Most Read
Image 01 Image 02 Image 03

EU Officials Consider Retaliatory Bourbon Tariff if U.S. Adopts Steel Tariff

EU Officials Consider Retaliatory Bourbon Tariff if U.S. Adopts Steel Tariff

More bourbon for the rest of us!

https://www.youtube.com/watch?v=9YGoParz80c

And this is how we know the EU is officially off its rocker — they’re considering a retaliatory bourbon tax.

Before we get too alarmist here, they’re also considering tariffs on dairy and orange juice, according to a report in the Financial Times:

Speaking on Friday at the summit in Hamburg, European Commission president Jean Claude Juncker declined to detail any possible EU retaliation but said Europe would respond to any US steel sanctions.

“Our mood is increasingly combative,” Mr Juncker said as he indicated Brussels would react to Washington not in months but “days”.

Mr Trump has promised for weeks to crack down on steel imports under a 1962 law that allows such measures on national security grounds.

Why bourbon? Because it happens to be one of Kentucky’s main exports and Kentucky is home to Senate Majority Leader Mitch McConnell. But it’s not just Sen. McConnell who would be squeezed, Kentucky’s bourbon industry employs about 17,500 people.

According to an NPR report, EU states account for about 60% of Kentucky bourbon exports:

A tariff on bourbon, a classic American spirit that is produced only in the U.S., isn’t just symbolic. American whiskey has experienced a serious boom in global popularity over the last few years.

The bourbon industry fought hard for that global expansion, says Fred Minnick, the author of Bourbon: The Rise, Fall and Rebirth of an American Whiskey. For years other countries levied large tariffs on bourbon, he says, and the world thought “whiskey” meant “Scotch.”

“Bourbon distillers worked very diligently to peel away some of those ridiculous tariffs,” Minnick says, and successfully introduced American whiskeys to drinkers abroad.

Now, bourbon is increasingly popular worldwide. Roxanne Scott of member station WFPL in Louisville, Ky., notes that the EU is “a major bourbon customer.”

“Data from the Distilled Spirits Council of the United States [DISCUS] shows that about 59 percent of the country’s bourbon exports went to EU member countries last year,” Scott writes.

Like France has the market on Champagne, the U.S. is the only country who produces authentic bourbon.

NPR also notes that due to the amount of time it takes to produce whiskey, any sudden shift could reek havoc on current production:

…a substantial tariff would be bad news for bourbon makers. Distilleries have to plan far in advance, because whiskies spend years aging in barrels. They can’t exactly pivot to respond to new trade policies.

“It’s kind of like trying to turn a big ship,” Carlton says. “You can’t make really quick changes overnight.”

What does all of this mean?

Polish your fine barware. If the EU chooses the path of tariffed bourbon, the responsibility of maintaining the domestic bourbon market falls on us. And far be it from me to let good bourbon go to waste.

Follow Kemberlee on Twitter @kemberleekaye

DONATE

Donations tax deductible
to the full extent allowed by law.

Comments

This has to be my least favorite Trump doctrine element. Free trade is essential for free markets. If foreign nations want to “dump” goods in the U.S., it’s only to the benefit of consumers.

Also, Trump’s promotion of manufacturing is dubious. He seems to want everyone out stamping parts on some assembly line for $.50/hr. Other nations can do this better than we can, c.f. Comparative Advantage. Allow the market to direct capital to its most efficient use for once, a solution that has always worked historically. There is a reason for our declining manufacturing, we’re a knowledge economy now, for better or worse.

    4th armored div in reply to rdmdawg. | July 11, 2017 at 10:29 am

    India and other countries have encouraged STEM while we teach navel gazing.

    Mac45 in reply to rdmdawg. | July 11, 2017 at 10:58 am

    The US has been experimenting with a consumer culture [your “know;edge culture”] since the 1990s. That is 20+ years. We allowed our manufacturing businesses to move out of the country and gave sweetheart deals to foreign manufactured items. The promise was that all of these manufacturing jobs would be replaced by service jobs. Unfortunately, this failed to materialize and the US workforce declined while welfare systems expanded. In addition to the harm suffered by the displaced worker, the remaining workers are also harmed as they have to support those displaced through taxes.

