"Take me home, country roads."

This is the fourth article in a short series on the current global trade wars from the perspective of a US startup caught in the crossfire. The first three articles can be found here (i), here (ii) and here (iii). If you happened upon this page first, welcome, and I recommend starting with the previous articles for context. Those focused on responding as an individual business to a big tariff and the realities of manufacturing.

I talked previously about the clear costs as well as hidden consequences of a tariff for a small business and its customers. This led to the question of why this is all happening. What are we (as individuals, countries and the world) gaining from tariffs and similar trade policies? How are these policies being presented to us? What are the broader effects, costs and benefits? And how does a tiny startup fit in to the middle of it?

I’ll say upfront that I don’t believe a US-imposed tariff on portable chairs, the first product category my business is dealing with, brings any benefits (beyond a tiny bit more revenue for the US Treasury) and comes at significant cost. So this could have been a very short article. But in considering how to best explain the lack of benefits it got me thinking more broadly about the wider effects and rhetoric of the trade war. You are therefore getting a longer (too long!), and more opinionated, article. I’m guessing you didn’t come here solely to hear about the challenges of manufacturing comfortable seating, but still, apologies for the lack of brevity.

From what I’ve experienced in recent years, debate around this topic has been wrapped up in a rising tide of more inward-looking, nationalist populism across the world but particularly in the US since the start of the Trump presidency in 2016. It’s us against them, our country first. So for the completely mis-appropriated song lyric this time, I turn to John Denver (and Taffy Nivert and Bill Danoff): “Take me home, country roads.”

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There’s an enormous amount to unpack, even in a cursory way, so bear with me. I’ll focus today on the politics and economics of the trade war, and next time on the case for free trade. One of the fundamental challenges of thinking about (free) trade is that the benefits tend to be dispersed and somewhat hidden across the economy and society, whereas the costs tend to be concentrated and easy to see. Conversely, the benefits of protectionism are easier for a politician to point to (photo op in a factory, anyone?) and the costs more abstract.

These are incredibly complex issues. I don’t believe there are simple solutions to many of the ?very real and legitimate problems, but I also don’t believe the current lurch towards tariffs and protectionism is the answer. There is much that can be reasonably debated, and there’s also a lot of nonsense out there. For example, only last week Trump floated the idea of completely replacing income tax with tariffs. In terms of economics, this is complete nonsense and unworkable (if you want to understand more, see this quick explanation by Paul Krugman from June 18th). You can argue that it’s hard to distinguish bluster from serious proposals, but this kind of rhetoric matters, especially when it’s not immediately condemned by other politicians. Beyond being reckless and irresponsible, it seeps into public discourse and opinion, and shifts what’s considered extreme or reasonable (the “Overton Window”)

As a further example, in my own business we sometimes get asked by potential customers where we make our chairs. We have a standard answer explaining that we are a US company, based in the US, we do most business functions here and manufacture in China with a brief explanation why. More than once the response from the customer has then been to call me a “commie” or accuse me of undermining “American values”.

While that’s both a sad and amusing anecdote (and ironic given that I’m arguing here for freer trade and markets), my point is that this doesn’t come from nowhere. Bloomberg reported this week that The Republican National Committee spokesperson Anna Kelly said “the notion that tariffs are a tax on US consumers is a lie pushed by outsourcers and the Chinese Communist Party.” As Paul Krugman quipped in the linked article above, “Now, economists have been saying that tariffs are a tax on domestic consumers for the past two centuries or so; I guess they’ve been working for China all along.”

Whenever I get that question of where do you make your products, I know that they never really want to know the intricacies of our supply chain. They want to know whether we are “Made in USA” and/or that we don’t manufacture in China. “Made in USA” has become, like many issue slogans, a bit of a catch-all for a variety of opinions and causes, some of which I have a lot of sympathy for (e.g. being conscious of the environmental benefits of local food sourcing) and some that I don’t (e.g. denigrating outdoor products brands who have no practical option but to manufacture abroad). This probably deserves its own separate article, and I have a lot of respect for people passionate about this cause and their work championing local businesses and training/apprenticeships. But I’ll make two brief points here, one practical and one economic (maybe even moral), that are for me concerning.

The practical point is the difficulty of defining “made”. I commented on this last time, but lots of things need to happen to create a product. Manufacturing/assembly is just one of them. If a business does everything else abroad, but manufactures in the US, is that really “Made in USA”?

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Most people don’t know or appreciate what’s involved with making a product. I highly recommend this very short video series from Planet Money on what goes into making a simple t-shirt. Interestingly, even though much of the value added to create the t-shirt including growing the cotton and printing the design happens in the US, it would still be considered an imported product.

