On Friday, October 18th, Sean Hannity interviewed Kevin O’Leary, one of the investors on Shark Tank, regarding his opinion of tariffs. O’Leary has been such a strong proponent of free trade in the past. In fact, even though I enjoy hearing about new inventions and products presented by the inventors and entrepreneurs on the program, I stopped watching the program because I was disgusted by how often they recommended that the product be manufactured in China.
Therefore, I was astonished when Mr. O’Leary expressed his support for the tariffs President Trump has proposed, saying that tariffs are a good negotiating tool. I didn’t have the ability to record his interview on Hannity’s show, so could only take notes. Thus, I can only paraphrase what he said instead of quoting him word for word. Mr. O’Leary said that right now we don’t have a level playing field for trade with China. so, tariffs would be a way to level the playing field. He shared that one of the companies in which he had invested went to China to manufacture their product. They spent about $400,000 on tooling, and everything was fine until the product volume got up to about five million. Then, a knock-off of the product made with their tooling appeared on the market under another company’s name and sold for 2/3 of their price.
He said that nearly every company is wholly or partially owned by the Chinese government and they subsidize some of the costs of these companies to capture foreign markets. He again said that tariffs would be a good way to fight against China’s unfair trade practices and level the playing field.
It was gratifying to see that someone of his stature in the industry has finally experienced what we in the marketing and sales trenches for American-made products and manufacturing services have been experiencing for over 20 years. I am just surprised that it took so long for him to come to this conclusion.
It only took a couple of years after China was granted Most Favored Nation status in the year 2000 to start seeing an unprecedented pruning of companies in the San Diego region because of the unlevel playing field we experienced in competing against Chinese companies. Buyers that weren’t willing to use vendors in the Midwest or East Coast were willing to go to China on the other side of the world to save money. Sourcing in China became the “in thing” to do.
It became more difficult for the American manufacturers we represented to compete against China, especially for the higher volume work to make plastic injection molded parts or die cast parts for commercial markets. Our success became more and more limited to Original Equipment manufacturers making products for the military and defense industries that mandated “Buy America” as well as the lower volume work for niche commercial markets. Sometimes, the quoted Chinese price was equal or a little more than what our American manufacturer had to pay for just the material to make the part.
I started to keep a record of the companies that moved out of state or had gone out of business starting in January 2001 from my own database of customers and prospective customers. By 2003, I had documented 85 companies that had gone out of business, moved out of California, or sourced their manufacturing out of the country, mostly in China. I contacted the Chambers of Commerce of the other 17 cities in San Diego County and found out that none of them were tracking this data.
However, the loss of companies didn’t make the headlines in San Diego news because they were nearly all smaller companies with fewer than 50 employees.
In the spring of 2003, several legislators with whom I had campaigned for state assembly in the year 2000 asked me to provide them with the list of companies that were moving out of California. I turned the list into a report in an effort to make these legislators and other key policy makers aware of the seriousness of what was happening. I emailed this first report in March 2003 to legislators, local elected officials, industry leaders, and the local news media. The report got attention from a local radio talk show host, Roger Hedgecock, who immediately invited me to be a guest on his show. I prepared two more reports later that year and was invited on his show after each report was released.
I electronically published (e published) two to three reports a year from 2003 – 2010 and became a regular guest on the Roger Hedgecock show and a featured guest on several other regional radio shows. I also started writing opinion blog articles once or twice a month that were published by a local online news line and emailed to my own Constant Contact database.
My list had grown to nearly 200 companies by 2007, and I realized that this phenomenon was not just happening in San Diego or California, but was affecting the manufacturing industry in all of the United States. It became my passion to do what I could to save manufacturing in America because I firmly believe that if we don’t save manufacturing, we will lose our middle class as manufacturing jobs are the foundation of the middle class. That’s when I started to write my book, Can American Manufactur8ing be Saved? Why we should and how we can, which was published in 2009.
In addition to chapters that covered a brief history of manufacturing for 1790 to the present day and the role unions played in shaping American’s industrialization, I covered what was happening to manufacturing, what had been the effects of outsourcing offshore, why we should save American manufacturing, and my opinion of how we could save American manufacturing.
I wrote that I had learned that tariffs on foreign imports was one of the main sources of revenue for the Federal government until the initiation of the income tax in 1913. For more than the first 150 years of its history, the United States was a protectionist country in order to protect and grow its fledgling manufacturing, allowing the United States to become a major industrial power by the early 20th Century.
After World War II, the U.S. switched from protectionism to free trade in order to rebuild the economies of Europe and Japan through the Marshall Plan and bind the economies of the non-Communist world to the United States for geopolitical reasons.
To accomplish these objectives, the General Agreement on Tariffs and Trade (GATT) was negotiated during the UN Conference on Trade and Employment and signed by 23 countries at Geneva in 1947. GATT became the most effective instrument in the massive expansion of world trade in the second half of the 20th century.
GATT’s most important principle was trade without discrimination, in which member nations opened their markets equally to one another. A major benefit for GATT members was the reduction or elimination of tariffs. Once a country and one of its trading partners agreed to reduce a tariff, that tariff cut was automatically extended to all GATT members. GATT also established uniform customs regulations and sought to eliminate import quotas. By 1995, when the World Trade Organization replaced GATT, 125 nations had signed its agreements, governing 90 percent of world trade.
Our elected officials should have realized that they needed to change the trade policy when we started to lose market share to Japanese products, especially cars and consumer electronic products.
As a result of these free trade policies, the United States developed a trade deficit with the majority of its trading partners starting in 1980. Of course, some deficits were small, but they increased over time until they became enormous like our current deficit with China.
According to USA Facts, “Over 50% of U.S. trade in 2023 involved one of five partners: Mexico, Canada, China, Germany, and Japan. In 2023, the US imported $1 trillion more in goods than it exported, marking the sixth straight year of a trade deficit in the trillions (adjusting for inflation) …The highest trade deficits were with China ($279 billion), Mexico ($152 billion), and Vietnam ($105 billion).”
The work of The Reshoring Initiative to educate manufacturers on how to use Total Cost of Ownership Analysis to determine the true cost of sourcing offshore vs. domestically has helped a great deal, and by 2023, the U.S. had recouped over a million of the 5.8 million manufacturing jobs that it lost between the year 2000 – 2010.
In addition, increased interest by consumers in buying “Made in USA” products and more stringent “Buy America” regulations for military and defense procurement has helped save the American manufacturing industry.
It is an acknowledged fact that the tariffs imposed by the Trump Administration on steel and aluminum saved the U.S. steel industry. Thus, it is now my opinion that if we want to significantly reduce our trade deficit with China, we must impose tariffs on all Chinese products imported into our country. There is considerable debate about how high these tariffs should be. I can tell you that for plastic injection molded parts or rubber molded parts, the tariff would need to be 200% to 300% to be competitive on piece pricing with China.
I realize that this high a percentage of tariffs would never be approved, but the tariff percentage needs to be higher than a token 10% if we really want to achieve the goal of reducing our trade deficit significantly.
We can either continue down the path of increasing trade deficits and increasing national debt by allowing products to be imported by countries practicing predatory trade policies. Or, we can forge a new path by developing and implementing a national strategy that includes tariffs to win the international competition for good jobs, sustained economic growth, and strong domestic supply chains.
