Braking point: Tesla has had quite enough of Trump's 'unlawful' tariffs on Chinese-made parts, sues Uncle Sam Tesla has sued the US government, seeking to not only end what it described as President Trump's "unlawful" tariffs on Chinese-made components but also a refund on all duties paid – plus interest. Elon Musk's automaker wants to import into America certain components built in the Middle Kingdom for its electric vehicles, and by …
The judge is going to laugh them out of court. Trade tariffs and trade deals are the purview of the Executive and Legislative branches of the US Government. The courts have nothing to do with it. In fact, I can't recall an incident where a case like this was even brought to court.
EDIT: I stand corrected. Apparently there was an incident with steel imports from Turkey in July of this year. So the President issued a 25% tariff on all steel imports except from Canada and Mexico. Then when tensions with Turkey escalated, the President issued another tariff against Turkey to raise it to 50%. That was deemed illegal by the court. It's extrordinarliy rare for a Presidential order of tariffs to be overturned by a court. Even the article mentions they are not aware of any previous case.
Landmark court decision limits presidential trade restrictions
So with this new information, I think they are going to try to use this case to overturn the President's trade policy with China. I wish them luck because they are going to need it.
Couple things, here.
One, arbitrary and capricious is not an idly chosen term. It's a legal term that implies that there's no reasoned reason for an imposition, no rationale beyond whim.
Second, you need to remember that the tariffs are paid by US consumers, not by anyone in China. The supplier can say 'sorry, no' when asked to drop their costs, and with those tariff amounts it's going to be hard to not have that be the universal answer. And so things get more expensive for US consumers. Maybe the US company goes out of business as a result, and the suppliers in China shrug and continue on because there's always someone else that wants to buy what they make.
This is the cycle of stupidity that this administration is riding, with their fans declaring they are winning when the score has them the losers by far. So very sad.
The effect of "the consumer pays the tariffs" is a transient one. Jim Cramer says supply chains can shift for many industries out of China within a couple of quarters. Other countries would be only too happy to step in and fill in the gap as has already started to happen.
I work at a $3B high tech company. Since all of this tariff nonsense started, all of our electronics manufacturing has been moved out of China to Malaysia. Without changing our board subcontractor. It took time and we had to revalidate, but it was doable. Supply chains do adjust. They ain't going back to China anytime soon because China isn't the cheapest anymore, and supply chains have stickiness.
Yes, it very much depends on what you want made and whether there is capacity elsewhere.
If you first need to build a new FAB in a new country, that is a multi-billion dollar investment and it is going to take a long time to come on line, let alone have high yields.
You might want to read any of numerous articles on just this at the Wall Street Journal. There is no question it's happening, but it's interesting to see where production is moving to and what the problems and timelines are in doing so. Building factories where there is a supporting workforce and wading through bureaucracy all requires time.
Even if you disregard any tariff problems, western companies are becoming concerned about China's behavior in respect to intellectual property.
Many industries that once relied on China as a customer are now facing them as a competitor. One of the articles deals with companies that were selling construction equipment to China as a customer are now being priced out of the same market by China as a competitor.
"Many industries that once relied on China as a customer are now facing them as a competitor"
China has been moving upstream and cutting off lower value items. Ages ago, one could buy reasonably priced Silicon metal ingots from China for PV cell production. Then they started selling PV cells and limiting raw metal sales. Before too long, they were selling entire solar panels and limiting the sales of metal and raw cells. There are countless examples of this practice. By the time they've hit a natural summit with a product, they've killed off any competition in other countries. It's very hard for a solar panel company in the US to compete against imported Chinese panels. The US made quality and consistency is likely much higher but the consumers are not that bright. They've been taught by Walmart that the lowest price is the best "value". Buy a new one today, use it up and throw it away. Buy the same thing again tomorrow. (With apologies to Nik Kershaw, I'm sure I've butchered the lyrics).
"Buy a new one today, use it up and throw it away. Buy the same thing again tomorrow. (With apologies to Nik Kershaw, I'm sure I've butchered the lyrics)."
Yes, I did. ............."Here tomorrow, gone today" should have been the second line. Made me go dig out that CD and listen to it again.
But because the other countries know about the tariffs, they can (eg) pitch at 20% higher than the original price and still be cheaper than China with their 25% tariff.
So the price Americans have to pay is then 20% higher than before the tariffs, but that's OK because the money isn't going to China???
