Tariff-ically troubling

October 1, 2018

Koch Industries’ Vision emphasizes virtuous cycles of mutual benefit. This is the opposite of the “I win, you lose” mentality that seems to be driving many global trade policies these days.

At Koch, we believe everyone is better off when they are free to associate and contract with others, unhindered by tariffs, needless regulations or other barriers. This allows people to improve their lives by meeting their needs in the most cost-effective way possible. Tariffs, which are just taxes on mutuallybeneficial trade — raise costs for consumers, businesses and farmers.

Throughout history, the most prosperous societies have been those that are open, not just to trade, but to the free flow of ideas, too. Those that have eliminated trade barriers — even when they did so unilaterally — have always fared the best.

Examples include the citizens of England and the Netherlands, who led the world in prosperity as their countries opened up. Conversely, medieval China went from being the most advanced country on earth to one of the poorest when it shut down internal and external exchanges.

GOOD OR BAD

One of the things that makes Koch Industries unique is its opposition to tariffs and subsidies even when they benefit Koch companies. There are several recent examples of this. 

Koch opposes tariffs, even when they benefit Koch companies.

Koch lobbied for the expiration of the federal tax credit for ethanol, a $20 billion giveaway, even though FHR, a Koch company, is one of the nation’s leading ethanol producers. Koch also opposes the federal ethanol mandate, which dictates that U.S. consumers must use billions of gallons of corn-based ethanol and biofuels annually.

After the 2016 elections, Republicans in the U.S. Congress proposed a so-called Border Adjustment Tax — a new 20 percent tax on all imports. Koch and its allies lobbied against this tax, even though it would have increased Koch’s profits significantly.

Koch is also opposed to the hundreds of tariff increases levied so far this year. “These tariffs further rig the system by creating winners and losers,” explains Charles Koch. “They promote cronyism because companies and even entire countries are not treated equally.

“Our Vision is to create value for others. Tariffs can only hurt others, and the people U.S. tariffs hurt the most are our own citizens.”

STEEL YOURSELF

By one estimate, at least 140,000 American jobs are involved in steel production. Another six million jobs — especially those in construction and manufacturing — depend on steel.

So earlier this year, when the U.S. slapped a 25 percent tariff on imported steel (in some cases, it was 50 percent), the ripple effects were substantial. This particular tariff provides a good example of how a tariff can cut both ways — helping some but hurting others.

Koch is a minority shareholder in Big River Steel, the largest industrial project in the history of Arkansas. Big River, which began operating about two years ago, was the world’s first Flex Mill. It can produce a wide variety of advanced automotive and electrical steels made from melted scrap.

Koch is a minority shareholder in Big River Steel, the largest industrial project in the history of Arkansas. Big River, which began operating about two years ago, was the world’s first Flex Mill. It can produce a wide variety of advanced automotive and electrical steels made from melted scrap. 

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Koch companies with a global manufacturing presence find tariffs to be especially troubling.

ON THE OTHER HAND

But for American consumers, the tariff story isn’t so nice. They now face higher costs for goods and services and have fewer choices when foreign sources are unable to compete.

Examples of the harms created by trade barriers are, unfortunately, numerous.

Consider the price of food. Due to trade barriers and subsidies, sugar costs Americans 52 percent more than the world price, adding up to about $4.4 billion per year. For decades, buyers of cured pork products in the U.S. were hurt by a ban on Italian imports.

The effect on car prices is even costlier. According to one report, recent tariffs could cause the popular Toyota Camry to cost “$1,800 more to build, while the Tundra truck built in San Antonio would cost $2,800 more. The Sienna minivan, built in Princeton, Indiana, would cost about an additional $3,000.”

Higher tariffs and “trade wars” also mean many hard-working Americans could lose their jobs. One estimate found that a 25 percent tariff on $50 billion worth of Chinese imports puts 76,000 U.S. jobs at risk.

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Molex is dealing with pricing, supply chain and administrative issues because of new tariffs.

 DOING THE MATH

Molex, which has manufacturing sites around the world, is another example of how tariffs are affecting global companies and customers.

Molex must now pay significant additional tariffs on U.S. imports from China, as well as any products it exports to China from the U.S. Those costs must be passed on to the consumers who buy new smart phones, vehicles, appliances or rely on advanced medical equipment.

“It’s frustrating,” said Joe Nelligan, Molex’s new CEO, “because as a Koch company, we strongly support free trade.

“Policymakers need to understand that trade barriers can have far-reaching consequences. They further divide people rather than bringing them together in a mutually beneficial way.” 

BAD POLICY

The international response to U.S. tariff increases has been outrage, appeals to the World Trade Organization and a wave of retaliatory tariffs on popular American exports. This creates tremendous uncertainty for many businesses.

Uncertainty is a serious problem, because when businesses have no confidence in what a government is likely to do tomorrow — let alone a year from now — it hinders investments and limits opportunities.

“What we need is a paradigm shift,” said Charles Koch. “Leaders need to start thinking in terms of win-win rather than a zero-sum game. It’s just not true that every gain of one country comes at another country’s expense.”