Re: The manufacturer will have to lower their price. That's the point.

owensdj · 2024-10-18T20:19:04.304Z

https://www.tomshardware.com/news/trump-tariffs-increase-laptop-electronics-prices Trump doesn't even understand how tariffs work. They're a tax on the average person and small businesses. A huge one. And before anybody posts this, no we can't just magically start making these electronic items in the USA overnight.

Trump Tariffs Will Increase Laptop Prices by $350 and Other Electronics by 40%

Re: The manufacturer will have to lower their price. That's the point.

How is this so hard to understand?

Re: The manufacturer will have to lower their price. That's the point.

Re: How is this so hard to understand?

You're assuming the "slave labor" company has more than a 40% profit margin.

Dude, no. Just...no. There are some industries that do have that level of profit margin - pharma, Big Oil, financial services (Black Rock and Vanguard have been doing that in recent years), Big Tech. Except for the oil industry, they all have one thing in common - what they sell tends to be light and doesn't require mass transport, and they also have very small workforces for the revenue generated.

But the vast majority of companies operate on margins far less than that. When you're talking the physical stuff that moves around the globe - automotive, consumer goods, electronics, industrial equipment, chemicals - you're typically talking profit margins of 5-10%, maybe 15%. The "slave labor" you're referring to allows them to undercut the competition and sell their goods for cheaper, yes, but that also eats into their profit margins...as do transport costs.

In the case of China, though, we're really no longer talking "slave labor". It used to be, absolutely. In 1994, the average wage of a Chinese worker was 1-2 yuan per hour - the equivalent of 12 to 24 cents an hour...definitely slave wages. Today the average Chinese worker makes 60 to 65 yuan per hour, which translates into somewhere between $8.20 and $8.90 an hour. Which is a 40x to 50x increase.

Compare that to the average cost per hour of American labor - $20.21 for most manufacturing jobs - and it looks like the Chinese still might have a big edge...but look again, because American workers generate a value of roughly $77 per hour, compared to just $16 for Chinese workers. The difference is in automation. A tremendous amount of Chinese labor is still a bunch of women and kids sitting at tables in sweat shops, assembling stuff by hand. But the cost of workers in those sweat shops has skyrocketed because there aren't nearly enough of them and with their catastrophically aging workforce that number gets bigger every year. So the Chinese are actually at a disadvantage in terms of labor.

The big edges China still retains is, they have zero safety or EPA standards, and the Chinese gubmint heavily subsidizes them. But those prices are artificially low...and really can't go much lower.

So tariffs are going to hurt the Chinese, granted. But especially in the short and medium terms it's also going to hurt the American consumer badly.

Re: How is this so hard to understand?

quozzel

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Re: How is this so hard to understand?

Oct 19, 2024, 10:50 AM

That's sort of a myopic view, and not a particularly realistic one. An example: because they're so vertically integrated, have a significantly better battery that they build in-house, and are subsidized by the Chinese government, BYD has a pretty good electric car that costs $10K or $11K. Again, this is somewhat artificial...but My God, that's a game-changer in every sense of the word. Those BYD electrics haven't gotten into the US market yet but they're everywhere elsewhere in the world; Mexico, Australia, South Africa, and parts of Europe are full of them. Not surprisingly, you build a decent car for 10K, people buy it.

Detroit - and keep in mind I live in Detroit now - has a major problem here: the legacy carmakers are massively behind on the development curve and still have a ton of regressive construction techniques from the powertrain days that no longer apply to electric-vehicle manufacturing. Even with 100% tariffs, the legacy electrics are simply not competitive with BYD since the cheapest electric vehicle Detroit can produce at the moment was the Chevy Bolt at $28K, and the Bolt was just discontinued last year. In comparison, Tesla's cheapest electric vehicle is $38K. You look at that, and it starts getting real clear why Elon Musk decided to climb in bed with Trump. It may be the only way for him to save Tesla.

So you can definitely understand why the US auto industry is alarmed by BYD. And I do understand the need to "save" it for the jobs...but if the legacy carmakers and Tesla are that uncompetitive, is there really any saving them over the long term? They need to improve in one mighty big hurry...or die. Law of the jungle, and it's not really on the US consumer to bail them out.

What might save the US auto industry is the fact that China itself is going down the tubes and is likely going to take BYD with it. The Chinese are staving off full-fledged collapse by the skin of their teeth but they're not going to be able to keep robbing Peter to pay Paul much longer...it's more a question of when and how than "if". And when China collapses, Americans are likely going to start understanding just how intertwined the two economies really were.

It's been my observation tariffs are complicated, especially when you're dealing with an entity like China that views capitalism as a form of warfare and our economies are so dependent on one another. What Trump is proposing is a brick to the face. It (might!) be necessary but it's going to hurt.

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