Kenders' Musings

In an email thread exchanged with someone I suspect is a liberal (he backed wage based tariffs and man made climate change-which is scary because he's a high school science teacher-those poor kids) I laid out the following scenario to illustrate why wage based tariffs are a bad idea. I have been asked several times to post it, so here ya go.

Jay, tariffs based on wages would be a disaster. If I own a company and am answerable to stockholders, and I make widgets here at a profit of a buck a widget, and jo'es company makes widgets in china at a profit of 2 bucks a widget, who is going to get a better return on their investment? Joe's stock holders. Then my stockholders will get angry and toss me out and get someone in who will go make widgets in china.

Now, let's say that the government, spurred to action by my stockholders (who are all fabulously wealthy and influential because they invested in my brilliant widget company) decides at their behest to punish joe's widget company for outsourcing labor, and they enact a tariff on joe's widgets to level the playing field. What happens then?

Why, joe's widget company has stockholders who are screwed out of dividends because they now have a lower profit margin. The government is losing tax monies because the dividends are lower. Joe's stock holders decide to dump joes stock because it is not as attractive anymore, and at then end of the day joe goes out of the widget business, and the factory joe had in china lays off their people too.

In the meantime my company has a sudden (and artificial) level playing field. Spurred by the demise of joes widget company dividends go up, but the workers, who are after all low skill laborers, see none of this trickling into their pockets (partially because a bunch of the former workers at joes widget factory have snuck into the country illegally and I now have an almost never ending supply of cheap but experienced labor) so in the grand american tradition they form a union, which quickly enacts all kinds of regulations and union rules that I by law must live by. Suddenly my company is not as efficient as it once was, and my dividends drop again.

One day, with earnings and profit margins down I am contacted by a chinese concern that wishes to buy my factory equipment to use ina widget factory in china. Having had my fill of snotty union workers, ever increasing retirement fund costs and declining profit margins leading to decreased dividends and pissed off stockholders I make a deal with the chinese concern for our equipment, close teh factory and retire a wealthy man, leaving my former workers to fend for themselves with the low skill set they have.

All because of your idea of wage based tariffs.

So thanks for that Jay, and thanks from all my out of work former employees who would still have a decent honest job if the free market were allowed to reign and thank you so much from all of my former stockholders who now have very expensive toilet paper.