Would any of them be the USA? Or does protectionism not actually work?
Well... yes and no. So-
So perhaps it's related to that – Tesla can't get the computer units it wants without paying extra.
So it's working in that it's forcing companies to look elsewhere, then litigate because the results aren't to their liking. And it's not working if Tesla can't find a non-Chinese supplier. Like another poster said, I've done work for tech companies looking to move away from China to countries like Vietnam.. Which was interesting given it hadn't been the most popular bandwidth destination.
Policy-wise, I guess it needs to be a two-pronged thing. Slap tariffs on China to encourage Tesla et al to switch suppliers. Preferably to the US, and help out the blue collar workers decimated by manufacturing shifting off-shore. But I don't know how the Executive & Federal level can support manufacturing. States seem able, ie NY building the Buffalo Gigafactory & transferring to Tesla for ISTR $1. Presumably states could do similar deals to incentivise production lines to churn out ECUs and ICE stuff.. But then still may hit tariff costs if those units are made from Chinese components. Dunno where Intel makes the SOC mentioned here.
Policy-wise, I guess it needs to be a two-pronged thing. Slap tariffs on China to encourage Tesla et al to switch suppliers. Preferably to the US, and help out the blue collar workers decimated by manufacturing shifting off-shore.
Bringing the manufacturing back to the US won't bring back the jobs. The new manufacturing plants will be automated and you'll just have a few people monitoring, adjusting, maintaining the equipment. Any task that still requires a lot of manual labor will still be off shored because there are still a lot of places around the world with cheap, semi-skilled labor. Those jobs would only come back when the dollar becomes so weak that the US is the cheap labor country.
People just need to realize that the need for skills change over time and they need to retrain to be employable. Anyone working in IT is very familiar with the concept.
"The new manufacturing plants will be automated and you'll just have a few people monitoring, adjusting, maintaining the equipment."
But stuff has to go in and out of the factory, roads have to be maintained etc. Relocating factories to the US will create jobs. Not always the jobs you would want but a $1Bn fab will bring in employment.
Any task that still requires a lot of manual labor will still be off shored because there are still a lot of places around the world with cheap, semi-skilled labor. Those jobs would only come back when the dollar becomes so weak that the US is the cheap labor country.
That's kind of happening, either intentionally or through incompetance, ie Fed policy to manage inflation upwards is turning deflationary.. Which could be a Good Thing(tm), if deflation results in lower cost of living. Which seems to be happening in the hotbeds of socialism, ie SF's real-estate market cooling and contracting and rents falling. Bad news if you're a landlord, good news if you want to work there. Also somewhat ironic given SF used to have a lot of blue collar jobs, until they got priced out.
But I sometimes daydream of being the sociocapitalist mayor of Detroit, and doing radical things. So Detroit is a mess, unless you're a movie maker, in which case it's an ideal filming location for post-apocalyptic wasteland stuff. It's been a pseudo-socialist city for decades, so prioritised gentrifying it's waterfront, and leaving it's industrial areas to rot.
So my radical idea would be to use eminent domain and bulldozers to re-zone empty factory blocks and abandoned housing & make enterprise zones. So throw up some light industrial units, warehousing and affordable people housing, slap a tech college in the middle, and incentivise manufacturing and physical-tech startups to locate there. As it's cheaper/more basic infrastructure than some of the cities previous projects, it would cost less to finance. Some challenges, ie Detroit's been hovering on the brink of bankruptcy, so raising capital via munis could get expensive.. But doing nothing is also expensive, ie welfare costs, policing costs etc.
It works in city sim games, and I keep thinking it should work in the real-world. Might even end up with a new enterprise producing an ED-209 that can manage stairs.
"So my radical idea would be to use eminent domain and bulldozers to re-zone empty factory blocks and abandoned housing & make enterprise zones. "
You don't even need to go that far. There are plenty of ex-factory towns in the US with better quality of living than Detroit that would love to have companies move in and hire people.
The US State department chased out high-tech IC manufacturing by declaring last year's process as needing to be ITAR registered for export, never mind what was current this year in chip making. Fabs were built in other countries so that processors, ram and other high density/fast silicon could be sold to the world without having to beg somebody in the lace panty section of the government for permission. Nobody was going to build a fab in the US and worry about the regulation later.
