SHOCKING: An Unstable Policy Environment Makes Long Term Business Planning Hard
Who would have guessed?
Fun note: This graphic is from 2018 and the first Trump Trade war. It’s almost like this could have been predicted.
Look, I know I’m not a business genius or investment banker, so naturally I was shocked to learn that businesses have a hard time doing long-term capital planning when they are unsure of what the policy landscape will be months from now, let alone years from now. This is a massive problem with the Trump Tariffs. Business Writer Derek Thomson points to the underlying conflicting strategies and goals that the President and other administration surrogates and whispers have expressed:
So, are these short-term tariffs intended to get other countries to remove tariffs on our goods, or are these long-term strategies to generate revenue and force companies to reshore manufacturing? I realize some galaxy brains will respond, “If the Trump administration clearly telegraphs what they want, then foreign governments can figure out ways to sabotage that strategy.” See for example:
Beyond demonstrating the type of zero-sum thinking that has led us to this mess, this perspective also misses out on the fact that many domestic organizations need to know the short and long-term goals to do their own planning.
Setting the issue of tariffs on raw manufacturing materials (or the average American consumer’s willingness to pay more for American-made products that cost more than their low-cost import competitors), reshoring manufacturing is not a quick or cheap investment for companies (especially in industries with narrow profit margins).
Victoria Guida’s Politico column “This Could Get Much Uglier’: The Fatal Flaw in Trump’s Trade War” dives into the details:
President Donald Trump’s sweeping tariff regime will completely transform America’s economic relationship with the rest of the world, all in the name of revitalizing domestic manufacturing.
And yet, many businesses won’t be rushing to shift their supply chains to U.S. shores.
For all the detail in Trump’s Wednesday announcement, his endgame is still shrouded in confusion. That’s lethal for long-term investment, making confident planning all but impossible.
“If you want stuff being put in the ground, you have to tell people the price, and the price needs to be fully inclusive of the tariff risk,” one former administration official in Trump’s first term, granted anonymity to speak freely, told me.
[…]
I’ve asked multiple corporate executives in recent weeks whether companies are likely to start investing in manufacturing in the United States in response to Trump’s policies, and the message has basically been: That’s an unanswerable question right now. Because making those decisions requires understanding the relative costs of doing it versus not doing it, and Trump is far too unpredictable to allow for that kind of calculation.
If the markets bloodbath gets much worse, will Trump back off? How much will tariffs change over the next three-plus years? And tariff policy could change drastically under a new president in 2028. Might companies just wait it out rather than making a long-term commitment of resources and hoping for the best?
[…]
The administration argues that it is “setting the stage for long-term economic growth,” as Treasury Secretary Scott Bessent put it to Fox News on Wednesday. “We are putting ourselves back onto a sound trajectory.”
In the meantime, the domestic manufacturing sector is shrinking amid corporate paralysis.
“Manufacturers are putting these decisions on hold,” said Jay Timmons, head of the National Association of Manufacturers, in a CNBC interview ahead of the tariff announcement. “They’re waiting to see whether they should invest and hire. And that’s not good for the economy.”
Anyone with manufacturing experience (I have from my first gig within Kodak’s Digital) or bare imagination can understand precisely why an unstable market is not a great time to make significant changes to where materials are sourced and where manufacturing happens. That said, in the interests of evenhandedness, if someone has links to content from reputable business or economics sites (no Zero Hedge does note count, and further it looks like even they may be buying into the woke mind virus TDS that these tariffs are a bad idea) please add them in the comments.
On a micro scale, I wonder if my best move is to lay in non perishable groceries at today’s prices. You know, go to Costco, buy a years worth of coffee beans or paper goods. ROI about 20%. Lord knows I have enough clothing to last me a long time.
Not sure where we are posting items like this but since this is the latest post, I’ll put this here.
Comment from the Consumer Technology Association:
Not a fan.
“So, are these short-term tariffs intended to get other countries to remove tariffs on our goods, or are these long-term strategies to generate revenue and force companies to reshore manufacturing?”
My vote is that the tariffs are the way to pay for the massive tax cuts in Trump’s “big, beautiful bill”. He can regressively raise taxes on consumption through tariffs, while while cutting taxes primarily on the rich.
