by In recent days, I’ve heard a number of my industry colleagues speak in favor of tariffs. Whether it’s in the interest of fairness or of a resurgence in manufacturing that hearkens back to days past, it’s been argued — including in this publication — that maybe there’s a logic to all of this. I beg to differ.
First, a historical perspective. In 1900, agriculture represented roughly 40% of U.S. GDP and 40% of employment. Manufacturing represented about 25% of GDP and 25% of employment. Then a shift began that accelerated through the century. By 1950, farming was 12% of GDP and 15% of employment. Meanwhile, manufacturing peaked for GDP and employment at about 30% each. Fast forward to today, and agriculture sits at about 1% of employment and GPD, and manufacturing has declined to roughly 10% of GDP and 8% of employment. Services and technology now account for nearly 80% of GDP.
So over time, our economy has evolved. We’ve moved from rural/agricultural to what is now a service- and technology-driven economy. During that time, through each stage of our evolution, our economy grew. Dramatically. Also during that time, there has been pain. This isn’t to be dismissed lightly. Economic evolution is disruptive. People get left behind. Resentment festers. Protective barriers seem rational.
So in the interest of fairness, we assign prohibitive tariffs to the imports of other countries. For example, to bring back American manufacturing jobs and correct a trade imbalance, Vietnam is hit with 46% tariffs. Couple of flies in that ointment. Vietnam is a small, poor country. Under 100 million people with an annual GDP of $450 billion. That’s $4,500 per person. Compare that with the U.S. — a GDP of 27 trillion and a population of 350 million. That’s about $77,000 per person. Put simply, they can’t afford much of what we do. They’re still manufacturing-dominated, and economically we’ve largely left that sector behind. And our ongoing transition has been painful.
But here’s the painful truth: The manufacturing that’s gone isn’t coming back. Not to the furniture industry or any other for that matter. Will a tariff wall suddenly make Western North Carolina a credenza capital once more? I doubt it. No more than we’d bring back buggy whips by taxing all of those infernal horseless carriages. Some manufacturers in our industry have been and continue to be successful. Custom upholstery thrives. A few case goods companies have made it work (looking at you Vaughan-Bassett). But, by and large, those jobs are gone and they’re not coming back. And even if they did, we can’t get people to fill the positions we have open now. A tariff on imports isn’t suddenly going to make everyone want to work on a CNC router.
So if manufacturing isn’t actually coming back, what’s the end game? What are the goals for this protectionist impulse? The tariffs being applied to our suppliers at a macro level make even less sense if you zoom in. Would it be reasonable to tax your suppliers if they weren’t also your customers? Should upholstery manufacturers start taxing Sunbrella fabrics in the hope of nurturing their own mills? Would it make sense for bedding manufacturers to tax Leggett & Platt for supplying their coils? Of course not. You’re good at what you do, and you buy from them because they’re good at what they do.
Zoom back out to get an idea of a perfectly functioning model of free-flowing goods and services. It’s right under your nose. With the ratification of the Constitution in 1787, we ended the Articles of Confederation and eliminated tariffs on goods between states. And it worked. It’s been the most successful economic experiment in history. Some states are better at different industries. Some are poorer than others. But would it make sense for Mississippi to impose import tariffs on comparatively richer Alabama? You’d just end up with a poorer Mississippi and a pissed-off Alabama. Because let’s get real — the tariff would be a tax on the buyer, not the seller. And so there would be less bought and less sold.
I’m not suggesting that we live in a perfectly balanced global economy with frictionless trade. Far from it. The tariff regimes in many other countries are onerous. India places a 70% to 80% tariff on all rice varieties. And that’s before an additional 15% surcharge for “social welfare” and good and services taxes. As a result, Indians — even after market subsidies on top of tariffs — pay more for rice than the global average. So who would be helped if we put a reciprocal tariff of 80% on all rice from India? We’d all just eat less rice.
So no, it’s not always fair and it’s not always free. But that’s the goal. Because it’s good for us. Because it makes everyone richer. In spite of this, countries and governments have agendas. If you want to nurture an emerging technology, there can be a logic to protection. As a result, sometimes tariffs make sense. For example, through vast subsidies, China has aggressively sought to dominate the global market in solar panels. The result has been struggling solar manufacturing everywhere else. So it’s logical for us to argue that China either needs to eliminate market distortions or expect repercussions.
While it might make us feel better in the short term to punish the countries who ended up with our manufacturing jobs, in the long term, it will make us all poorer. The global trading order is our creation. The United States built it brick by brick over generations, with a resulting decline in global tariffs and economic growth unprecedented on a global historical scale. It worked. For us and for everyone else, it worked. If these tariffs hold, we will all be poorer and there will be less bought and less sold. And the number of people pissed off is way bigger than Alabama.
Hi Rick – well stated. It’s funny how the President feels as though His Countrymen and women have been looted and pillaged, yet the US remains the largest economy and hosts the largest consortium of Billionaires. If things were so bad He wouldn’t be teeing off the day after such a “poorly” thought out imposition on the World. Keep up the great “telling it as it is” 🙂
Well said, Rob. Thank you for your comments. Most of the people in these Asian countries that are looting and pillaging us live in total poverty that we could never imagine. Yet most of the time when you see them on the street, they seem very happy and always smiling. Yet as always, many Americans are never happy as they are never satisfied with what they have and have no idea of how good we have it.
