Economic Offense: The Vital Role of Tariffs in Protecting America's Interests
How Tariffs Help Protect U.S. Jobs and Security
As the U.S. elections loom on the horizon, the nation finds itself in the throes of deep political division.
It’s become increasingly difficult to identify issues that garner bipartisan support.
I was surprised to find one thing both sides actually agree on: tariffs.
In May 2024, the Biden administration raised tariffs on a range of products, including steel, aluminum, medical equipment, electric vehicles, lithium-ion batteries, and solar cells.
Understanding the role of tariffs is crucial for investors because tariffs can significantly impact market dynamics, corporate profitability, and global supply chains.
This move underscores a broader strategic realignment, reflecting an understanding that economic policy is inextricably linked to national security.
Tariffs as a Tool for National Security and Geopolitical Strategy
Robert Lighthizer, author of No Trade is Free and former U.S. Trade Representative, has significantly influenced the current policy stance on tariffs.
Despite criticism from mainstream economists and media, Lighthizer’s views are increasingly shaping economic policy.
The tariffs on Chinese goods represent a major step by the U.S. to protect its economic sovereignty and workforce from unfair trade practices.
This has come at the right time and appears to be effective.
According to the White House, the Section 301 tariffs have put pressure on China’s economy, reduced its share of U.S. imports from 21.6% in 2017 to 13.7% in 2023, and discouraged foreign direct investment in China aimed at exporting to the U.S. (Source).
Additionally, countries like Mexico and Vietnam have benefited from the shift in U.S. import patterns.
One former Chinese official estimated the impact to China’s economy could be as much as 0.5 percent of GDP, or $308 billion over five years.
In an era of heightened global instability, reducing economic dependency on adversarial nations such as China is not merely a matter of economic prudence but a national security imperative.
Corporate America’s Strategic Realignment
The maintenance and expansion of these tariffs by the Biden administration signal to both foreign and domestic actors that the U.S. economic relationship with China is changing and could apply to others as well.
Organizations like the IMF, WTO, and World Bank often prioritize global interests over those of the American people, as seen when the WTO ruled against U.S. tariffs on China (Source).
Ultimately we see this shift is not an isolated incident but rather a calculated move within a broader geopolitical strategy that seeks to reassert American leadership and ensure long-term economic resilience.
This policy shift has prompted a significant response from American corporations, many of which are now actively relocating their production facilities out of China.
This trend is not merely reactive but reflects a strategic recalibration of global supply chains.
Apple, for instance, has begun to diversify its manufacturing footprint by moving iPhone production to India and MacBook production to Vietnam. Similarly, Dell has announced plans to phase out the use of Chinese microchips, while Hewlett Packard is in the process of divesting its Chinese IT equipment enterprises.
These corporate maneuvers are emblematic of a broader trend: the decoupling of American economic interests from Chinese manufacturing.
By reducing their reliance on China, these companies are mitigating the risks associated with geopolitical tensions and ensuring greater supply chain resilience.
This realignment also reflects a growing awareness that the American business community must adapt to a new global reality where economic relations with China are increasingly fraught with strategic implications back at home.
The Economic Disadvantages Confronting U.S. Companies
Despite these efforts, there is still more work to be done.
While China makes up nearly half of the U.S. trade deficient, they are only part of the story.
U.S. companies continue to face significant competitive disadvantages, particularly when compared to their foreign counterparts who exploit loopholes in our global trade system.
A U.S. company exporting to Europe, for instance, is subjected to both U.S. corporate income taxes and the local Value-Added Tax (VAT) on its sales in Europe. This dual taxation places American products at a distinct disadvantage in the global marketplace.
Moreover, certain foreign entities have devised strategies to circumvent U.S. tariffs altogether. The Mexican company Baja Fulfillment, for instance, imports millions of dollars’ worth of Chinese goods, loads them into bonded trucks in Los Angeles, and transports them duty-free to Mexico. These products technically never enter the U.S. customs area and thus evade U.S. tariffs entirely. From their base in Mexico, these goods are then sold directly to U.S. consumers, again duty-free, undercutting American businesses that comply with U.S. tariff regulations.
Similarly, Chinese fast-fashion giant Shein has built its business model around exploiting the de minimis provision, which allows low-value shipments under $800 to enter the U.S. tariff-free. This loophole has enabled Shein to capture nearly 30 percent of the U.S. fast-fashion market, further illustrating the challenges faced by American companies trying to compete on an uneven playing field.
Conclusion
In an increasingly polarized political environment, the emerging bipartisan support for tariffs highlights their strategic importance in safeguarding U.S. national security and economic sovereignty. Tariffs are no longer viewed merely as protectionist measures but as critical tools in a broader geopolitical strategy aimed at reasserting American leadership on the global stage.
As U.S. companies realign their supply chains and diversify away from China, the role of tariffs in shaping this new economic landscape cannot be overstated. However, for these policies to be fully effective, it is imperative that the U.S. addresses the competitive disadvantages its companies face, particularly in the face of foreign entities exploiting loopholes to circumvent tariffs. Only through a comprehensive and strategic approach can the United States ensure that its economic and national security interests are protected in an increasingly complex global environment.
Final Word
Thank you for reading and I am grateful and humbled to be able to learn, grow, and invest alongside you at Tuttle Ventures.
Vision, courage, and patience leads to successful investing.
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Best,
Darin Tuttle, CFA
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