Trade wars

[dtbach]

Things got interesting today. Mr. Market didn't like it.

 

[Hamlet]

Things got interesting today. Mr. Market didn't like it.

Yeah, I think the real fireworks will start when the list our new tariffs comes out in a couple of weeks and China responds. Then our response to their response, etc.

Trade is a small percentage of GDP, but I think that a trade war may have to potential to do more damage than most people expect. Our supply chains are all interconnected now. Imagine Ford’s production line in Michigan having to stop because they can’t get one of the circuit boards for the engine computer imported from China. That circuit board represents a small dollar amount of trade, but it could halt a big dollar amount of US production, at least temporarily.

 

[USGrant1962]

Imagine Ford’s production line in Michigan having to stop because they can’t get one of the circuit boards for the engine computer imported from China. That circuit board represents a small dollar amount of trade, but it could halt a big dollar amount of US production, at least temporarily.

I'm not following you. AFAIK, no one is talking about embargoes, just tariffs. It could lead to price increases, but that is the case with all producer/supplier taxes.

 

[Alan]

Our supply chains are all interconnected now.

I listened to a podcast a few days ago and the supply chain issue completely messes with the calculation of how trade surpluses and deficits are calculated, and those calculations have not kept up with the modern manufacturing world. The iPhone was used an example. Since the final product is supplied by China the whole cost of the iPhone is counted as an export from China instead of the incremental cost that China adds to the iPhone.

https://www.lifewire.com/where-is-the-iphone-made-1999503

The iPhone's Component Manufacturers

Since there are hundreds of individual components in every iPhone, it's not possible to list every manufacturer whose products are found on the phone. It's also very hard to list exactly where those components are made (especially because sometimes one company builds the same component at multiple factories).

Some of the suppliers of key or interesting parts for the iPhone 5S, 6, and 6S (according to IHS and Macworld), and where they operate, include:

Accelerometer: Bosch Sensortech. Based in Germany, with locations in the U.S., China, South Korea, Japan, and Taiwan
Audio chips: Cirrus Logic. Based in the U.S., with locations in the U.K., China, South Korea, Taiwan, Japan, and Singapore

Battery: Samsung. Based in South Korea, with locations in 80 countries
Battery: Sunwoda Electronic. Based in China
Camera: Qualcomm. Based in the U.S., with locations in Australia, Brazil, China, India, Indonesia, Japan, South Korea, and more than a dozen locations through Europe and Latin America
Camera: Sony. Based in Japan, with locations in dozens of countries
Chips for 3G/4G/LTE networking: Qualcomm.
Compass: AKM Semiconductor. Based in Japan, with locations in the U.S., France, England, China, South Korea, and Taiwan
Glass screen: Corning. Based in the U.S., with locations in Australia, Belgium, Brazil, China, Denmark, France, Germany, Hong Kong, India, Israel, Italy, Japan, South Korea, Malaysia, Mexico, Philippines, Poland, Russia, Singapore, South Africa, Spain, Taiwan, The Netherlands, Turkey, the U.K., and the United Arab Emirates
Gyroscope: STMicroelectronics. Based in Switzerland, with locations 35 countries
Flash memory: Toshiba. Based in Japan, with locations in over 50 countries
Flash memory: Samsung.
LCD screen: Sharp. Based in Japan, with locations in 13 countries
LCD screen: LG. Based in South Korea, with locations in Poland and China
A-series Processor: Samsung.

A-series Processor: TSMC. Based in Taiwan, with locations in China, Singapore, and the U.S.
Touch ID: TSMC
Touch ID: Xintec. Based in Taiwan.
Touchscreen controller: Broadcom. Based in the U.S., with locations in Israel, Greece, the U.K., the Netherlands, Belgium, France, India, China, Taiwan, Singapore, and South Korea
Wi-Fi chip: Murata. Based in the U.S., with locations in Japan, Mexico, Brazil, Canada, China, Taiwan, South Korea, Thailand, Malaysia, Philippines, India, Vietnam, The Netherlands, Spain, the U.K., Germany, Hungary, France, Italy, and Finland
The iPhone's Assemblers
The components manufactured by those companies all around the world are ultimately sent to just two companies to assemble into iPods, iPhones, and iPads.

Those companies are Foxconn and Pegatron, both of which are based in Taiwan.

Conclusion
As you can see, the answer to the question of where the iPhone is made isn't simple. It can boil down to China since that's where all the components are assembled and the final, working devices come from, but it's actually a complex, nuanced worldwide effort to manufacture all the parts that go into making an iPhone.

