Tariffs: Reality Check

In 1776 Adam Smith stated:

“It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. If a foreign country can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.”

This is the natural order of economics. Tariffs attempt to disrupt this law of economics. Tariffs adjust wages by imposing a tax that amounts to an economy adjustment. The need for tariffs are supported by the argument that since people in lower wage economies make pennies on the dollar compared to workers higher wage economies then higher wage economies will experience high unemployment relative to the lower wage economy. Well, this doesn’t hold true based on economic theory established by David Ricardo in 1810 and supported empirically.

A labor force in a higher wage economy specializes and it gains improvements in efficiencies in the things it does well. Consider the wage economics in manufacturing Nike shoes versus aerospace products.

According to Matthew Kish in his May 20, 2014 article, Nike pays its contract factory workers in Vietnam $73.94 per month, which is on the higher end of the pay scale for shoe factory workers (workers in Bangladesh make $36.01 per month as reported in the same article). This wage equates to $0.43/hour based on a typical U.S.A. labor year of 2,080 hours. Manufacturing shoes requires unskilled and semi-skilled labor to manufacture; therefore the barrier to entry is low. The Vietnam-U.S.A. wage disparity is impossible to overcome, so it is highly unlikely that Nike shoes will be manufactured in the U.S.A.

According to Statista, as compiled using data from Congressional Research Service the U.S.A. exports over $15 Billion worth of aerospace products and parts to China and this volume is growing year over year. The average aerospace manufacturing machine operator makes $30.17 per hour or $5,229 per month according to the U.S. Department of Labor Bureau of Labor Statistics. Manufacturing aerospace products is highly specialized and manufacturers are constantly improving efficiencies in manufacturing thereby creating a high barrier to entry.

In April 2010, Phillippe Martin, Thierry Mayer, and Mathias Thoenig published that free trade agreements result in political peace because the opportunity cost for war is too high. The authors go onto state that economic and security gains are complimentary and if trade gains are not realized then security benefits are jeopardized.

The bottom line is American are not likely to accept $0.43 per hour to make shoes and Chinese workers and infrastructure are not prepared to make $30.17 per hour making aerospace products. It is highly unlikely that tariffs will create long-term, meaningful changes to trade imbalances based on the two basic examples provided. Tariffs can jeopardize U.S. security interests in Asia, such as the South China Sea, Taiwan, Korean Peninsula, Japan, etc. since the opportunity cost for conflict is lowered. Part of the current U.S. trade dispute with China centers on technology theft.

When I lived in Malaysia I was witness to Chinese theft of U.S. technology. It is my opinion that technology theft is far more complex than a tariff driven solution can provide.

The Economics of Renovating Down Comforters, Pillows, Featherbeds and Down Toppers

Spring is almost here and time to start planning your spring cleaning. Your down bedding may not come to mind, but it is very important to give it proper care if you want it to remain beautiful and more importantly work efficiently.

You may have been wondering if it is really worth it to renovate your favorite down comforter, pillow, featherbed or down topper. There are a few things to consider, most importantly what your initial investment is, and if there is any sentimental value attached (handed down from your grandmother).

Renovation is definitely worth it if you have a high quality down product, which means high thread count down proof ticking and high lofting down. With proper care they will remain beautiful and keep you toasty warm in winter. That means cleaning comforters every 5 years, renovating after 10 years. For down pillows renovate every 3 or 4 years (even with protectors natural hair oil stains the down proof ticking). Featherbeds and toppers should be renovated every 7 – 10 years. Renovation is also an opportunity to upgrade to a larger size (or even change to a smaller size), get a more down proof (leak proof) casing or add new filling to boost up the old filling and bring the down back to its former glory.

Keep in mind if your downs are from Europe they are definitely a very high quality in both the ticking and the filling. Even if you purchased in the USA 20 or more years ago, they are likely a much higher quality than much of what is in the market today.

If you have purchased a down product at a very low price for example same price all sizes, it does not pay to renovate. Better to buy new and this time upgrade so you do not have to keep replacing. It feels good to recycle.

Using the proper protectors goes a long way to eliminating unnecessary cleaning and renovation. Always choose a professional for cleaning and renovation to protect your precious downs.

In between the professional care you can air out down comforters on a clothes line on a dry warm day or put in a low heat dryer for 20 mins. For pillows put these in the low heat dryer occasionally to re-fluff. Featherbeds and down toppers can be hung over a chair near an open window unless you are able to get them outside on a table. It just refreshes and re-fluffs them beautifully.

Economy Doesn’t Lie

The title of this article is not of my own, but the translation of a book title, invented and written by Guy Sorman.

A great title.

Perhaps for the title, it is one of those books I would like to read, the many on the to-do list…

Guy Sorman writes about economic progress and stresses the importance of good decisions making in the field of economic politics. Or economic policies.

…Sorman explains why there is “only one correct economy: the one that works”. (1) the one that Works has moved us recently into a crisis but others haven’t worked either:

Socialist economy sunk because “with Socialism, the State pretends it pays the workers, and the workers pretend they work”.

He analyses which economies work and which not or only “at times,” And does that by reviewing the economy of different countries.

There are various types of economic policies and one of them is intervention: “there is something worse than avoiding reality; public intervention at a wrong time can sink an economy into depression”. The reason for the mistakes is well known: “during times of crisis, magical thinking seems to arise again and erases the rationality which had been reached; demagogy and panic can remove the knowledge taught by economic science.”

This is only the information on the flap of the book.

Yet I would like to read this book, although I wonder whether the main statement of the book – economies that work – matches current insights of this post-crisis. I would like to know how financial markets – which are always right – fit into this picture. And if economies don’t lie, who does?

(1) -[http://documentos.fundacionfaes.info/en/documentos/ultimos/show/00812]

H.J.B.