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The economic (moral) point is to continue following the inherent logic. If Americans should only buy “Made in USA”, then presumably Canadians should only buy “Made in Canada”, and Germans “Made in Germany” and so on for all countries. Presumably the US therefore shouldn’t be exporting anything either, since everyone in other countries should only buy things made in their country? I don’t think this is what people intend, but obviously there would be significant economic costs to this (as well as other difficulties for smaller countries). It may sound like an extreme result, but we’re seeing an alarming rise in “X-country First” type policies across many countries that carry enormous costs. I’ll save the discussion of comparative advantage and benefits of trade for next time, but for now just note the troubling politics.

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Since we’re getting into more subjective territory and we’re all products of our own personal experiences, I should take a short detour and be upfront about what has likely influenced me. I’m a US citizen running a US-based startup. I’m also an immigrant. I was born and raised in the UK and have lived in multiple countries. My grandparents and/or great-grandparents were immigrants to the UK from various places in eastern Europe, and my grandfather miraculously escaped Nazi Germany in 1939 before most of the rest of his family were murdered. I have family in different parts of the world, and I followed my wife (who is Canadian) to the US and to multiple states for her work.

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I mention all this because I realise I probably have a particularly international outlook, which influences how I view international trade. I feel privileged to have had the fortune to live, work and study in great freedom where I have, and I have deep gratitude and love for the countries of which I am a citizen. But I am also sensitive to the pure luck to have been born when and where I did and live where I do, and feel strongly that it shouldn’t only be people in my own city, state or country that deserve economic opportunity, dignity, security and various freedoms that we can easily take for granted.

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Growing up in the UK, I didn’t plan to move to the US, but inevitably developed a (stereo)typical view of America. Like most kids in the ‘80s and 90s, in addition to cultural associations of Americans (big, loud, brash etc.), I had powerful images of America as the land of individual freedom, innovation and leadership, a place welcoming to immigrants, and the home of the mythology of the American dream.

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I think this is why it’s been particularly jarring to see a new political/economic consensus emerge that is more inward-facing and closed than global and open. More protectionist and zero-sum than committed to the mutual benefits of trade and cooperation. As I look towards the next US election, specifically in terms of international trade, I’m worried we have one choice that’s bad for trade, and one that’s extremely bad for trade.

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So, what are we being told about trade and why do we have all these tariffs? I’ll focus on the US-China trade war since that’s what my business is stuck in the middle of, but many points apply more generally.

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The justifications for the tariffs seem to fall broadly into two categories: “punishing” China, and protecting industry/jobs in the US. While there are very real problems, I don’t think these trade policies are an effective solution on either front. I urge everyone to ask the questions “what are we actually gaining and at what cost?”

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Let’s start with “punishing” China. This is obviously a key driver – the recent tariffs are often explicitly called punitive tariffs. The danger here is usually couched in terms of some kind of national security fear, which is catnip for certain politicians, and at the extreme turns into blatant xenophobia. This article is not an attempt to defend or obscure the very real problems with many practices which are absolutely an issue, including intellectual property (IP) theft, “dumping” from excess capacity, massive human rights abuses in certain regions and environmental concerns, as well as lack of political and other freedoms. These are very real and distinct issues and I don’t know enough to propose good solutions for each of them. However, I don’t believe tariffs, an incredibly blunt economic instrument, solves these issues.

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Also, while it feels slightly frivolous to point this out, I don’t think there is a national security issue with outdoor portable chairs, the category for which I’m personally having to deal with a 25% tariff.

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For my business I definitely worry about protecting our IP, in which we’ve invested significant time and resources. Getting patents is not a quick or free process. I worry about Asian manufacturers copying us. But frankly I worry as much if not more about Amazon copying our product (this doesn’t limit our risk but we do not currently sell on Amazon). Either way, me paying a 25% tariff does not help here.

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More significantly, as I’ve noted before, China or Chinese exporters do not directly pay for tariffs. They are paid by US businesses who (at least in part) pass them on to consumers in the form of higher prices. Furthermore, the reason we end up with a trade war is that countries react to tariffs with tariffs of their own. This tit-for-tat escalation is one of the more disappointing features of the current situation. China has huge tariffs on imports from the US, which hurts Chinese consumers as well as US businesses trying to invest directly in the China market. One bad policy leads to another and everyone endures self-inflicted pain.

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Relatedly, we are often told that the tariffs are part of “getting tough” on China. Often this is framed in terms of a trade deficit. The story goes that the US has a huge trade deficit with China which means we’re “losing” against China. Therefore we need to stop China walking all over us. And the way to stand up to China is by punishing the Chinese with tariffs.