For many processes, waste is an issue. Or emissions. Even classic heavy industry like metals. There's less and less of that each year in the United States. It's either banned or the company has to deal with multiple overlapping regulatory agencies with conflicting mandates. To heck with it, move to China and save that money. Shipping by the container is dirt cheap and the Chinese have paid off the politicians so most tariffs are very low. The pendulum may be swinging the other way so companies that are highly dependent on China for parts or finished products need to be watchful. I call Walmart the retail arm of China's manufacturing. Walk through and flip things over..... Made in China. Even some of the food stuff is sourced in China. Diced garlic in oil... Made in China even though garlic is a huge crop in California. At least it is for now.
I get the part about pollution but it seems to me that it would make sense to get some universities working on that. Many times in history waste streams turn into new products. Petrol used to be a byproduct of making kerosene.
" Everyone is chasing cheap labor."
It's not necessarily cheap labor. A semiconductor fab doesn't use much labor. They do have other considerations ranging from waste costs to regulatory issues.
Check out Andrew Liveris' book "Make it in America". He does an excellent job showing how cheap labor is often not the reason companies shift production.
A few months ago I checked and the reduction in China trade surplus was more than matched by the increase in Vietnam trade surplus. Considering that change happened so quickly, in just a year, I'm inclined to believe that many Chinese companies simply moved their point of export to their factories in Vietnam. Of course Vietnam gains (and China loses) something from that shift, but not as much as the newer trade surplus numbers alone indicate.
The idea that consumers pay tariffs is misleading - it is only true in very specific circumstances. In most cases, there is an upper price for a widget or service that people will pay and beyond this, the sale volumes decrease and revenue decreases. So it is the upper price which determine whether the price can increase to cover the full cost of tariff or a percentage of it. Sometimes businesses just have to accept lower profits to keep continue selling their product. Generally, If they can pass on the full cost, then there is something wrong in the market - either no competition or cartel like activity where all vendors raise their price by the same amount.
iphones are a great example of how the retail price of something is significantly different to the cost and therefore allows Apple to generate large profits from each device. Whether apple pass on the full tariff cost to consumers or absorb it, is irrelevant - the point is that Apple charge what the market can afford and would increase the retail price further if they think they could get away with it, irrespective of what it costs to build.
The problem with Tesla, is that they are either making very little profit per car or even loosing money and so any additional costs will have a much more significant impact to their viability.
"The problem with Tesla, is that they are either making very little profit per car or even loosing money "
It's obvious that if you have a huge margin, a few percent in tariffs one way or the other aren't going to be a big deal. With a commodity such as a car, the cost is definitely going to be passed on. Tesla changes its prices frequently anyway. Nobody will notice.
"Second, you need to remember that the tariffs are paid by US consumers, not by anyone in China."
Widening the field of view, consider that the dollar/yuan has risen 10+ % since Feb 2018, which is exactly when Trump initiated the "trade war". That is a result of China buying more US treasury bonds and taking other measures to depreciate their currency. That makes it harder for the population of China to purchase imported goods from the US. In other words, people in China are paying for it.
Conversely, the strong dollar has mitigated the effects of the import taxes, and US consumers have not seen an enormous increase in prices proportional to the import tariffs.
However, this coddling of US consumers and burdening of Chinese consumers has a cost to the US - and that is US exporters, from farmers to US high tech manufacturing, because the strong dollar functions as a price penalty on US exports - the long term effects of which are to make US products less competitive on the world export market.
China often talks about increasing domestic consumption and letting the renminbi take on a stronger world role. But so far that is just talk and their actual policy is centered around being THE indispensable manufacturer of the world.
Conversely the US is politically centered around "consumer sentiment" despite talk of addressing trade imbalances. No one is forcing the US to sell US treasury bonds on the international which acts to absorb trade deficit dollars, raise the dollar, and prevent US exports from becoming competitive.
You hate of Trump makes you stupid.
The point of tariffs is to make production in your country more profitable than outsourcing it abroad. If as a result of a tariff Chinese parts become more expensive than American parts, it will either create a job in the US, or the Chinese manufacturer will have to reduce prices.
"it will either create a job in the US, or the Chinese manufacturer will have to reduce prices."
