Perryman: And So It Begins….

The economic theories supporting free trade were introduced in the early 19^th century, when the basic concepts of comparative advantage were logically and mathematically derived. It is one of those ideas that we don’t often ponder, but it has played a fundamental role in shaping our world and is the reason why we have an integrated global business complex that has allowed the US to become the strongest economy in human history.  

With the recent tariffs, many analysts and economists (including a short one from Texas) began sounding the alarm about disruptions and losses that were inevitable with sustained levies. We are starting to see the fallout in a tangible way. 

Port volumes are falling. The Port of Los Angeles, for example, recently estimated a drop of more than 35% compared to a year prior due largely to retailers cancelling shipments from China. Even the ships that do arrive are expected to be less than fully loaded. 

This reduction brings many ripples. While some dockworkers are salaried and continue at least initially to receive their usual incomes, countless others are paid by the load or hour. When they can’t stay busy, they make less money and curb their local spending. Logistics firms, shippers, retailers, and a variety of other industries are also negatively affected, as are US manufacturers using imported inputs. 

There are some goods which transcend geopolitics, weather, pandemics, or anything else. For example, we need to manufacture some critical medications domestically to ensure an adequate supply, as well as other items essential to national security and not feasible to stockpile. For the vast majority of goods, however, the best place for production is determined by relative costs, and specialization and trade make the pie bigger for all of us. 

Ports drive tremendous economic activity, as does the entire logistics chain. Systematic shipment reductions cannot be ignored. While it’s unlikely that we will see entirely empty shelves, it’s certainly possible that there could be less consumer choice (plus higher prices). It is neither feasible nor desirable to shift the production of goods to the US when other areas are better suited to make them. Our analysis indicates that, at best, about 13% of current imports could be effectively made here, and even that would take years and be inefficient. 

Given the multiple downsides to the ongoing trade war, it probably won’t persist. As disruptions mount and move from talking points to tangible harms, the pressure to make lasting agreements will intensify. The uncertainty alone is taking a toll, with companies and consumers alike postponing commitments while waiting to see how things evolve. The damage is already happening, and it’s starting to show. Stay safe! 

Editor’s Note: The above guest column was penned by Dr. M. Ray Perryman, president and chief executive officer of The Perryman Group (www.perrymangroup.com). The Perryman Group has served the needs of over 3,000 clients over the past four decades. The above column appears in The Rio Grande Guardian International News Service with the permission of the author. Perryman can be reached by email via: shelia@perrymangroup.com.

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