

The stated goal is noble indeed, to protect domestic industries against unfair trade, and bring manufacturing and jobs back to the US. But when Canada takes steps bolster its border with the US, we cancel the tariff. When President Sheinbaum of Mexico has a “respectful” conversation with our president, we cancel the tariff.

So which is it? And can it be both? I’m not so sure.

The Reshoring Initiative - a group that tracks when companies bring manufacturing back to the U.S. - has documented hundreds of reshoring announcements over the past decade. Their data suggest that, since 2016 when tariffs became a major bargaining chip for this administration, these moves could have added or promised the creation of roughly 100,000 U.S. manufacturing jobs.

But are the jobs really jobs? Or, are we seeing an uptick only in production? Some analysts argue that even though more production is happening today domestically, it’s advances in technology that is occurring, meaning that job gains might not be as large as the reshoring figures suggest.

Maybe it’s good for the robots?

While no single statistic definitively “proves” a dramatic reshoring of manufacturing has occurred, the trend is that direction.

Meanwhile, in China, the tariffs were not cancelled or delayed. In fact, retaliatory tariffs are being enacted, targeting the agricultural economy.

When this happened in 2018, the administration ended up compensating farmers with up to $13 billion in relief via the USDA. How this will play out today is anyone’s guess.

Gradually, then Suddenly.

In business, change is good, and slow change via strategy and planning is better. We all have a little bit of Hemingway inside of us when setting goals and layout out vision. We plan and take big actions, success come gradually, then suddenly.

The tariffs stops and starts are making it difficult to plan, to see the future, and set the course. Leaders have a clear vision and can usually ignore the marco-political environment. This is the noise they do not hear, the earmuffs they wear which is how goals are achieved. Nobody wants to “wait and see”. Leaders take action, follow through, and shift course when the data says to do so.

What is the data saying today? How many courses are being shifted?

I wagered a beer with a good friend of mine this week. He thinks tariffs are not good for anyone and a better deal that favors the US will be cut soon. I’m taking the over. While he may have won the bet already, we might not know the final score for awhile. I think this game is going to overtime, but let’s avoid a shootout.

The winner gets a domestic beer, not an import brand because I might not be able to afford a Tacate or LaBatt’s Blue…and let’s not even talk about the cost of a Tsingtao.