    So, while other nations can produce manufactured goods cheaper than the US, moving such jobs overseas does not help the US worker. And, the US comprises ~25% of the market for consumer goods in the entire world. Employing displaced workers makes it easier for the US to buy consumer products which, in turn, helps other country’s manufacturing sectors and their workers.

    Totally free trade is beneficial to companies which buy in low production cost markets and sell in high production cost markets. But, in the long run, it only works when all the partners are equal or if each partner specializes in an industry which is comparable to the value of other industries in the world. The US is the single largest consumer market in the world, being some 4 times larger than the next largeest consumer market [China – ~7.5%] and being roughly equivalent to the entire EU. So, it is in the interests of the US to encourage domestic manufacture. We win if US manufactured items are sold domestically, as we consume the lion’s share of all global production to begin with.

      We don’t have free markets. Everything is negotiated in trade deals then everyone cheats with subsidies, duties, tariffs, currency manipulations and so on.

      The big advantage we have had throughout our history is that we could go it alone due to our robust resources and skilled work force. Breaking up that advantage is crucial for the one-worlders. The US is the last domino for global fascism to take over. That is why we elected Trump. Have you noticed whose heads have been exploding? I wonder why.

      rdmdawg in reply to Mac45. | July 11, 2017 at 2:10 pm

      Something tells me that it’s people like you, the champions of our manufacturing industries, would be the last ones you would find standing on an assembly line, earning $.50/hr.

        scaulen in reply to rdmdawg. | July 11, 2017 at 4:13 pm

        Yeah if we get rid of minimum wage laws then we might be able to get it down to .50 per hour, but at that wage the only ones willing to do it would be robots. So working at a McDonalds assembling burgers takes more skill then working on an assembly line? The Hyundai plant in Alabama was offering $16 per hour when they first opened shop. If you compare the $16 / hr and cost of living in Alabama to lets says Mass then you end up with..
        Boston is 86% more expensive than Huntsville.
        Housing is the biggest factor in the cost of living difference.
        Housing is 255% more expensive in Boston.
        So what you end up with is the equivalent six figure salary in the North East .

        An assembly line job is not brain surgery, I’ve worked assembly lines, once you’ve been trained its repetition and then just a matter of increasing speed to match the line. It’s also boring as hell and one of the easier ways to collect a pay check. Plus you can get into a union and the perks and benefits that comes with being able to hold a business hostage with the power of a union.

        So in short, I would love to know where your getting you .50 / hr from and why wouldn’t someone want to get into a union job? Honestly the only thing I can think of that would pay .50 per anything would be piece work where you get paid per assembled pieces but that’s mostly off site and self employed.

        Mac45 in reply to rdmdawg. | July 11, 2017 at 4:29 pm

        Find me a US assembly line where the workers make $.50/hr, in the US. Starting salaries for production line workers are usually around $12-15/hr and go up from there, depending upon the type of manufacturing job one has. And, most manufacturers also provide some pretty good benefits for those assembly line workers. That is why “American” manufacturing operations leave the country, to take advantage of those $.50/hr foreign workers.

        But, it gets worse. Take the US computer industry. Just 20 years ago, the US was the world leader in computers. We dominated both the development, design and manufacture of both hardware and software. Then US computer manufacturers moved the hardware manufacturing part of the business overseas. Laying off the domestic computer hardware workforce was hard enough, but now the software developers are replacing US workers with temporary foreign workers who work cheaper than US workers can. But, the major market for all of that computer gear is still the good old USA. Only now the computer industry workers can’t afford these computers, because they are unemployed and have lost their benefits.

        See, as long as manufactures are free to reduce their employment costs by exporting jobs, they will do this. However, eventually, the biggest market for their products {the US] dries up because US consumers can no longer afford the manufactured products because they do not have a job to earn money to buy them with. This means that the manufacturer must find other markets for his products. However, the places where those products are manufactured have income scales [$.50/hr] which are too low to allow the workers there to purchase the products that they manufacture. This means that the manufacturer has to raise the wages of his workers so that they can afford his products. Eventually, those workers are near the wage scale that existed in the US, before the manufacturer moved production out of the country. However, in the meantime, the US buying power has been reduced to the point where the US consumer market is no longer the able to support the manufacturers.