It depends on the industry. Magnets used to be made in the US in quantity. They aren't anymore and when those companies closed up shop, Chinese buyers were there to hoover up all of the machinery. Big lumps of specialized machinery that would take lots of money to reproduce if any company in the US is left that can build it. Once most magnet manufacturing was removed from US soil, the prices for magnets went way up (not in China though). If a group were to build the equipment and start making magnets again in the US, the Chinese suppliers could easily drop their prices and put them out of business. China also bought out the GM/Magnaquench patents for NdFeB (Neo) magnets and while those have expired, patents on the newest/higher power formulations haven't. Any US company wanting to make those will have to pay the licensing fees. It doesn't work the other way around. Chinese companies will often infringe on patents and simply not sell the product directly to the US. It's much easier to file cases in the US than in China.
"The judge is going to laugh them out of court. Trade tariffs and trade deals are the purview of the Executive and Legislative branches of the US Government. The courts have nothing to do with it."
Maybe I'm not getting it right, but my understanding is that the whole point of having the three separate branches of the government is that they all have the authority to overrule each other under various circumstances, in order to provide that whole checks and balances thing. The Executive can make orders relating to trade, but the Legislature could overrule them (given a big enough majority at least), while the Judiciary could overrule them both if, for example, the orders were found to be unconstitutional for some reason.
In fact, I'm fairly sure there nothing ever happens in the US that the courts have nothing do with, because whether it's related to one of the other branches of government or just some random person off the street, you can always petition the courts to consider whether something is illegal and/or unconstitutional.
Trade laws in the U.S. are very well settled. And the courts mostly behave themselves when confronted with situations where the law clearly leaves these policy issues to the legislative or executive branches.
Musk's only hope on this is that the Trump administration somehow cut corners on a comments or mediation period called for in law or a treaty, or failed to properly notify importers. This is certainly possible, considering the "ready, fire, aim" nature of much of the Trump administration's past activities, but I would not bet on Musk winning this.
Besides, Elon has his own well-deserved rep for being mercurial and shooting from the hip.
>It's extrordinarliy rare for a Presidential order of tariffs to be overturned by a court.
The reason for this is that an administration has a legal staff who are charged with determining what is, and what is not, legal. Under normal circumstances the reason why things go unchallenged is that there's already a significant body of legal opinion saying they're OK.
Trump doesn't play by these rules. He thinks he's a dictator that can make the rules up as he goes along and, unfortunately, he's got both a Senate and hand picked Administration officials to back him up (many operating illegally, BTW). The chief enabler is Barr -- as Attorney General he's supposed to keep everybody in line, he's like the Adminstration's QA department, but instead he's trying to use the Justice Department as an enforcement arm for Trump diktats.
Our democracy rests on people 'doing the right thing'. I don't think we ever envisaged that we'd have so much go wrong so quickly. Despite this we still feel we're able to lecture the rest of the world about democracy and the like.
They don't. They have an army of Disciples spreading the word. I expect that Elon will soon start appearing on TV on a Sunday Morning to whip up the members of the cult and even more evangalistic.
to them, any vehicle that is not carrying the 'T' logo is a POS and needs to be crushed.
[see icon]
Seriously, the value of that word of mouth is billions such is the power of the cult.
Tesla would benefit from tariffs on Chinese imports because of the Polestar, a new made in China car that's easily a match for a Tesla. But he's smart enough to understand that trade is a two way street so doing dumb stuff like preventing cars from non-established marques being sold in Michigan (recent new law) just screws up things for everybody.
Tesla isn't alone in importing car parts from China. All the manufacturers do, including the Big Three (GM, Ford, FCA). I think some smaller GM or Ford cars are imported from that country. Its a global business, you see.
FCA is Fiat. It's a huge stretch and squint to call it the Big Three anymore and for quite some time.
For some parts, there is no other source than China. Modern display have never been made in the US. After TVs (CRT type) were abdicated to the Middle Kingdom, that was it for the US consumer electronics business. JBL/Harmon Kardon is owned by Samsung now.
> Which madman created these lists?
Broad, sweeping lists make sure you cause collateral damage.
Putting "weapons of mass destruction" in the same list than "baby formula" and "medicine" makes sure everybody is affected. After all there are more babies and ill people than users of WMDs, and nothing shows better you're a caring father than a good, thorough beating.
WMD... pulllleeease. Nuclear fuel isn't used in bomb making. Though, baby formula from China is not something you'd want to feed your kids or even have in the house.
The lists aren't organized by similar items, but by relative importance to US trade. If it's an important industry (the companies in the US make hefty campaign contributions), it gets a higher import tariff.
> WMD... pulllleeease. Nuclear fuel isn't used in bomb making.
