Tariff Policy Explained by Howard Lutnick

I just listened to Howard Lutnick explain the new US Tariff policy (skip the first 35-40 min if you want) and it’s the first time I heard it explained. In a nutshell, the whole idea of the Trump Administration (he left out all the political retribution and anti-democratic activity) is to balance the budget.

The administration’s belief system is that we’ll raise a $Trillion in tariffs (this of course comes from us) and this “new money” enables us to cut taxes on lower income Americans and eventually balance the budget. (Listen to the $5M Gold Card discussion for more interesting ideas.)

I’m not in a position to debate his arguments, but the fundamental idea (and it sounds very one-dimensional) is that the US is the “customer” for all the world, and we, as the consumer, are going to tax our providers (all the non-US companies we buy things from) for the privilege of selling to us.

I know that for me, as a possible buyer of a non-US manufactured car, this raises my price - so I, as a consumer, am now bearing a higher tax rate. And many have argued that US cars will also go up in price, simply because all US products will become more expensive. And high prices make President’s very unpopular.

As I discuss in my latest podcast, this shift also creates a lot of talent issues as non-US manufacturers try to build things here.

Today around 8% of US jobs are in manufacturing and the average salary is around $59,000 per year (BLS data), vs. $85,000 in professional services, $120,000 in software engineering, $65,000 in sales, $78,000 in nursing, $75,000 in university education, $62,000 in middle school education. So while there are good arguments for US manufacturing for global competitive reasons, the earnings in these roles are not as high as many others (many of which no longer require college degrees).

Howard explains that his father, who worked in an auto plant, would love one of these jobs, so that’s the scenario we’re chasing. My personal belief is that manufacturing is a strategic asset for the US, but I think IP and service-related work is more valuable (software, engineering, creative work, etc), but manufacturing also demands those jobs as well.

If you think about this enough (and I’ve been reading a lot), the essential Trump strategy is to realign the global economy and help make the US a larger producer (and consumer) of goods, essentially shifting away from the idea that each country can specialize in its own areas of expertise.

All I can say today is that the underlying issue here is not Tariffs but skills and culture. Can (or should) the US build manufacturing skills and a culture of manufacturing? Do we have the schools, apprenticeships, and “maker-heros” to create this kind of economy? And if and when non-US companies move manufacturing to the US, will they see a labor force that can compete with lower cost or better trained labor elsewhere?

Policy makers don’t have to worry about the nuts and bolts so much, but I can see the contours of this strategy. If the Tariff policy holds (and there are lots of stock market and uncertainties yet to pan out) we’re going to very busy educating and training our manufacturing sector to respond.