Economy & Business

Riffs and Tariffs

President Trump speaks at the Granite City Works steel warehouse in Granite City, Ill., July 26, 2018. (Joshua Roberts/Reuters)
A high-end audio-equipment maker takes several hits from Trump’s trade policy.

Brian Zolner has been in the business for 40 years. His company, Bricasti, is not a household name — but some of its customers are, such as John Mayer, who takes their equipment on tour with him. Bricasti makes high-end, handmade audio equipment in Massachusetts, targeting the professional market, and the sound of their reverb unit is unparalleled. It is a small business that exports around the world, with loyal customers in many countries — the very sort of American-made product that our “trade deficit”-fixated president claims to keep at the center of economic policy in the U.S. these days. Recently, the company has been hit first by Trump’s metal taxes, then by the general import taxes (which affected their parts supply), and finally by the retaliatory taxes on American imports levied by the Chinese government.

The company’s travails serve as a good example of how government policy affects people on the ground — and as a cautionary tale about the ramifications of Congress’s granting the president unilateral power to make trade policy.

Once the steel and aluminum taxes were imposed, Zolner tells National Review, “Our metal costs arbitrarily rose by as much as 50 percent.” The aluminum that Bricasti buys is domestic, not foreign — but the instability brought on by the aluminum tariffs caused a price rise across the board. Zolner’s products, which consist of reverb units, amplifiers, and other audio products, are made bespoke. “The whole thing is very frustrating to me as a manufacturer. I was just in my shop today: I have four CNC mills running to mill our products,” he says, referring to the panels and cases, which require careful machining to ensure that they are well ventilated, with adequate thermal headroom. While a metal tax hurts a manufacturer by itself, it’s a relatively direct increase in costs because it applies to a single group of materials. The manufacturer can split the difference between a price rise and eating the margin — which shouldn’t be necessary, but it’s at least straightforward.

The metal taxes were bad policy in their own right, and from the start it was clear that they would harm American businesses, given that there are 600 manufacturing jobs for every steel job, but the administration did not stop there.

Tariffs — which are taxes — were also levied on imported parts, which massively complicated business for many manufacturers. Overnight, long-established supply chains became a matter of utter unpredictability, as suppliers sought to make sure everything they did was in compliance with rapidly changing trade policy.

“We’ve had open orders with our vendors for thousands of parts. Last month they said we don’t know how and if we can deliver,” Zolner says. This new and politically created unpredictability for its inputs has directly affected the company’s output. “Lead times have gone up. Who absorbed the costs? We did, our CM [contract manufacturer] probably did because we had a contract with them. We had a contract for the orders we placed.” And, as with any government program, the enforcement can be unpredictable. Out of fear that their goods might be confiscated upon import to the U.S., the vendors abroad have been delayed. This, of course, affects the manufacturers in the U.S. that require those goods.

Some protectionists might ask why Bricasti doesn’t simply source its circuit boards and similar electronic parts from the U.S. But that’s not possible. For security reasons, the domestic production of such items is generally limited to military or medical applications. Because military equipment is produced in secrecy, because the relevant trade secrets are of strategic importance, manufacturers use American-made parts so that they can be sure of their provenance. Ordinary businesses cannot compete with that market, which receives heavy government subsidy. Indeed, there is more of a national-security justification for allowing more foreign imports for civilian products like this, because it allows the domestic producers to focus on such sensitive production.

Some big businesses have been able to obtain exemptions from the government for their imports, but smaller businesses, which lack the same resources and access, have not been able to obtain the same relief. Whether someone believes that the government should encourage domestic production or not, it is hard to justify the fact that a $50 million business that simply resells foreign parts is getting an exemption from the taxes, while much smaller companies that carefully build products in the U.S., with some foreign parts used in the production, are being hit full force.

Neither type of business should be suffering under this new tax burden, naturally. But it is especially ironic that it was enacted in the name of smaller American manufacturers such as Bricasti, which in reality have been hit the hardest.

As China retaliated with its own import taxes, Bricasti got hit on the export end as well. He has observed that importing in China had gotten increasingly liberalized over the past several years of his sales there; however, this most recent round of import taxes has re-energized corrupt officials, who use the pretext of import taxes to come into audio and other stores and clear out the American products.

When a company loses out because its products have gone out of fashion, because they’re unable to compete with others’ efficiency, or because the supply of materials has suddenly changed, that is understandable. Companies suffering under this tax regime, however, did not mess up their own businesses. Their troubles are purely the result of a political move, taken unilaterally by the White House, and therefore were completely avoidable. The White House’s new tactic in some situations like this has been to go ahead and subsidize the very businesses it just hurt, as it did with the recent farm bailout — but this does not stop the ongoing damage that was imposed in the first place. What it does do is hurt all American businesses, then make the playing field still more uneven by helping some and not others.

A year ago, President Trump announced in the midst of a photo op with Stetson hats, American firetrucks, and Gibson guitars that he would revitalize American manufacturing. In reality, the president’s push to do so has married the knee-jerk unilateralism of his administration with the general counterproductivity of top-down economic planning. While President Trump imposes taxes on Americans, ostensibly in the name of American manufacturing, and gets sycophantic praise for it, actual American manufacturers suffer. Brian Zolner makes a world-class product that is in demand around the world, as do so many of America’s boutique firms.

Given the state of America’s industrial economy, the future of American manufacturing is going to be driven by human-capital-intensive products like these, which have a boutique market, to be sure, but are not easily substituted by large-scale manufacture because the value is being generated by R&D. Executive fiat won’t make mass-market t-shirts and socks suddenly viable to manufacture in the United States again — but it will certainly hurt those companies that produce uniquely American products that customers around the world want to buy. As Zolner puts it, foreign markets want “boutique, luxury items that have a cachet, and it’s cool that they’re built here [in the U.S.]” So why are we stopping them?

 

Jibran Khan — Jibran Khan is the Thomas L. Rhodes Journalism Fellow at the National Review Institute.

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