        Now, if one is a globalist, this is fine. Stripping the residents of the US of the economic advantages that they have spent 200 years building to give it to people in foreign countries who have not done the same thing may sound good to you. If you are a peon in Old Mexico, it probably sounds good to you. But, if you are a resident of Cleveland Ohio being unemployed or working for a non-living wage, while hoping that prices will drop so that you can afford to by manufactured items, doesn’t have the same appeal.

        Ragspierre in reply to rdmdawg. | July 11, 2017 at 6:19 pm

        Ding, ding, ding…

        ANOTHER idiot rings the bell and wins a prize…!!!

        “See, as long as manufactures are free to reduce their employment costs by exporting jobs, they will do this…”

        How to explain, then, that U.S. manufacturing is at an all-time high?

        Oh, yeah, it’s because the American worker is the LEAST COST worker in the world.

        NOT CHEAPEST. Least cost per unit of production. Why? In large part because of automation, which is essentially capital investment in FORCE MULTIPLIERS.

        You want a U.S. where there are no bulldozers or excavators or tractors that pull a dozen plow bottoms on our farms? We could have a limitless demand for labor if we wanted. Remember those vast rooms of typists clacking away on manual typewriters? Hell, just do away with all word-processing programs, spread-sheets, etc.

        But here’s the funny thing… We employed all those labor-saving things, and we still had a <5% unemployment rate during the W years.

        Until, that is, the GOVERNMENT MARKET DISTORTIONS of the housing bubble exploded.

        Thanks, Collectivist "conservative" economics "thinkers"! Who don't understand economics from a cypress stump.

    Another way of putting it is that you would rather allow our trading “partners” to gouge us (American subsidies to everyone else) just so you can technically claim the moral high-ground by refusing to play the “protectionism” game. Virtue signalling and moral purity is now a good survival strategy.

    When you are the target of a brawl, you fight. There is a big difference between practicing protectionISM and just protecting yourself. Protectionism is a policy of manipulating the market prices of your imports/exports to create an artificial advantage. Protection is retaliating when someone else is doing it to you.

    Free trade only works when there is honest competition. We seek market-based price discovery and allocation of capital to the most efficient. Instead, what we have is the US government participating in allowing the large-scale transfer of American wealth to the rest of the world. We can either retreat from the world and become isolationists, force everyone to the negotiating table to fix the problems or resort to the tried and true historical solution: war.

    That’s the way the world works and has always worked. Dem wit da guns make da rules. Can we talk?

      Milhouse in reply to Pasadena Phil. | July 11, 2017 at 12:40 pm

      Free trade is not a subsidy, it’s simply freedom. And protection doesn’t protect us, the consumers, it protects manufacturers by letting them gouge us. Producers are by definition special interests; consumers are the general interest. Government policy should always favor the consumer, never the producer. Any government support for producers comes directly out of consumers’ pockets, forcing consumers to subsidize the producers. This is nothing but welfare, and we’re supposed to be against that.

        Wut? That makes no sense at all. Trying mapping the logic of your argument. Start by defining your terms. Tell me where your store is so I can pay you a visit and steal all of your stuff. And make sure your employees are there to help me load everything into my truck. You can watch the whole thing while standing on principle.

        Seriously. What is wrong with you?

          Milhouse in reply to Pasadena Phil. | July 12, 2017 at 2:27 am

          Indeed your comment makes no sense at all. Mine is a simple statement of the fundamental principle of the entire liberal political movement (which nowadays is known as “conservative” because the socialists stole the “liberal” label just as they steal everything else that isn’t nailed down). Go read The Wealth of Nations, which is where our movement started.

          AFAIK this is the origin of the terms “special interest” and “general interest”. The producers of any given good or service are by definition a special interest; they are few, and their interest is concentrated, so it makes sense for them to band together and spend the resources to explain to the government why they should get the legal right to force the consumers of their products to subsidize them.

          Consumers are the general interest — we are all consumers. We are the ones paying every producer’s protection money. But since we are dispersed, and few of us lose very much on any one good or service, it’s not practical for us to lobby against any one protectionist measure. But it all adds up to a crushing burden, which ends up damping total productivity, so even if one is so misguided as to think producers are more important than consumers protection is still a bad idea.

          Political conservatism (née “liberalism”) is fundamentally about the idea that this is wrong, and that government ought always to favor consumers over producers, because the only purpose of production is consumption.

