Tariffs, Taxes, and Fever Dreams

“I believe in America.” - Bonasera, The Godfather “But there was no need to be ashamed of tears, for tears bore witness that a man had the greatest of courage, the courage to suffer.” - Viktor Frankl, Man’s Search for Meaning

There’s a lot of commentary on our current trade war. I’ll leave the broader commentary to smarter folk. 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 don’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, per- and polyfluoroalkyls (PFAS), bisphenols, and phthalates. These compounds are common in plastic and the cardboard tube. They are harmful to human health. 3) Our tube is cost-effective to recycle. Facilities exist and recyclers will make money recycling our tube. There is profit in recycling our tube. Points 2 & 3 ain’t the case with the plastic or the cardboard-PFAS tube.

I like lip balms. I thought it was–literally–a cryin’ shame there was not a better tube. I mean the “cryin’ shame” bit. Plastic, PFAS, and associated compounds contribute to chronic disease. Tears are grace to a life torn asunder by chronic illness.

I know chronic illness. People would often comfort, “at least it is not fatal.” Here’s what those who do not suffer do not know. With a chronic illness you bodily live, but your dreams die. To borrow from the Rolling Stones, “Dying all the time/ Lose your dreams and you/ Will lose your mind/ Ain’t life unkind?”

Face with shitty existing lip balm solutions we went for it. It was a bad gambit. It was too psychologically wounded, too poor, too under expertised, too under-known, too under regarded, too under-connected. When confronted by a snarling bear, I was too willing to snarl back. Turns out freedom is just another word for nothing left to lose.

And yet…

We did it.

We solved material science quandary after material science quandary to make a better lip balm tube for human health. 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 to absolve the plastics industry.

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 are 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 capital. 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 respect the work. Too often, our business culture looks at thorny problems and slinks. 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 have done 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 and encourage our competitors to use our tube–zero fee to DHB.

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. If we do 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. This is true. They are also taxes on things we produce. As it stands now, lowly DHB will pay 20% → 54% → 104% → 125% (as of the most recent presidential tantrum.) tariffs to produce a better lip balm tube. Our tube is already more expensive than plastic. Plastic, ruefully, 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 onshore all our supply chains, a Herculean task. Cars would not just be assembled 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 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, sobs, and ursine-hominid standoffs to get here. I don't say this hoping for your woe. 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’ll be 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 U.S. 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.