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A Question This Black Friday: Higher Prices...
David Reavill
 November 29 2024 at 05:06 pm
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Our story began over half a century ago. Then, US President Richard Nixon achieved his lifelong goal to open the doors of China. It was Nixon who would bring "Red" China into the family of nations and make it an equal partner to the rest of the world. Until Nixon, the United States considered the "real" China to be the Taiwanese, a tiny island that lies 81 miles off the mainland. There, Chiang Kai-shek retreated after the Chinese Communists had taken control of the continent. For Nixon, this was the apex of a long career in Washington. History records that it was he who opened the door to the most populist nation on earth. The famous picture (reproduced here) of Nixon and Premier Zhou Enlai toasting was top-of-the-fold headline news across the world. While it was a seminal event in geopolitics, its impact on the American Economy has been nearly as significant. As China gradually became America's principal trading partner, it changed the American way of life. Over time, "made in China" became a major component of the items that fill our shopping carts. As has been noted many times, walk down a Walmart aisle, and many, if not most, of the items you'll find come from Chinese Manufacturers. All are shipped across the Pacific Ocean—from home goods to electronics and even pharmaceuticals, all made abroad. It was no accident that things would turn out this way; rather, it was the natural evolution of a strategy first initiated by Nixon (and his able Secretary of State Henry Kissinger) and later exploited by a shrewd group of Chinese leaders. While Nixon's goal was to open China to the rest of the world, in reality, he opened the American retail market to a very capable country of merchants who had been exploiting local markets for far longer than the United States had been a country. The Chinese merchants are legendary throughout Asia, Nixon merely brought them to our shore. Nixon set the stage for a 50-year run of prosperity for the American consumer: cheap Chinese production costs, especially labor, would be combined with aggressive Chinese pricing, selling goods sometimes at or below cost, would ensure that the Chinese brands would capture the American markets. Thus, low-priced Chinese goods would often drive out American businesses; entire industries would move to China. Nike was the first American company to recognize the incredible Chinese production advantage. The sporting goods "maker" took a short hop across the Aleutian Islands from Washington State to China. And just like that, Nike had a competitive price advantage over all the American companies, each of which had to decide to meet the new lower Nike prices or go out of business. For many, it became a simple choice to follow the "Nike Model" and move to China. Of course, as consumers, Americans were blind to the transformation that was taking place in our economy. While it is true that the few who were directly affected, like the Nike workers who had their jobs moved "offshore," most of us were oblivious. I, for one, was late to the party, not realizing how profoundly this move to offshore production was having on the country.It was often difficult, if not impossible, to determine where an item was made by looking at the label. There was a brief effort to have all items tell their country of origin on their labels, but that has now fallen by the wayside. Today, it is rare to find an origination label, except for those few goods "made in the U.S.A."At this point, we come to the divide between citizens and consumers. As citizens, we all recognize that it's in our best interest to have as many goods as possible made in this country. Local production means local jobs and a growing national income. But the consumer in us wants the best price possible. And as we've seen, that's often found offshore. I'm writing this on "Black Friday," the day after Thanksgiving and the most important retail shopping day of the year. So, here's an exercise: What price would you be willing to pay to ensure that the goods you buy are made in America? Would you endure a 5% increase? 10%? 25%?It's an interesting question. What's fascinating is that the more uncertain our own financial future, the less likely we are to bear any price increase. After all, when times are tight, we need to pinch pennies with every purchase we make In less than two months, President-Elect Donald Trump will be inaugurated. Although, like any new Presidency, there are many questions over his future policies, one thing is clear. In term II, Trump will undoubtedly continue to make offshore goods more expensive. Just as he did before, he will likely use tariffs. It's his effort to "even the playing field." His goal is to bring manufacturing back to this country – something that all of us can agree on. We all want to see more jobs in America. But at what cost? Let's go back to our question: Are we willing to see an increase in prices of 5? 10? or 25? It's critically important that we ask that question now before the tariffs begin. Remember, this cycle started when Americans gladly accepted the lower Chinese-based prices, not realizing that offshore production cost our fellow Americans their jobs. Now, we come to the other side of the coin: Increased tariffs may bring American jobs home, but only through higher prices. Today, as we celebrate Black Friday Sales, let's ask ourselves if we are ready to pay higher prices for American jobs.
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