          But at base free trade is about morality. Each person is born with the fundamental right to trade goods and services with anyone he likes, at mutually agreed terms. Government has no more right to prevent this than it does to prevent a person from saying what he likes, going where he likes, or believing what he likes. And this does not change just because someone happens to have drawn a border between that person and the one to whom he wishes to sell, or from whom he wishes to buy.

      Ragspierre in reply to Pasadena Phil. | July 11, 2017 at 1:05 pm

      Just for reference and perspective, Ol’ Pasadena Filly posted that the Occupywhatever Movement and Conservatives have a lot of common interests.

      He might deny that, but I can reproduce his post from a few years ago.

      He is no conservative. Whatever he IS, he’s not that.

    herm2416 in reply to rdmdawg. | July 11, 2017 at 11:42 am

    This has to be my least favorite Trump doctrine element. Free trade is essential for free markets. If foreign nations want to “dump” goods in the U.S., it’s only to the benefit of consumers.

    Is that a fact? You couldn’t be more incorrect. It benefits the MANUFACTURERS, not the consumers! When was the last time you saw a manufacturer pass along savings to the customer, thereby narrowing the profit margin? Manufacturers LOVE cheap steel, they don’t pass the savings along to us. Domestic producers of steel have been hit hard by all the dumping. Manufacturers are laughing all the way to the bank.

      Milhouse in reply to herm2416. | July 11, 2017 at 12:34 pm

      That’s just stupid. Manufacturers always pass on cost savings, because competition forces them to.

        IF AND WHEN competition forces them to. If the competition is subsidized and you are not, you go out of business. Otherwise, you charge what you can get away with. That is why we regulate to break up monopolies and oligopolies. It is also why the Constitution granted the federal only 3 powers with one being the power to regulate foreign trade. We should at least have domestic free markets and then get what we deserve internationally. If we don’t protect ourselves, we get what we have today.

          Ragspierre in reply to Pasadena Phil. | July 11, 2017 at 2:09 pm

          “That is why we regulate to break up monopolies and oligopolies.”

          This is why I can say with confidence you are an economics idiot, in common with BOTH Bernie Sanders and Der Donald, along with a fan of BIG GOVERNMENT.

          You, Bernie, and Mr. Establishment share a common trade policy. And it’s based on absolute falsehoods.

          There is NO need to “regulate” monopolies. They die by the mechanisms of market forces. The ONLY ones that survive are those that manage to cousin BIG GOVERNMENT to protect them VIA “regulation”. They are ALWAYS behind “regulation”. This was well understood by Adam Smith over two hundred years ago.

          What you advocate was called “corporatism” (and still is, correctly). You are the useful tool of fascist economics, but are too stupid to get it.

          rdmdawg in reply to Pasadena Phil. | July 11, 2017 at 2:24 pm

          “IF AND WHEN competition forces them to.” In a free market, this will happen pretty quick indeed. Your discussion of .gov shenanigans in foreign states has no direct effect on our market *right here*. The answer to our own excessive taxes and regulations is to do away with the excessive taxes and regulations, not try to approximate them as tariffs on imported goods.

          If Ford and Mazda want to get into some silly price war, may the nation with the strongest comparative advantage win. Whatever the outcome, consumers, or Rags’ “General Interest” wins, as it should be.

          There has never been a government smart enough to direct the economy to prosperity, that can only be accomplished by individuals making free choices in a healthy market.

          Ragspierre in reply to Pasadena Phil. | July 11, 2017 at 2:33 pm

          Yep. As Hayek demonstrated. Markets, in which normal people make decisions in their own interests, produce the most efficient use of resources, the greatest rise in the standard of living, and the greatest freedom for all concerned.

          It’s like magic to those who don’t comprehend it. And it works every time it’s tried.

          Heh…!!!

          Are you reading what I said in English or some other language? It’s not complicated! I am not defending subsidies! I am defending defending ourselves from those who CHEAT! We can’t be the only ones playing fair. When everyone is cheating, we have to defend ourselves. Is that complicated? Explain to me exactly where you get lost on that concept.

          There are no games where there are no rules. Enforcing rules is what defines the game. So is “regulation” ruining professional sports? Would deregulating baseball so there are no rules make baseball more “efficient”?

          Get real.

          Ragspierre in reply to Pasadena Phil. | July 11, 2017 at 6:30 pm

          Would prohibiting foreign players make baseball a better game?

