Tariffs, Taxes, and Fever Dreams

“I believe in America.” — Bonasera, The Godfather

There’s a lot of commentary on our current trade war. I’ll leave the broader commentary to others. This is the tale of a vulnerable hustle for a better outcome.

Bear with me a couple paragraphs. Without a bit of backstory the trade stuff won’t mean much.

We created a better lip balm tube. When I say better, I mean 1) it is functionally equivalent. 2) It is free of plastic, perfluoroalkyl and polyfluoroalkyl substances (PFAS), bisphenols, phthalates and other industrial pollutants harmful to human health. 3) Our tube is profitable to recycle. Facilities exist and recyclers will make money recycling our tube. Profitable recycling is the only means of reliable recycling. Points 2 & 3 are not the case with the plastic or cardboard-PFAS tube.

Faced with sad existing lip balm solutions Drew’s Honeybees went for it. It was a bad gambit. We were too poor, utterly lacking relevant education and expertise. We had no contacts, clout, or money. I was not well. When confronted by a snarling bear, I snarled back. Turns out freedom is just another word for nothing left to lose.

And yet…

We did it.

We solved material science problems to make a better lip balm tube. It is a better material–aluminum. Aluminum is non-toxic. Aluminum is actually recyclable–not the wish-cycling-ritual-of-mass-delusion we carry on for some reason to help the plastics industry. Even the shrink wrap is safely, residentially compostable. If our shrink wrap gets into a waterway microbes will safely and quickly dissolve it into minerals.^[1]

So, tariffs.

Secretary of Commerce, Howard Lutnick explained, “We are going to replace the armies of… millions and millions of human beings screwing in little, little screws to make iPhones, that kind of thing is going to come to America.”

Presumably, if we are going to build iPhones and their screws here we are going to build lip balms tubes here as well. We’ll continue with the example I know. Screws and lip balm tubes seem equivalent for our purposes.

We engineered our tubes in China. We hope to manufacture our tubes in China. Why? At this time, the United States trails China in our ability to engineer, prototype, troubleshoot, scale, and manufacture this kind of solution.

I give us too much credit. China leads the world in the material science of metal packaging. We have not tried. I believe in America, but we haven’t tried. We haven’t raised the money. We haven't built the factories. We haven’t trained the engineers. We do not design or build most of the machines. We do not adequately respect the work. Too often, our business culture looks at thorny problems and then looks away. Who cares about something as trivial as a better lip balm tube?

A lip balm tube is trivial. If you swap out one cardboard-PFAS tube for an aluminum tube you do little for human and ecological health. But we don’t aim to swap out one tube. We aim to swap out hundreds of millions for a healthier environment and a healthier you. To show we mean it, and we’re just plain mean, we forgo any monopoly. We encourage our competitors to use our tube–zero fee to DHB. We'll help. Together, we'll challenge plastic for healthier bodies and a healthier planet.

But say we remedy all of the reasons we do not manufacture packaging here. We raise the money. We educate more engineers. We build the factories and complex machinery required. We reinvent our culture to make factory labor more profitable and socially respected. Currently, Americans are not committed to factory jobs. Even if we manage all this we will still be at a grave disadvantage.

We have a 25% tariff on aluminum. We have tariffs–taxes–on all the most commercially important earth metals and everything else now. Here’s the rub–many other countries do not maintain tariffs between each other. Goods will move between foreign companies free from the added costs of tariffs. In international markets foreign goods will be unencumbered by the substantial taxes placed on American business by the American government. Free trade will go on–without us.

Tariffs are taxes on things we consume. They are also taxes on things we produce. As it stands now, lowly DHB will pay 20% → 54% → 104% → 125% tariffs on each lip balm tube (as of the most recent presidential huff.) Our tube is already more expensive than plastic. Sadly, plastic is something we do manufacture here.

The expressed goal of this trade war is an American manufacturing revival. This trade war has caused manufacturing to sputter. Car parts are piling up at the Mexican border. Automakers are pausing shipments. Presumably, American automakers will pause their assembly of American made cars. This policymaking–dictates from a single man–will defeat the worthy goal of an American manufacturing revival. We’ve thrashed about like an irascible, unreliable bully.

American companies will not invest in American manufacturing with this uncertainty. Trump's tariffs are here today, gone tomorrow, maybe back next quarter or whenever Trump feels like it. Who would invest to manufacture more expensive goods here unless they were certain foreign competition would be excluded for a long time? Moreover, we’d have to bring all our supply chains here. We wouldn’t just assemble cars here. All the parts would have to be made here. The U.S. government has, with exceptions, encouraged free trade for many decades. This is a reversal. Until Trump feels otherwise. And the majority of the American political establishment remains against tariffs. The tariffs will likely go down, which is why no one will invest now.

And even if we brought all this manufacturing to the U.S. a manufacturing hiring revival will not happen anyway. American manufacturing employment has fallen primarily due to automation, not outsourcing.

DHB’s first big thing may not be. That’s painful. Been a lot of blood, sweat, tears, and one human-bear faceoff to get here. I don't say this for your pity. I say this hoping we take stock of all the things that will not be. The best thing about ruinous public policy is you will not know all the ways you are poorer. The fruits of enlightened political and economic management will never come to light.

After the passage of the Smoot-Hawley Tariffs in 1930 our average tariff was 19.8%. According to ChatGPT, our average tariff rate is 24% and climbing as other countries respond exactly how we’d respond if someone bullied us. Trade is more important to our economy now too. After we passed Smoot-Hawley (meaning, such momentous decisions went through Congress, as Article I, Section 8 of the US Constitution stipulates.) other countries retaliated, world trade collapsed, exports dropped by more than 60%, and manufacturing collapsed. A bad recession became the Great Depression.

You ready for this, America? I believe in you.

^[1] Suzuki, M., Tachibana, Y., & Kasuya, K. (2020). Biodegradability of poly(3-hydroxyalkanoate) and poly(ε-caprolactone) via biological carbon cycles in marine environments. Polymer Journal, 53(1), 47–66. https://doi.org/10.1038/s41428-020-00396-5