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There are so many problems with this account and the thinking that trade is somehow a zero-sum competition between countries, but let’s focus briefly on trade deficits. What is a trade deficit? It sure sounds bad – doesn’t a deficit mean you are deficient in something? Who wants to be deficient?! Well, a trade deficit is just a financial accounting measure – if you import more goods or services than you export then you have a trade deficit (and if you export more you have a trade “surplus”). So a trade deficit with China means the US imports more from China than it exports to China. This is not inherently good or bad. It just is. It’s certainly not a measure of winning or losing.

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Now it’s a fact that the US has had a trade deficit with China for many years. However, there’s broad agreement among economists that a bilateral (i.e. between two countries) trade deficit or surplus is pretty meaningless on it’s own. Even overall trade deficits (e.g. between the US and all other countries combined) may be good or bad depending on lots of other factors like the relative yields of foreign assets held by the different countries and other complicated things that we don’t need to get into.

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What about the tariffs as a way to protect American industry and jobs (or to create new jobs)? Historically, a primary justification for tariffs has been the “infant industry” argument. This is the idea that a fledgling industry in a country will not have the chance to establish itself if it is immediately exposed to the full force of global competition. People often point to the example of South Korea, including their car industry and other manufacturing. Needless to say, most industries in the US are at least as mature as in other countries, although maybe there is a point here for electric vehicles (I’m not convinced, but that’s for another time). Again, it’s a stretch, to say the least, to apply this to portable chairs, or most of the other consumer goods categories hit by the current tariffs.

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Second, there’s another argument about national security: we need to protect domestic activities that are crucial for defense. Most people would agree – we don’t want to give access to the latest military technology etc. But again, most of the tariffs put in place since 2016 cover completely unrelated categories.

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Third, there’s a self-sustainability argument: we need to protect things like our food supply because we don’t want to have our basic sustenance reliant on foreign countries. Global food supply chains are particularly complex and I don’t know too much about them. But again, a tariff on portable chairs has nothing to do with this.

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Part of the complexity of these issues is that there has undoubtedly been some sacrifice of resilience in global supply chains at the altar of efficiency and cost reduction. This was exposed during the COVID pandemic. There’s debate to be had about how to get to a healthier balance, and about which industries or products need additional safeguards and buffers to ensure people have reliable access to key products. But we should be clear about the costs and trade-offs for how we do this. Once again, tariffs don’t create this kind of resilience.

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Finally, there’s a more general argument to bring back manufacturing to the US. There are entire communities in many parts of the US where employment used to be concentrated in manufacturing. These communities have been decimated over the past 30 years as a significant amount of manufacturing has moved abroad, particularly to China.

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The effect on these communities is a serious issue that I don’t take lightly. However, I don’t believe the tariffs are solving this problem. First, a tariff on goods from China may in some cases encourage manufacturing to move out of China. But in most cases it will move to other, lower cost, countries, not back to the US. Portable chair manufacturing at large scale is not moving back to the US. As much as I’d love to have our factory right here, it doesn’t make sense. And that may be ok for the economy (more on that next time). Subsidising us would be nice for me and make my life significantly easier, but would come at a cost for the rest of society. I doubt that’s worth it.

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I discussed the realities of manufacturing last time. The dynamics vary across industries and products, so I’m not making statements about every industry. There could well be good arguments to subsidise or protect some highly advanced manufacturing, where maybe there are positive knowledge spillovers in R&D or knowledge that can be applied to innovation more broadly. But we should keep asking, at what cost and with what unintended consequences?

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One of the most frustrating things as a business owner is dealing with uncertainty, especially driven by government policy. What if all tariffs on China suddenly go to 60%, as Trump has proposed? What if one moves manufacturing to say Vietnam, and there’s suddenly a tariff on Vietnam? This creates a lot of cost across the economy, particularly for small businesses where these cost changes are existential threats. I’ll give a shout out to Liz Picarazzi who has highlighted these challenges.

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A second point related to bringing back manufacturing jobs is one that I alluded to last time. There are many jobs that need to be done in our economy. Are we right to prioritize manufacturing jobs? If so, why? If it’s because they don’t require a 4-year college degree, I’d argue that many others don’t as well. Furthermore, with remote work, many other jobs can (and will even more so in the future) be able to be done by people all over the world. Should those be protected in the same way? Still other jobs that we don’t even know about yet will exist in the future.

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These are difficult questions and I don’t have great answers. There are clearly problems (or in economics jargon “market failures”) which require interventions. But they need to be done really carefully if we’re not to do more harm than good. Tariffs are typically really blunt instruments that distort the market and rarely actually help the people who are in need.

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I’ll stop here and save further thoughts for next time since this has gone on too long! Next time I’d like to wrap up this short series by thinking about the benefits of freer trade (not just the costs to restricting trade). Given the problems that have given rise to the trade war, we should at least ask, “what did globalization ever do for us??”

If you’ve made it all the way here, please let me know! I'm aiming for at least one more article if there's interest!