Rick, you make some valid points however you and every other voice speaking out against Trumps tariffs leaves out one very important point, that is that all these countries have been charging unfair tariffs on US made goods for decades, why has it not been disastrous for them? Just a question
Hey Mike,
Thanks for your comments and insights. I personally appreciate you taking time to read our newsletter and respond. But I was curious – have you ever been to Vietnam or the Philippines? I have just several times and based on what I have seen, most of the people there live in total squalor and poverty. How in the world are we getting ripped off when our standard of living is so much better? Trump has made Americans feel like our country is going down the drain, which is a totally criminal, heinous and traitorous falsehood. Just look at all the full shelves at Wal-Mart and the hundreds of dollars that people spend on each trip with shopping carts filled to the brim. The problem is that most Americans are never satisfied with anything they have and think that someone is always trying to take something away from them including the impoverished Hispanics living in trailer parks. It’s kind of a pathetic outlook.
Hi Tom, thanks for responding and yes I have been to both countries and many other impoverished countries, those countries charging Tariffs on US made goods does not make the poor peoples quality of life one bit better, those governments don’t care about their poor population, and I never said we were getting ripped off I said the countries who just got tariffs imposed have been charging “unfair tariffs for decades on the US” unfair in the sense that there is no reason for them other than to create revenue for their governments, how simple is it to just drop your tariffs on us so we can drop our tariffs on you that is the definition of free trade! it works both ways now but it has been mostly one way at our expense previously.
Hello Rick,
I appreciate your thoughts, and agree completely that most of the manufacturing jobs in furniture – case goods specifically, are not likely to ever come back to the US. I don’t believe that home furnishings manufacturing is really even on the radar of what the President is trying to do. We just may be one of the industries that gets hammered. Low tech, low skilled labor manufacturing (like case goods) is not really a major concern, but agriculture, high tech and heavy industrial manufacturing are of high concern and are important to our national security and long term prosperity. It seems that the idea behind the tariffs is to level the playing field for the manufacturing and agricultural base that is still surviving in the US along developing more high tech – chips, etc., and to spur growth there first. We need to remove the barriers for those industries and protect that base in the United States.
Hopefully Vietnam and Malaysia quickly negotiate a settlement that will get them back to zero. Vietnam exports about $150B to the US and only imports about $15B – so it is absolutely in their best case and our industries’ best case to negotiate a quick resolution. I have been to both countries recently, and FYI a large portion of the poor people working the factories supplying our furniture actually are immigrant workers from even poorer countries like Nepal and Bangladesh.
Tom – it is disappointing to have you slamming “most Americans” as ungrateful, greedy, racists like you did in your last few comments. I think that comment was pretty pathetic. It is never good to throw groups people into 1 bucket with large generalizations. I am not offended – I am thankful person that is grateful that I get to go work each day, and I get to work with great people, and rarely need to shop at Walmart.
Hey Larry,
Feel free to call me at 336-508-4616 to discuss.
Tom
Tom,
Trump has made Americans feel like our country is going down the drain, which is a totally criminal, heinous and traitorous falsehood. Your words. I expected reporting from you that does not use this type of rhetoric. Criminal ? Is it a felony or a misdemeanor? Heinous and traitorous? Wow. I disagree. You may not like the actions, but most of the population disagrees. This week’s CNN poll states that 98% of Trump voters agree with their vote.
We are 36 trillion in debt. This must change. Every single president has kicked this can down the road for decades. We all know this must end. America has been getting ripped off by the tariffs charged on American goods for far too long. Additionally, Currency manipulation has been going on for decades by China.
Do I expect to see the furniture industry return to the US, No, I do not.
I have been to those countries and I see massive factories owned by who ? Who owns these massive million square foot factories in Vietnam ?
The people working at these factories are poor, and they are not overpaid. So, are we to assume they are being paid slave labor rates? Is this what we want ? Are we buying from these countries so we can have slave labor building our furniture ? I thought we were against slave labor ?
I know the Nike factory employed 70,000 to 90,000 workers at $3.50 a day, 6 days a week. They were fed soup three times a day, with an egg in each dish and chicken in one bowl per day. Men in one compound and women in another compound. 30 foot walls with barbed wire around the facilities. They are only allowed out one day a week. Sounds like a prison. Is this the criminal actions you speak of ? Is this Heinous and Traitorous using slave labor?
Do we want to continue buying furniture from China and Vietnam using slave labor rates? Is this our excuse for not bringing back furniture production to the US or at least North America.
Do we want to buy from Communist countries that do not have our sense of freedom and morals ? I honestly believe communist countries are going to continue to control their labor rates to offer lower-priced goods than we cannot effectively build and compete. So, if tariffs level the playing field to allow our North American factories to compete with Asian factories, I have a hard time not supporting tariffs.
I recall several years ago, we added fines to bedroom furniture from China since it was determined they were dumping the furniture on the US Market. Are they still doing this ? OR Did they move their production from China to Vietnam ?
Why did the furniture industry move to Asian countries ? Cheap Labor or Slave Labor ?
I believe we should look at all sides of this issue. Just my two cents.
Good points all around, David. Thanks so much for your response. As this is not a news story, and instead a forum for commentary, I felt compelled to share my opinions, which are just that.
Thanks again for your feedback. We can all agree to disagree and still remain friends is the way I see it.
Tom Russell