My home state of Louisiana is Trump Country. Donald Trump’s promise to put America first and protect Americans from foreigners seeking unfair advantages, be it through immigration or trade, resonates deeply here.
Trump’s achievements in deregulation and reduced taxes have improved prosperity and economic opportunity for all Americans. The irony is that Trump’s trade tariffs jeopardize that progress and uniquely weaken Louisiana, with its heavy reliance on trade, its role as a home to agriculture and manufacturers, and its major ports at the mouth of the Mississippi River.
Our company, Laitram, LLC, is headquartered in Louisiana; like many American manufacturers we compete and sell products and services globally. We employ 2,500 people across 30 countries, in the manufacture and sale of specialized conveyor belts and equipment that improve productivity and food safety in global food processing, and capacity and reliability in high-speed package sorting such as UPS and Amazon.
Tariffs leave us at a competitive disadvantage to European, Canadian, Japanese and other foreign equipment manufacturers. With 25% import tariffs on foreign steel, we experienced an immediate 12%-14% increase in our steel prices, so foreigners now have access to cheaper steel and can offer domestic and foreign customers better prices. That is a huge problem for businesses like ours, and even bigger is the uncertainty of future tariff changes. That uncertainty creates risk that causes businesses to downshift and delay investments that increase productivity, capacity and competitiveness. We fall behind while our competitors improve, and our delays are lost business for our suppliers and their suppliers.
Most capital investment decisions execute over many months and even years, so it’s far too early to expect tariff impacts in the data. But we’re hearing lots of longer-term concern from customers, and our conveyor-belt business did experience a sudden slowdown in booked orders in June and July — from 18% growth to flat compared to the same months last year.
Complex manufacturers and services are particularly vulnerable to the impact of tariff-induced price swings.What if our lost growth is a canary in the coal mine that becomes a downturn taking many months and years to repair? How do we measure changes in investment decisions that execute over long time periods?
Complex manufacturers and services such as high-speed package sorting, with their countless specialized processes and controls, are particularly vulnerable to the impact of tariff-induced price swings. Equipment and components are sourced globally so as to be state-of-the-art reliable, and provide the best function and value. And each system is designed to integrate particular components. With dozens, and sometimes hundreds, of components in a single system, each new tariff—and potential tariff—changes the structure of client and supplier contracts. Suddenly production costs become unpredictable, and priorities shift from developing new products to retrofitting existing products for different parts.
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As a manufacturer of complex systems, we may be an early bellwether for what’s at stake for America. So, let’s please step back and ask: What problem are we trying to solve with trade tariffs?
Is it the trade imbalance? The United States trade deficit is exactly offset by the foreign investment surplus; both the trade deficit and the foreign investment surplus swell in U.S. economic expansions, and shrink in downturns. For example, we experienced a record 38% reduction in the Great Recession of 2009 and expect the trade deficit to be a record $850 billion in 2018.
Is it the absence of a level playing field due to asymmetric tariffs or subsidies? Then let’s negotiate a tariff-free, subsidy-free trade agreement with all comers. Is it China’s intellectual property transgressions or other trade rule violations? Then let’s stand with our allies and seek resolution multilaterally.
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When we conflate the issues to the single charge that “they” are cheating “us,” we elevate emotions and cloud understanding of the issues. This risks the train wreck of trade wars, such as the one inspired by the 1930’s Smoot-Hawley Act that led to as much as a 33% contraction of the global economy. Ultimately it even risks real wars, with bombs and human carnage.
International trade is not a national contest, like the World Cup, where exports are our goals, imports are the other country’s goals, and there is a winner and a loser. International trade is a win-win undertaking where the aggregate numbers are simply the cumulative total of millions or billions of daily transactions, where all participants come out ahead. When were you cheated by someone who gave you too low a price or too good a deal? How can the sum of too many good deals hurt America?
Let’s call time, park our emotions, and set the example by lowering U.S. tariffs. We can then challenge the world to do the same. If others follow, we’ll have a more peaceful and prosperous world; and if not, we’ll continue to prosper, and set an example that illustrates the connection between the liberty and prosperity.
Jay Lapeyre is president of Laitram, LLC., a global manufacturer of plastic conveyor belting, high-speed package sorting equipment, shrimp processing equipment, and space-saving stairs. He is a registered independent who has supported both Republicans and Democrats.
