Trade

“Like theology”

JM Ashby
Written by JM Ashby

It's been a year since Trump first imposed tariffs on foreign solar panels which were followed by tariffs on foreign metal and eventually a long list of other goods mainly from China.

American consumers and businesses have been paying for Trump's tariffs ever since then and yet Trump continues to insist that foreigners will pay for his tariffs, not us. So, does he really believe that?

Current and former White House staffers who spoke to Axios say 'yes,' Trump really does believe that and it appears they've given up trying to convince him otherwise.

I've asked several current and former administration officials whether Trump actually believes that China pays the tariffs — rather than the reality that U.S. importers and consumers do.

The consensus is "yes": That's what he actually believes.

And as one former aide said: There’s little point trying to persuade Trump otherwise, because his belief in tariffs is "like theology."

It remains to be seen if Trump will still claim that foreigners will pay for his tariffs when the price of smartphones increases by $100 or more.

Speaking of which, J.P. Morgan addressed a letter to their clients yesterday informing them that Trump's next round of tariffs could force Apple to raise prices.

"We estimate a price increase of around 14% is required to absorb the impact of a 25% tariff, keeping margin dollars for all players in the supply chain constant," J.P. Morgan said in a note to clients Tuesday.

The bank broke down the costs of making and selling the iPhone XS with no tariffs, which is about $1,000, versus what it would cost if a 25% tariff hits China-made parts. That would take the iPhone's retail price up to $1,142, the firm calculates.

To demonstrate how futile this trade war is, Bank of America also informed clients that moving iPhone production to the United States would cost more than Trump's tariffs.

Moving iPhone production exclusively to America is an option for Apple, Bank of America Merrill Lynch said Tuesday. The bank estimates a 20% price increase to the iPhone if 100% of the phone is manufactured in the U.S.

"We estimate the incremental cost of manufacturing iPhones in the U.S. could be 15-25%, and, if passed on to consumers could lead to demand destruction, in our view," the Bank of America said in a note.

Multiple outlets reported this morning that Apple is weighing their options and considering eating the cost of tariffs rather than raising prices to pay for it.

Apple is among the three wealthiest corporations on the planet with a market value of a trillion dollars so eating tariffs is an option for them, but it's not an option for the overwhelming majority of businesses in America.

  • muselet

    “… [H]is belief in tariffs is ‘like theology.'”

    I think we all suspected that, but it’s still disconcerting to see it in print.

    Ezra Klein in December 2017:

    Over the course of reporting on the Trump White House, I have spoken to people who brief Trump and people who have been briefed by him. I’ve talked to policy experts who have sat in the Oval Office explaining their ideas to the president and to members of Congress who have listened to the president sell his ideas to them. I’ve talked to both Democrats and Republicans who have occupied these roles. In all cases, their judgment of Trump is identical: He is not just notably uninformed but also notably difficult to inform — his attention span is thin, he hears what he wants to hear, he wanders off topic, he has trouble following complex arguments. Trump has trouble following his briefings or even correctly repeating what he has heard.

    Doctor Dunning, Doctor Kruger, please pick up the white courtesy phone. Quickly, please.

    –alopecia

    • Draxiar

      Crap in a hat…that’s frightening…

  • Badgerite

    Truly ironic. It has always been akin to “theology” with most of the gop ( see George Will ) and many others that trade and commerce has a civilizing influence in the world and a diplomatic side benefit of better relations because of self interest of other nations in the health of a trading partner, exchange of ideas and culture, etc. One of the reasons why Nixon and later H.W. Bush sought a commercial relationship with China is that they believed isolation of a nuclear armed China led to extremism and a danger to the US and our allies in the region. After the disasters of Mao and the “Great Leap Forward” and the resultant famine estimated to have killed over 30 million Chinese, China was actually eager to leave Mao’s enforced ideological purity behind. At least until they started coming into their own as an economic power in the world.