 

[samclem]

I listened to a podcast a few days ago and the supply chain issue completely messes with the calculation of how trade surpluses and deficits are calculated, and those calculations have not kept up with the modern manufacturing world. The iPhone was used an example. Since the final product is supplied by China the whole cost of the iPhone is counted as an export from China instead of the incremental cost that China adds to the iPhone.

https://www.lifewire.com/where-is-the-iphone-made-1999503

Thanks, very interesting. And if we included the iPhone software, too, the list and interconnectivities would grow still longer. Then, include the money sent home by expat workers in some of these countries, the dividends paid to non-nationals of the home base of some of these companies, etc and it gets quite hard to say how much each country benefits from the production and sale of an iPhone.

 

[Hamlet]

I'm not following you. AFAIK, no one is talking about embargoes, just tariffs. It could lead to price increases, but that is the case with all producer/supplier taxes.

No one is talking about embargoes yet.

If things start getting ugly though, wouldn’t you expect China to refuse to sell us something inexpensive that we need if they know that it will disproportionately impact our production? Especially since it would help drive home that the one doing the selling is not universally the one benefiting the most from the trade, contrary to our administration’s belief?

The idea that you can simply look at a big trade deficit and assume that the exporter is somehow taking advantage of the importer is pretty foolish thinking, IMO.

 

[Mr._Graybeard]

Looks like China is already scaling back imports of US soybeans. https://www.reuters.com/article/us-china-economy-trade-grains/brazil-grabs-bigger-share-of-china-soybean-imports-from-u-s-in-january-customs-idUSKCN1G80A4

 

[Hamlet]

Thanks, very interesting. And if we included the iPhone software, too, the list and interconnectivities would grow still longer. Then, include the money sent home by expat workers in some of these countries, the dividends paid to non-nationals of the home base of some of these companies, etc and it gets quite hard to say how much each country benefits from the production and sale of an iPhone.

Yup, it is an incredibly complex situation. Imagine that we forced Apple to assemble iPhones in the US. In China, there are thousands and thousands of people who stand in lines making $2/hr putting them together, but if we were make them in the US, we wouldn’t do it that way. Apple would build highly automated factories, because it would be more cost effective than hiring unskilled Americans to put them together. So they would be hiring engineers and buying massive amounts of robots and automation equipment, but the actual number of lower skilled workers they hired would probably be very disappointing from a jobs standpoint.

Manufacturing is never going to bring back high-paying unskilled work.

 

[flintnational]

I have a solution

I'm thinking, if the tariffs catch on, we could apply them in other places. In fact as a Georgia resident, I am tired of Florida (with its white sand beaches), Tennessee (with its whiskey) and North Carolina (with its ski slopes) competing unfairly. I am not sure what the trade imbalances look like but I am sure we could find some. Think how much richer we will be in Georgia once our legislature passes laws to stop this unfair competition! And, if it works at the Country and State level, we could then impose tariffs at the County level. The possibilities are endless.

I wonder if my HOA has the ability to enact a tariff? What will I do with all this new found wealth from trade policy?

 

[Chuckanut]

IMHO, any CEO whose company depends a lot on China for their product needs to be quietly setting up alternative sources. This could get nasty.

Unlike the Russians who are happy to sell us rocket engines so we can launch our military satellites, I don't think the Chinese would have problems telling a company like Apple to take a hike.

 

[Texas Proud]

Yup, it is an incredibly complex situation. Imagine that we forced Apple to assemble iPhones in the US. In China, there are thousands and thousands of people who stand in lines making $2/hr putting them together, but if we were make them in the US, we wouldn’t do it that way. Apple would build highly automated factories, because it would be more cost effective than hiring unskilled Americans to put them together. So they would be hiring engineers and buying massive amounts of robots and automation equipment, but the actual number of lower skilled workers they hired would probably be very disappointing from a jobs standpoint.

Manufacturing is never going to bring back high-paying unskilled work.

Just a point on your last stmt.... I do not think there ever was high paying UNskilled work here anyhow.... there was low pay unskilled work and higher paying skilled work...

If you automate you get rid of low skilled workers, but still need higher skilled workers to fix the machines...

 

[samclem]

Just a point on your last stmt.... I do not think there ever was high paying UNskilled work here anyhow.... there was low pay unskilled work and higher paying skilled work...

For a brief period of time, unionized assembly line jobs used to pay very well (i.e. a single worker could comfortably support a typical family). We can call the jobs "unskilled" or "skilled", but the workers started with the company knowing nothing about their job, and it could be mastered in a short time.

It was a historical blink of an eye, though, and due to a fluke of history that resulted in a shortage of US workers and concomitant strength in their organizing power/ability to demand higher wages.