          Dope.

          Milhouse in reply to Pasadena Phil. | July 12, 2017 at 2:29 am

          those that manage to cousin BIG GOVERNMENT to protect

          Cozen.

          Milhouse in reply to Pasadena Phil. | July 12, 2017 at 2:38 am

          I am defending defending ourselves from those who CHEAT! We can’t be the only ones playing fair. When everyone is cheating, we have to defend ourselves.

          Thus demonstrating your continued ignorance. Protection is not defending ourselves, it’s defending local producers at the expense of consumers, i.e. us. What you’re saying is that if another country lets its producers gouge its consumers, then we must let our producers do the same to us. That’s exactly the same as saying that if another country legalizes burglary we must do the same, lest their burglars have an advantage over ours.

          A trade war is like two people repeatedly stabbing themselves in order to bleed over each other’s clothes. Each side does damage directly to itself in order to do some collateral damage to the other.

      healthguyfsu in reply to herm2416. | July 11, 2017 at 12:34 pm

      They do pass it on if you own stock.

        Ragspierre in reply to healthguyfsu. | July 11, 2017 at 2:16 pm

        As the great management guru Peter Drucker showed several decades ago, our market system had actually PROVIDED what Marxism falsely promised…ownership of capital in the hands of ordinary working people.

        If you have any interest in a retirement program, you own the capital of the U.S. Most ordinary people DO. Drucker showed that such ownership interests were held by “working people”.

    rdm in reply to rdmdawg. | July 11, 2017 at 12:00 pm

    It’s only free trade if both sides are free trading – if only one side is then …

4th armored div | July 11, 2017 at 10:26 am

if the EU wants a trade war – wde can pull our troops out and prevent ALL european immigration – bring it on Brussels!

The US doesn’t have enough demand to handle all of the spirits currently being allocated to the EU (Bourbon currently accounts for 20% of all spirits being sent to the EU), and if Asia follows the EU’s lead this could go from a huge problem to an outright crisis for American DSPs. Don’t belittle this story, it’s not something to laugh about, as the spirits business is just as vital to the economy of Kentucky as the motor industry is to Michigan.

    dystopia in reply to smfoushee. | July 11, 2017 at 11:12 am

    Europeans love their taxes and their love their liquor. They will just be paying more for their Bourbon. I suggest they drown their sorrows over higher Bourbon prices with a good “Old Fashioned”

      smfoushee in reply to dystopia. | July 11, 2017 at 11:31 am

      They’ll buy less as Bourbon is already considered a premium spirit in the EU, much like Scotch prices here in the States are much higher than our locally produced Bourbon. And any sudden, major fluctuation in demand of matured spirits will cause major problems for the industry.

    Let the free market find a solution. Either find new markets, lower your price or make less bourbon. I have no interest in going to war over bourbon or beer or wine or vaping or “apps” or any other non-essentials. Kentuckians used to be famous for rifles. Make more of those instead.

      smfoushee in reply to Pasadena Phil. | July 11, 2017 at 11:34 am

      What an ignorant comment. There is nothing free about the market Trump is running with his tariffs, and if you won’t go to war over this how about construction grade lumber from Canada? Trump already approved that tariff which means we’re now paying more for construction materials.

        There was nothing free about the market BEFORE the tariffs.

          smfoushee in reply to rdm. | July 11, 2017 at 12:36 pm

          I agree, but why then are tariffs and a trade war the solution instead of more free market policies?

        What an “enlightened” comment! Bend over and let me take a running start so I can get one really good kick in before you “get it”. There is nothing I enjoy more than kicking a sanctimonious sucker who, on principle, will not defend himself. Enjoy being road kill.

        We are trying to run a civilization here.

          smfoushee in reply to Pasadena Phil. | July 11, 2017 at 12:57 pm

          “We are trying to run a civilization here.”

          Yup, right into the ground. Even Washington eventually realized an increased tax on whiskey was a bad idea, but I’m sure Trump is the smarter man.

      Ragspierre in reply to Pasadena Phil. | July 11, 2017 at 1:09 pm

      “Let the free market find a solution”.

      Well, the problem there is that you warmly advocate government distortions (via a function of BIG GOVERMENT to deprive market participants their liberty) of markets.

      Which ALWAYS result in damage to regular people.