No, you got me wrong. My example was generic, not related to this specific case. "WMD" is a famous example of classic political pretexts/excuses.
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> If it's an important industry [...], it gets a higher import tariff
So, the more important it is, the more you penalize it? I don't say your explanation isn't true, but it doesn't make any more sense.
As others already stated, it's not like the USA were the sole client and China just a supplier among others. It's actually the other way round: The USA are just a client among others, and China is the sole (commercially valid) supplier for a lot of stuff. Which means those tariffs are quite a lot akin to the famous "I'll hold my breath till you let me have my way"...
"and List 4A that ranges from video displays to clothes and nuclear fuel, and has a 7.5 per cent rate."
This is Elon Musk. I think we all realise he's importing nuclear fuel for his doomsday device. "Whaddaya mean I can no longer afford enough plutonium to destroy the whole planet? Drop the accountant in the piranha tank and then get my lawyer on the phone!"
Joking aside. Good luck to him.
I suspect even if Tesla could find a US supplier for the parts they need, it would still be cheaper to buy from the China and pay the tariff. The lower labour costs of producing them in China means a US manufacturer would be hard press to supply them at the same price and still make a profit.
apply to make Freemont (and Reno and Austin) Tariff feww zones.
Then cars that are made for export won't get the Trump Tax.
That will not go down well in election year.
Mind you Tesla has other problems closer to home. States like Michigan and Texas won't let them sell their Musk controlled computers on wheels.
USA home of the most corrupt lawmakers on the planet.
Fremont, CA is at the edge of the Silicon Valley and one of the most expensive places to put a manufacturing plant.
"USA home of the most corrupt lawmakers on the planet."
The most visibly corrupt, certainly. They should have jackets with sponsor patches on them. Only the most junior don't have multi-million dollar net worths. The most senior have obviously had to leverage insider trading knowledge and taken many many bribes to have the holdings they have.
In 5 years the CCP designated electric car maker competitor will know every manufacturing technique and supplier of Telsa, and make good use of that knowledge. Telsa will be another Apple in China. Even if there are US import tariffs on those competitor cars, that competitor will still kill Telsa sales in the rest of the wold (and certainly in China).
As clever as Musk is, he cannot escape that fate. Musk, the only openly dope smoking US citizen to have been offered honorary Chinese citizenship. (To his credit, he did not take up that offer.)
"the Model 3 contains an Intel-powered infotainment-and-communications unit [PDF] made in the Middle Kingdom"
The solution seems simple. Switch to a US sourced unit, such as the HTML5 super computer infotainment units produced by Nikola using their own chips.
Tesla avoids disruption of their supply channel and Nikola finally begins to monetize some of their ground breaking technology.
So, we seem to have diminishing industrial capacity in the US -- we still make stuff, but not as much as we used to. (UK readers will know the story....its been the UK for a generation or two.) What is quite the growth industry is the categorizing of imported and exported goods, leving of tariffs, management of sanctions and the like. Plenty of work there and its work that suits the workforce we've been churning out for some years.
With colleges dropping entrance testing like SAT and instead using gender preference and ancestry as heavier weighted criteria, yep, the jobs fit the qualifications. I have a shelf of textbooks from the 1950's and for subjects like math, even a student with a D average would be way ahead of a valedictorian today. (Sorry, earned honors have had to be dropped because they are racist).
Tariffs create protective walls to coddle industries that cannot compete in the market. Excuse is government subsidies by a foreign government of their industries. Imagine our dirty energy and technologies without Feds subsidies in the form of military expansion, research and development, and outright tax loopholes...
Tariffs also jack up the price for consumers (price gouging by governments) in addition to forced transfer of funds from the consumers to producers.
Tariffs are also forced taxation through one man's order without the people's approval through Congress or public debate.
In the past, trade wars have led to international bang, bang. It seems, if unchecked, the current military preparations around the globe seems to be leading towards that. Funds are being transferred to war machinery, even NUKES, and positioning of war systems at the doors of the two major competitors. Imagine industrial scale war under the MAD regime and consequences for planet earth. FIREBALL then FREEZE despite rosey predictions to the contrary and private bunkers with survival kits for 10 or more years underground.....
Only beneficiaries of tariffs are a few inefficient industries, a government that is scared of raising taxes and the military for a short time. Afterwards, it destroys the home that was supposed to be protected. Do we see the sign now as we see gutting of the economies of the planet, creating an atmosphere of everyone for the self and a looming war that could perish all?
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