Will Trade Restrictions Benefit the USA?

 In Entering Foreign Markets, Featured, Industry News

I consume numerous products and services designed (and maybe manufactured) and delivered by US companies. Apple, Microsoft, LinkedIn, Hootsuite, Plantronics, Tumi, Starbucks, Intuit, Ovation, Fender, Gibson, Shure, Facebook, iStock, The North Face, Skechers, and Jive are just a few of the US companies that have me as a customer.

Location should seldom be a criterium

I never make purchase decisions looking at where the product is made or from where the service is delivered. I only look at the price/performance relationship and country of origin is (or was) not a part of the equation (for an exception see the end of the post).

The reason that I am currently holding back on buying things designed in, made in or delivered from the USA is the uncertainty around the plans for trade restrictions and tax incentives in the US. If the US government makes it harder for the rest of us to sell our products and services in the US, then we have to consider countermeasures. If Europe can make free trade agreements with China, Mexico, Canada, etc., but not with the US, should my next computer then be a Lenovo rather than an Apple Mac? Should my next headset be Jabra and not Plantronics? Should I drop Tumi and go with Wenger? Should I forget about the Tesla and continue with Volvo? Should I stop buying The North Face and favor Jack Wolfskin instead? Should I kick out Skechers and walk in Clarks and Ecco?

Trade restrictions increase prices

Introducing trade restrictions will make US products more expensive, both inside and outside the USA. Even products that US companies may design, manufacture and deliver outside the US to serve their global markets will become more expensive. So while trade restrictions at first glance may seem to be in line with an “America First” doctrine, it will disadvantage US companies. It will hurt their price/performance relationship and thereby their global competitiveness.

Tax or other government incentives motivating companies to manufacture in the US and thus compensating for the higher cost will be a different approach, but the net impact is the same. It is a distortion of the free market with the objective of favoring certain companies over others. (Other countries do this too, and I don’t support that either). Tax incentives are like drugs – easy to get used to and difficult to get off.

Trade restrictions and unilateral tax incentives will encourage people like me to add country of origin as a political element to the price/performance relationship. I may even be prepared to pay a premium to avoid giving advantages to anything made in the USA as I am, in principle, against trade restrictions and government sponsored market distortion. (I can accept giving preferential advantages to developing countries, but I do not think the USA belongs in this category.)

“Made in the USA” is not a quality guarantee

Two years ago I wanted to add a Fender Telecaster to my selection of guitars, and I deliberately chose a model made in the USA. You can buy Fender guitars manufactured in Mexico or China at much lower prices, but I trusted that one made in the US would be of better quality. I was wrong. A friend of mine bought a Fender Telecaster made in China. The price was much lower while the quality is at least the same.

Manufacturing outside the US is not only a cost issue!

I do understand that the US government is just as concerned as any other government with creating jobs for their citizens, but trade restrictions and tax incentives are not the way forward.  Training and education making the workforce more employable and more productive is the better route. If US companies choose to manufacture in the US because that is the better business option, then it has a long-term impact. Even though the American taxpayers have very deep pockets, I don’t think they are deep enough to keep uncompetitive companies subsidized forever.

The issues I highlight in this post apply to all countries on the globe. If some governments are trying to take advantage of other countries, then it is only fair that such distortion is addressed and removed. The US government has more negotiation power than most and should use this position to promote free trade and ensure equal opportunities. Not the opposite.


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Hans Peter Bech
Hans Peter Bech is an Amazon bestselling author. He is a frequent blogger on issues related to growing information technology companies to global market leadership and has written several books and numerous whitepapers on business development in the IT industry. Hans Peter also facilitates workshops for the TBK Academy® and is an advisor for governments and companies. He holds a M.Sc. in macroeconomics and political science from the University of Copenhagen. LinkedIn: http://www.linkedin.com/in/hanspeterbech
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