    Mac45 in reply to smfoushee. | July 11, 2017 at 11:36 am

    Encourage our steelworkers to by bourbon. With more of them working, they can afford it now.

It’s already costly there. This will probably increase demand.

great unknown | July 11, 2017 at 11:47 am

Hmmm. Wonder what would happen if tariffs on scotch suddenly went up? Maybe people would start buying more bourbon and realize that how much better it is than scotch.

Of course, for the smokey taste, you could always stir in some cigarette ashes.

    rdmdawg in reply to great unknown. | July 11, 2017 at 2:43 pm

    The skewing of the demand curve by taxing certain preferences incurs significant dead-weight loss on an economy and leads to a non-trivial lowering of the standard of living enjoyed by the public.

buckeyeminuteman | July 11, 2017 at 11:59 am

Kentucky needs to feel the heat. They’ve continually reelected McConnell every six years and its screwing us all over. Unless you send someone with a spine to the Senate, you get what you deserve.

    There is a lot about The Turtle that I don’t like, but you can’t put this on him. This is an entirely predictable EU reaction to Trump’s “toughness” re: trade. And the EU is just playing smart politics by putting the heat on somebody who has the power to push back against Trump. It’s amazing to me how much the American voter has “un-learned” in recent years about the benefits of trade.

    Ragspierre in reply to buckeyeminuteman. | July 11, 2017 at 1:00 pm

    You’re confused about how the bourbon (or any industry) ramifies out into the larger economy.

    Consider farmers, for one. Consider the oak lumber industry for another. Consider each salesman, export clerk, and longshoreman, etc., and lots more etc.

      +1 for making me looking up the meaning of “ramify”. I was correct in the assumption of the meaning (causing to branch out).

        Liz in reply to Liz. | July 11, 2017 at 1:36 pm

        And…I actually agree that there are impacts on many people when an industry is attacked.

        It is this fight that impacts all of us in a variety of ways. I may be benefited by one tariff and not benefited by another tariff.

        The overall impact of tariffs and subsidies need to be balanced. How? I have no way of figuring that out. I’ll just buy what I need and hope for the best.

          rdmdawg in reply to Liz. | July 11, 2017 at 2:46 pm

          You will never benefit from trade protectionism unless you are an investor in the protected industry. Sometimes employees within the industry benefit, but usually not.

          Milhouse in reply to Liz. | July 12, 2017 at 2:55 am

          How is easy. Smith demonstrated it 240 years ago. End all tariffs and subsidies, or as many as you can, whether or not other countries do the same.

          The only legitimate exceptions are when you are consciously using tariffs or subsidies as an instrument of foreign or defense policy, deliberately taxing your own people to achieve some goal just as you do in order to wage open war.

          For instance whenever we impose economic sanctions on some country, we must be aware that what we are doing is taxing our own people in order to punish the other country and force it to change its ways. If that seems worth doing, then fine and well. But too often politicians advocating sanctions don’t even consider this question; they imagine that sanctions don’t cost anything, because they don’t pay the cost.

          For another example, Smith defended cabotage on the grounds that it was cheaper to pay people in the domestic shipping industry to operate far more ships than the economic demand could justify, so that in wartime the navy could commandeer those excess ships, than maintaining a standing navy at full strength.

Trade wars only benefit political demagogues AND special interest groups. (See the period?)

A Tennessee sour mash puts both Bourbon and Scotch to shame. For Manhattans I prefer a straight Rye.

Every fine dinner must end with Grappa as ‘un digestivo.’

    Liz in reply to MadisonS. | July 11, 2017 at 1:55 pm

    I grew up in the Detroit area and remember the smell of the Canadian Club distillery across the river, when the winds were right.

    And, I grew up making Canadian Club Manhattans for my father. I still consider them to be the best!

I usually drink “light” in the summer (vodka, rum and white wine). But, perhaps I need to break my rule and buy some bourbon today. Any bourbon drink suggestions???

Re steel – there are some US companies which are working on a mini-mill concept which can be very cost effective in producing specific products near the end user. Use local-produced recycled stuff, lower transportation costs, faster turnaround – what’s not to like about these mills.

Re tariffs – there has always been some type of “price control” on a wide variety of products, whether it is a tariff, a trade agreement or a product subsidy.