Once again, the simplest explanation for all Republican economic policy is class warfare on behalf of the upper class.
@Moosebreath:
If that’s the case then the tariffs cannot be temporary. They need to be in place at the current levels for at least 10 years. Which also means there is nothing that other countries will be able to do to get their tariffs lowered–otherwise that tax revenue is lost (especially for the next two+ years it would take for manufacturing to reshore).
That’s going to be a hell of a regressive tax on an electorate that kicked the last bum out of office because prices/inflation was too high.
Here is Chris Murphy take, a thread:
https://bsky.app/profile/chrismurphyct.bsky.social/post/3lluxkmx7wc2m
The entire thread is copied to a post at Balloon Juice. I’ll copy from there:
Interesting theory, but I don’t think so, these tariffs are bullying foreign countries, not their American customers and the industries hurt by supply chain disruptions. I like Noahpinion’s take I linked elsewhere better.
@Moosebreath: @Matt Bernius: The same concept keeps bubbling up in Texas. Raise the sales tax in order to reduce and/or eliminate property taxes. Sales taxes adversely impact most the lower on the economic scale you are and property taxes are essentially wealth taxes.
It is estimated that sales tax in Texas would have to be raised to 20% to generate enough income to eliminate the property tax.
What’s the end game? Tariffs are legitimately used to protect infant industries until they can compete, as we did until we overtook Britain and the Japanese did afterWWII. Our problem is competing with low wage countries. I joked during the Reagan years that we were losing manufacturing jobs to third world countries so Reagan’s plan was to turn us into a third world country. Is Trump’s plan to keep tightening the screws on our economy until our wages are competitive with Myanmar?
@Scott: My beloved Guv DeUseless is pushing the same thing in FL. When you drive past ten million dollar beach houses you get a glimpse of who’s driving his desire to eliminate the property tax. Here he pitches the increased sales tax as a tax on tourists. Seems like it would fall on me too.
@gVOR10:
Seems like a weird time to start tying your tax base to tourism, while simultaneously seeming to actively discourage tourism.
If I recall correctly, Thomas Barnett wrote that business doesn’t like unstable or erratic governments. I read two of Barnett’s books 20 or so years ago. My memory may be faulty.
@charontwo: That’s giving Trump too much credit. One of his few core beliefs is that tariffs are a good thing. That there’s always somebody taking advantage of somebody else, so you’re either the bully or the sucker.
Note that Congress could stop this today, if they wanted to. Anyone saying that this is just Trump is lying or misinformed.
@Kevin:
As I said, that is likely a dubious take. Maybe Noahpinion more plausible?
“Link”
snip
@charontwo: While Murphy’s analysis might not be the whole thing, I think it will be in play.
During the last Trump administration, farm states got big payouts to compensate for lost business selling soybeans to China. Even though they sold those soybeans elsewhere.
@Jay L Gischer:
Fun fact, according to the Tax Foundation those bailout all but fully offset the income from the tariffs that necessitated the bailouts.
@Matt Bernius:
“If that’s the case then the tariffs cannot be temporary. They need to be in place at the current levels for at least 10 years.”
Maybe. Or maybe they need to only be there long enough to get the tax cut passed.
I can’t imagine trying to plan for a municipal budget in this environment.
Even the “import substitution” argument is utterly daft.
There MAY be a case for protection to sustain a critical base in genuinely key “strategic” manufactures (e.g. special steels, military electronics, nuclear reactors, turbines).
Or even for “carbon taxing” some imports.
But trying to “onshore” labour intensive consumer goods is self-defeating; you just use up limited capital and other resources to make things at above global market prices, at the expense of both consumers AND genuinely competitive producers.
And given US labour costs, will probably end up with automation meaning you don’t generate much employment.
It’s the old basic economics of “relative advantage”.
@Matt Bernius:
I’ve been hearing that a lot lately. I recall hearing that back then, too.
My hypothesis is that the felon’s understanding of economics is not as advanced or sophisticated as this.
@Matt Bernius:
Yeah. How ironic is that?