A Note On The Proposed Chinese Tariffs

Mama told us, years ago, not to talk about three things: religion, politics, and cable. We've already broken the cable taboo, but have been pretty solid on the others. But there is an issue of significant public concern which confronts us right now and we hope you might be interested in our point of view on it.

Tariffs on a broad variety of Chinese goods have recently been announced -- these are not yet in effect, and there is some process yet to be followed before they take effect, so this is a good time, if you hope to have some influence upon this, to write to your representatives.

It's long been understood by economists that engaging in a trade war tends to result in a lot of strange inefficiencies and unintended consequences. This is more true today than ever before, simply because many markets have been thoroughly globalized. Once upon a time, a company like ours might buy its cable from Belden and its connectors from someone like American Phenolic (now "Amphenol"), and not rely upon imports at all. Today, most of our cable is still American, but most connectors are imported. We bring a lot of ours in from Taiwan and Liechtenstein (yes, Liechtenstein -- tiny country, but it's the home of Neutrik), but some lines of connectors on which we rely are manufactured in China. Canare moved its connector manufacturing to China some years ago, and various other connector vendors have done likewise.

Now, you might think, if you have a dim view of China (and who, to some extent at least, does not?), that tariffs upon Chinese goods are a wonderful thing. You might suppose that punitive tariffs will lead Canare or other providers to seek other locations to do their connector manufacturing. And you might suppose, meanwhile, that an American firm like Blue Jeans Cable can either compete on a level basis with other firms in using these now-more-costly Chinese connectors, or opt to go to other connector suppliers whose goods do not come from China and therefore will not be surcharged -- so, no impact upon our own domestic manufacturing. And on the whole, wouldn't we, as a domestic manufacturer of goods that have significant Chinese competition, surely benefit from these tariffs?

Foreign trade, though, turns out to be a good deal more complicated than that. Did we mention "unintended consequences"?

Looking over the schedule of goods that will be subjected to punitive tariffs, we find that indeed, most classes of connectors we work with are included. But what's not included are cable assemblies with connectors already installed on them -- at least, not any of the varieties of cable assemblies which we manufacture. What this means is that a Chinese cable assembly house can buy these connectors at low cost, not having to pay the punitive tariffs, and can then make cable assemblies and export them to the USA, and STILL not pay these tariffs. If we build the same cable assembly using the same cable and connectors, we pay the tariff because we've brought the connector in separately -- subject to the tariff -- while the Chinese producer has brought it in as part of an assembly, NOT subject to the tariff. The result is a systematic competitive advantage for Chinese-based cable assembly firms over domestic cable assembly firms like Blue Jeans Cable. We could, indeed, were we so inclined, open a cable assembly shop over there -- paying lower Chinese wages and buying our connectors without tariff -- and, in so doing, lay off American workers in favor of Chinese workers. We're not going to do that, but we're not the only people in this industry; somebody else very well might.

This result -- favoring Chinese manufacturers over American, and giving American manufacturers an incentive to off-shore their production to China -- may be unintended. But that fact doesn't make it any less real. We face ongoing competition, driven heavily by price advantages of doing business in China, from Chinese firms whose goods are sold through a variety of low-price US online vendors. There are a number of reasons we haven't been put out of business by that competition, having mostly to do with the quality of Chinese assembly, especially in such areas as professional broadcast-industry cable (the quality of Chinese SDI cable, for example, leaves a great deal to be desired). But giving our Chinese competitors a special competitive edge, courtesy of these tariffs, isn't going to help keep manufacturing jobs in the USA.

And that's just one little example, from our particular industry, of the difficulty of waging a trade war without shooting yourself in the foot. We are sure that many examples could be found in other areas. If the objective of a trade war is to buttress domestic manufacturing by protecting it from foreign competition, that objective is seldom accomplished; sometimes, the exact opposite result happens instead; and even in those cases where that objective is met, the cost can be enormous.

Free trade is, in most circumstances, a win-win scenario for the nations and people involved. The economic consensus around this has grown stronger for the last century, to the point that the sort of old-school protectionism that led to the disastrous Smoot-Hawley tariffs is nearly extinct. There's a reason for that consensus.

We do not ask for special trade privileges. We do not ask for competitors' goods to be overly taxed. We only seek to continue to compete on a level playing field with our foreign competitors. These proposed tariffs, far from giving aid to American firms in our industry, will give a significant cost advantage to the already cost-advantaged Chinese cable industry.