 

[Hamlet]

For a brief period of time, unionized assembly line jobs used to pay very well (i.e. a single worker could comfortably support a typical family). We can call the jobs "unskilled" or "skilled", but the workers started with the company knowing nothing about their job, and it could be mastered in a short time.

It was a historical blink of an eye, though, and due to a fluke of history that resulted in a shortage of US workers and concomitant strength in their organizing power/ability to demand higher wages.

Yup. This is what everyone seems to want back, and some people think that a trade war that brings more manufacturing jobs back to the US would bring back those jobs. They are wrong though.

 

[YVRRocketSurgery]

If things start getting ugly though, wouldn’t you expect China to refuse to sell us something inexpensive that we need if they know that it will disproportionately impact our production? Especially since it would help drive home that the one doing the selling is not universally the one benefiting the most from the trade, contrary to our administration’s belief?

The thing that jumped out at me on that statement is rare earth metals which China is the leading producer by a wide margin.

 

[Pellice]

Trade war accelerates

Well, one day after the US imposed tariffs on $50 billion on Chinese goods, the Chinese have answered in kind.
https://www.washingtonpost.com/worl...8134f4-37d8-11e8-b57c-9445cc4dfa5e_story.html
I am supposed to retire this summer. I built in a lot of allowance for a downside, but this could be a shambles.

On a side note, the practice of imposing high tariffs and then exempting individual products, or importers, or other entities one by one was THE common practice back in the Middle Ages, and invariably led to corruption, as the sovereign authority received bribes to exempt this or that product. In fact, many sovereign authorities derived significant income in this manner.

This was one of the practices that capitalism disrupted. I wonder what it means to see its return?

 

[flintnational]

Well, one day after the US imposed tariffs on $50 billion on Chinese goods, the Chinese have answered in kind.
https://www.washingtonpost.com/worl...8134f4-37d8-11e8-b57c-9445cc4dfa5e_story.html
I am supposed to retire this summer. I built in a lot of allowance for a downside, but this could be a shambles. ...........

I agree with your comments on trade. Assuming you have adequately funded your retirement this summer, I would not let this issue derail your plans. If it was not trade, some other item would have eventually made the market go up or down. As an example, if earnings come in below the rather rosy forecasts, look out below.

 

[Nemo2]

Although I have purchased carpets in Saudi Arabia, other items in a variety of MENA/S.E. Asian countries, I'm still not certain about the exact point when the expected "Oh yeah, how about...?" oscillations of bartering, morph into a declared Trade War......

 

[exnavynuke]

Although I have purchased carpets in Saudi Arabia, other items in a variety of MENA/S.E. Asian countries, I'm still not certain about the exact point when the expected "Oh yeah, how about...?" oscillations of bartering, morph into a declared Trade War......

When both sides engaged in trade start charging the other more in response to being charged more, a trade war has started.

 

[kcowan]

When both sides engaged in trade start charging the other more in response to being charged more, a trade war has started.

It is too bad that politicians do not read their briefing books. They do not even bother reading bills that they pass.

 

[Mr._Graybeard]

On a side note, the practice of imposing high tariffs and then exempting individual products, or importers, or other entities one by one was THE common practice back in the Middle Ages, and invariably led to corruption, as the sovereign authority received bribes to exempt this or that product. In fact, many sovereign authorities derived significant income in this manner.

This was one of the practices that capitalism disrupted. I wonder what it means to see its return?

A century ago, the GOP was the high-tariff party and the Dems were the free marketeers. https://en.wikipedia.org/wiki/McKinley_Tariff

 

[Hamlet]

Now we’re talking about escalating with tariffs on another $100 billion of imports. That’s sure to do the trick.

 

[capjak]

Might be an opportunity to buy (a little) the dip and quickly get out. I mean to rebalance

 

[eytonxav]

This seems like many situations that have been ignored for a very long time and have festered, and when finally trying to address such situations it almost becomes impossible to resolve and everyone starts to lose their minds. I am not sure which is worse, doing nothing for a very long time, or finally trying to address a long standing problem instead of accepting the status quo. I am sure there are many parallels to the trade issue in other areas around the world. It must be tough when you are in a position to do something or not do something.

 

[easysurfer]

Is it wrong of me for kinda wanting to say "bring it on" and see how down and dirty this trade war thing will go?

Better to get this thing over with than the whiplash of maybe, maybe perhaps?

 

[Texas Proud]

I agree... better to fix it now than let it continue forever.... China has been bleeding us for a long time and would continue to do so if allowed...

But, someone today said that Europe is also taking advantage of us with their tariffs etc.... that they charge a tariff on US cars...

I believe that if they want to charge a tariff we should do it also...