Re subsidies – The corn ethanol subsidy is bad. It increased the cost of food and impacted the quality of gas. I get much better gas mileage from 100% gas, which is readily available in Oklahoma. Based on competition, I see a lot of stations offering 100% gas in three grades, E10, E85, diesel, CNG. BTW – in OK, the type of gas has to be clearly labeled. So, you can’t sell E10 as 100% gas. It helps when you need 100% for specific engine types.

And there are many other subsidies which make no sense – wind, solar, sugar, raisin. I’m sure there are many other US subsidies that we can review.

A great example, which is very clearly modeled over decades, is U.S. sugar subsidies. As a result of these, sugar is MUCH more expensive here than on the world market.

What are the results? One is that Chicago, which was known some years ago as “the candy-making capital of the world”, has seen one candy maker after another go out of business or move into a nation where they can source sugar at market prices.

ANOTHER consequence is the ubiquitous use of corn sweeteners in any food or beverage that uses a sweetener.

Ever wonder why American consumers seek out soft drinks made in other nations? Because they are made with sugar, and the consumers prefer them.

So, who benefits? BIG SUGAR and BIG CORN. And the rest of the nation is harmed, including former employees or what would be current employees of the candy industry.

This the immutable result of what I call “the law of proximate benefits versus distal harms”. Special interest can always make a case that they should enjoy “protections”, and DO via lobbyists. Consumers and others damaged by these market distortions rarely have such a voice.

While that’s true, the WORST element of BIG GOVERNMENT distortions of markets is that they deprive us of liberty.

The Europeans who drink bourbon will pay the extra money to drink it. Bourbon is already marked way up in Europe. There are some very good whisky that is made on that side of the pond that are currently much cheaper than a bottle of Jim Beam. It is a status symbol to order American whiskey or Jack Daniels.

Jack Daniels, Tennessee sour mash whiskey, most happy.

Protectionism goes beyond punitive tariffs levied on imported goods. Non-tariff trade barriers can also be viewed as government subsidies to domestic industries. Currency manipulation is one such non-tariff barrier to trade long utilzed by Japan.

Recently in the trade publication Automotive News the CEO of Honda Motors admitted as much. He said the only way for Honda to compete globally and remain profitable was the for the Abe government to maintain its low Yen policy in the currency markets. As the Yen goes lower in currency markets, Japaneses products in export markets become less expensive and imports into Japan become more expensive. Profits from the country with the more expensive currency upon being repatriated and converted to Yen purchase more and more Yen as the value of the Yen falls. Japanese manufacturers such as Honda which rely on exports can now invest more Yen in salaries for engineers and management in its home market. Thus, the Abe government adriving the value of the Yen down becomes the equivalent of giving a cash subsidy to exporters.

Consider the domestic Japanese auto market. In 2016, over five million new vehicles were sold. Among Japan’s domestics, Toyota commands a 30% market share and also owns or controls many of the smaller brands giving it an even higher market share. Toyota outsells its nearest competitor Honda by a 2-1 margin. Combined these two OEMs control 45% of Japan’s domestic market. The best selling import brands were the M-B, VW and BMW, brands with global appeal and strong sellers globally. However in Japan these three brands account for only 165 thousand sales which is under 3.35% market share of a 5 million+ market. In view of Japan’s import tariffs on new vehicles being among the lowest of major trading partners, this is clear evidence of non-tariff trade barriers.

Data source: http://www.best-selling-cars.com/japan/2016-full-year-japan-best-selling-car-manufacturers-brands/

A cheap Yen does not mean all is welll for Japan’s domestic auto industry. It may protect the two biggest OEMs but the Tier 1 and Tier 2 suppliers are getting killed. Japan now has its own version of a rust belt. The suppliers have become dependent on US and German companies for machine tools, robotics, various types of manufacturing equipment and and software. Their costs to purchase these imported products have risen under the cheap Yen policy while simultaneously the OEMs have been squeezing them on price. Currency manipulation does not always achieve the intended results.

China presents a different type of trade barrier. All of the global auto OEMs eye the size of the market and the increasing purchasing power of this market. There is the potential to make untold billions for each of these OEMs in Cina and they have been aggressively pursing his market and vigorously competing against each other. GM and VAG so far have the largest share but their lead over Ford, BMW and M-B, and each other is nowhere near commanding. As for Japanese brands, the Chinese harbor memories of Japanese atrocities committed against the Chinese people in WWII and shun Japanese brands.

