CPA Chief Economist Jeff Ferry Talks Tariffs, Taxes & The Dollar In Industry Week Webinar

CPA Chief Economist Jeff Ferry Talks Tariffs, Taxes & The Dollar In Industry Week Webinar

CPA’s chief economist Jeff Ferry joined two other panelists Wednesday to talk trade in an hour-long webinar by Industry Week magazine titled the “2024 Manufacturing Economy First Half Checkup.”

The session began with some predictions on interest rates (Ferry predicts the Fed will start cutting rates by September or October) and then turned to topics of high interest to CPA members: tariffs, taxes, and a 40% price differential between the dollar and other core economy currencies over the last 20 years.

“I couldn’t feel any more strongly about this topic,” Ferry began. “Since 2011, when the dollar began to rise, it is up 40% percent in real, inflation adjusted terms and 44% in nominal terms, and we have seen our trade deficit go up year after year.”

The U.S. trade deficit in goods with the world cracked the $1 trillion mark for the first time in 2021 and has never looked back since.

“People say that when a country runs a deficit its currency should fall so its economy can become more competitive and its producers can become more competitive. But that does not happen here. That is because everyone in the world wants to own U.S. securities and that drives the dollar higher. Nvidia passed $3 trillion in market cap. This one company is worth more than every single national stock market in Europe. Every investor, whether they are in Tokyo or London, is buying that stock along with many more, which drives up the dollar’s value. The U.S. needs to manage the dollar downward gradually until trade balances. This dollar valuation is no good if you are running a manufacturing plant in the United States.”

Others on the panel agreed, adding that the U.S. is focused on being a consumer led economy, and has been for at least 50 years.  Cheap imports are consumer friendly, the theory goes.

“A country grows rich by investing in high production industry. That’s the secret. We had that secret down pat until the 1970s,” Ferry said.  “You get rich through production and hard work. That sounds a bit old fashioned but it’s true and has been proven by five hundred years of history.”

Can tariffs really erase the income tax?

Tariffs are a tax, but so is the income tax and the payroll tax, something Americans have been living with for generations.  The Trump campaign is tossing around the idea of reducing or eliminating income taxes for a chunk of Americans and replacing that lost income with a revenue tax from imports.

When it comes to international trade matters, “tariffs compensate for the fact that our dollar is 40% overvalued,” Ferry said.  He pulled from a report by the International Trade Commission in March of 2023 that looked at the impact of Section 232 and Section 301 tariffs. The report said that the 25% tariff on China imports raised prices by around 10% to 15% of the tariff, so prices rose by around 2.5% in some cases. This depends on the product line. Commodity products like solar and steel actually saw short term price spikes than declines below where they were when tariffs began.

“The 2.5% average price increase I think is worth paying if you want to industrialize the economy,” Ferry said. “Plus, you can generate enough money in tariffs that you could eliminate income taxes on the lower half of American taxpayers, for example.” 

One of the webinar guests, Chris Kuehl of business intelligence firm Armada Intel, said the government needed a combination of tactics to coincide with tariffs. This was especially true for product lines that are not produced at home or were commodity-priced items where China was the price setter and could crush profit margins by simply overproducing and lowering prices to a point where tariffs were rendered moot. 

“Tariffs should be levied across the supply chain so everyone is treated fairly and you collect those tariffs and use that to lower taxes and help companies,” Ferry said. “The Chinese watch very carefully what we are doing. When we put tariffs on Chian solar, they moved to Southeast Asia. The overall problem we are dealing with here is cheap, subsidized imports. We need to address that, alongside weak investment in the U.S.” he said.

What’s keeping us up at night?

This one was easy. When asked by the Industry Week host what was keeping the three panelists up at night, China was the lead. Mexico and a weak manufacturing labor market – with few skilled blue collar laborers ready to replace those set to retire in the years ahead –came in a close second.

Ferry’s biggest worry was China; and not just mainland China, but China multinationals who are setting up shop worldwide to avoid tariffs and increase its already prominent market share in growing industrial sectors of the economy like the “clean tech” economy. 

“People talk about globalization on the wane, but China is running an $800 billion trade surplus, and it is putting the entire world economy in check,” Ferry said. “You simply cannot sustain a global economy where one country says we are going to run a trade surplus at nearly a trillion dollars  so we can make everything for you at  price you cannot resist,” he said. “I think the U.S. will respond to that. If you run of a persistent trade surplus then other countries should say that’s ‘beggar thy neighbor’ and we are not going to buy your goods and close our factories,” he said.

Kuehl agreed. “They have a command economy; we have a market economy. They keep over producing. They have over 400 steel mills. They don’t need 400 steel mills for themselves. But they don’t want millions of unemployed people so they keep those steel mills to sell steel to the world,” he said. 

Kuehl also worried that Mexico was becoming an alternative to China, something CPA has been warning about all year.

Joanne Friedman, CEO of Connektedminds Inc, spoke a lot about robots and companion robots, or collaborative robots, known in industry lingo as “cobots”. She said this industry was rising in order to compensate for the ongoing skilled labor shortage on the factory floor.  “If these manufacturers are always short on staff, they can turn to machines. We have to make manufacturing sexy again. It’s not your grandfather’s factory anymore. You don’t need a college degree. But you need to know how to use a machine. If we lose this knowledge and we aren’t training people who want to do this work, then eventually these people will be replaced by cobots.”


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