Trump + Tariffs = TroubleEditorial, Latest Issue, Top Highlights Thursday, February 2nd, 2017
In the late 1970s and early ’80s, the beleaguered International Ladies Garment Workers Union (ILGWU) decided to appeal to their fellow Americans to “look for the union label,” when deciding to purchase things like a coat, dress or blouse. The ILGWU hoped their fellow Americans would decide to purchase garments because they were made in the USA, ignoring other factors like price, brand and quality.
Flash to 2017 and President Trump is trying a similar nationalistic tactic to get Americans to buy American; raising tariffs on imports to level the playing field between goods made in the USA and those made elsewhere. Trump understands that Americans will not simply buy American without there being at least parity with respect to price. A $350 suit made in Mexico is equivalent to a $350 suit made in America.
Trump also believes that his economic plan will make the dollar stronger, which in turn makes imports much cheaper. For example, if there are 10 pesos to the dollar today, the dollar gets stronger and there are 12 pesos to the dollar tomorrow, Mexican goods becomes 20% cheaper for the importer.
President Trump believes that part of the windfall from a stronger dollar will be passed on to the consumer. In reality, the profits will be kept by the suit manufacturer and not shared with the consumer. If the suit manufacturer’s orders increase enough, there may be some increased hiring. But trust me, the increased profits will not be passed on to the consumer in lower prices or to employees through increased wages.
There is also the issue of brand and quality that may trump price. Will the American consumer simply buy American because the suit costs the same as the one imported from Mexico? Trump knows personally that brand can trump quality. Trump himself makes ties that are simply purchased because they have his name on them. Martha Stewart products are also a great example of the power of branding. People perceive that whatever Martha produces is about quality; from paint to housewares. That means given the choice of a $50 can of paint from Martha Stewart versus that from XYZ American manufactured brand, Martha wins even though her paint may have been made in Mexico.
Trump’s plan also assumes that there will be no reaction from countries when his tariffs are imposed. What happens if the people of Mexico stop buying American products? Instead they import products from China or Japan. How will that affect U.S. manufacturers? Will the negative impact of a trade war outweigh the perceived benefits of ensuring imported products and goods manufactured in the U.S. have price parity?
Consumer behavior is very complicated and is not simply driven by price as Trump’s policies imply. Trump believes, like the International Ladies Garment Workers Union, that looking for the Made in America label is going to change consumer behavior. If that’s true, then America has lost its way. Trump’s economic intervention to try to promote economic growth is going to backfire. Just ask the ILGWU how looking for the union label helped them move more American made products, it didn’t. Americans will always consider brand, price and value. It’s the American way.
San Diego LGBT Weekly
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