China also imposes a very large punitive tariff on imported vehicles which makes these vehicles extremely price noncompetitive. This tariff can be avoided if the OEM enters into 50-50 partnership with a Chinese Company which will manufacture the vehicle in China. All the OEMS have entered into such partnerships with Chinese vehicle manufacturers such as Geely and SAIC. For the OEM, even if t receives only 50% of the profits from Chinese sales, the sales volume can be so large that if it and its partner achieve a dominant market share, these profits can exceed the OEMs profits from its home country or any other market.

This is a trade barrier with long term disaster for the OEMs. To form the 50-50 partnership thy must also share engineering design details of the vehicles and manufacturing trade secret techniques to the joint venture. This is a technology transfer on a massive scale allowing Chinese companies to become competitors without the spending a dime on R&D.

One need look no further than Volvo. Once a premier Swedish brand more Swedish than lutefisk, it is now owned 100% by a Chinese company, which I believe is Geely. Geely export it vehicles into the US at the lowest tariff rate for vehicle imports under the Volvo brand. Its TV advertising Volvo Geely is very clear not to refer to country of origin or heritage saying only that the interior expresses Scandinavian design, like a piece of funiture. Compare to M-B, BMW, VAG products which tout their “Germaness,” as do Fiat and Alfa tout their “Italianess”

    Ragspierre in reply to MadisonS. | July 11, 2017 at 8:32 pm

    “This is a technology transfer on a massive scale allowing Chinese companies to become competitors without the spending a dime on R&D.”

    This is nonsense. The Chinese firm bought Volvo from Ford, IIRC. (No bitching about an American firm owning Volvo, I see.)

    They paid Ford for all the assets of Volvo, or Ford was stupid. You have ANY evidence to show that Ford sold for cheap, foolishly?

    I remember when the Japanese were the terrible dragon who were (was) going to swallow up American business, and we just could never compete with the keiretsu business model.

    Just as today, Japan had a LOT of dollars it needed to find a home for, and there was no place like America. So, they came here to pay WAY too much for various American enterprises.

    We came out swell.

When Ford purchased Volvo in 1999, it was already a brand in decline. It’s reputation it garnered with the squared off three box styling of earlier RWD Volvos was being damaged by new FWD models with more contemporary styling for that time.Those new models were not well received. Ford held Volvo for ten years and sold to Geely in 2000.

I didn’t make a bitch about Geely owning Volvo, I was using it as an example. I really don’t care who owns whom, or what the home country is for the who and whom. And I never made any insinuation about the Chinese taking over. Perhaps I should have used GM as a better example.

Chinese love Buicks. It is one of the top selling brands in China. But GM would lose that position with Buick if it tried to sell only North American or anywhere else manufactured Buicks in Chins because of tariffs. So all Chinese Buicks are manufactured by the JV with SAIC.

GM has just started selling the Buick Envision, a mid-sized crossover in the U.S. It is manufactured in China and already sold there. Initial sales indicate that it is being has been well received domestically and should be a profitable model for GM.

There has been considerable merger and acquisition in the auto industry. GM has just sold it’s German Opel subsidiary to France’s PSA, makers of Peugot and Citreon. FCA, a Netherlands company with headquarters in London owns Fiat, Alfa, Chrysler, Dodge, and Jeep, and maybe Ferrari. India’s TaTa owns JLR, the Jaguar Land Rover group which it purchased from Ford. Renault took control over Nissan a while back to rescue Nissan from bankruptcy.

It’s all good, but why buy a company in decline? Let’s go back to Ford and Volvo with this hypothetical. After all due diligence Ford determines that it would need to spend X amount of dollars to turn Volvo around and return it to profitability. let’s say a few years later Ford determines that its expected ROI on the purchase will never materialize and Volvo’s value to Ford has fallen further. Ford now sells Volvo to Geely at a reduced price which believes it can spend the same X amount of dollars to turn Volvo around and realize a very respectable ROI.

To answer your question, Ford did sell cheap, but not foolishly. It paid $6.5 billion end sold for 1.8 billion, over a 72% loss. These numbers can readily be found in Ford’s 10-K filings at the SEC website.

Font Resize
Contrast Mode
Send this to a friend