During the campaign and since being elected, President Trump says he loves imposing tariffs on other countries. There can be many reasons, but he believes if something is imported into the US, the other country pays the tariffs. He is wrong, the importer pays the tariffs and then the importer will likely increase the price to protect their margins which means the consumer pays the tax. For many consumers because much of the manufacturing has gone to other countries, this means the consumer has limited choices in their purchases because for many categories they are imported.

President Trump imposed tariffs, then lowered them or paused them and offer July 9 as a deadline. Just before July 4th, only one country had signed a tariff deal. If you crammed for exams, you would be experiencing what the negotiators have felt.

In an article by Alexandra Stevenson of the New York Times News Service, President Trump signed a deal with Vietnam for 20% tariffs. In addition, the deal would put a 40% tariff on export from Vietnam classified as a transshipment, or goods that originated in another country and were merely passed through Vietnam. The 40% aspect is aimed at China.

Vietnam has China’s manufacturing companies first choice to expand outside because the cost of labor was going up in China. In addition, as the US was targeting China over the years, Chinese companies expanded to over south Asian countries. (a small example is the produce bags you use to put produce in at the grocery store – they came from China, then Vietnam and now Cambodia and Thailand. Next time, you are in the grocery store, ask where the bags are made). Otherwords, if the US puts on tariffs on one country, they move to another.

President Trump’s negotiators have been pushing Vietnam’s export oriented neighbors to reduce how much Chinese content is in their supply chains. Of course, it is possible to use the American method of having a 50% plus 1 partner and that makes it the product of the company where it is located.

The trade terms that the US and Vietnam have so far agreed to will hinge on how they are defined. For example, how much Chinese inputs will be allowed in Vietnamese exports, and how will they be enforced?

Trade and investment from Chinese companies has helped bolster economic growth in Vietnam and the region. However, Southeast Asia is struggling to beat back the torrent of goods from China that are putting domestic companies out of business. In recent years, the Chinese government has heavily subsided factories (to keep people working) leading to surge of Chinese exports around the world.

Linking to dividend paying stocks, all profitable companies want to stay profitable and to that end they must control the costs to protect their margins. When something becomes less expensive to do outsource it. whether it is the next state or next country, outsourcing will be studied and reports written to move the operation to somewhere else. Where there are clear advantages, the outsourcing happens. When that happens there is always another country that is a little bit less expensive. At the moment, companies are going through Asia, eventually it will be Africa and then maybe back to the Americas? When a company has multiple operations in countries around the world or is global in scope, what is it? where the headquarters are? some things are hard to define when the goal is to maintain profits and keep the good margin.

There are more questions than answers, till the next time – to raising questions.