It cannot be said enough that economic growth is defined not by what people do, but by what they don’t. Which certainly helps explain the big declines in future-seeing equity prices in concert with President Trump’s haphazard rollout of his tariff plan. It’s an economy-sapping blast to the past that is forcing a revaluation of the innovative U.S. businesses so instrumental in creating present-day U.S. prosperity.
To see why, consider how investors analyze corporations. Their value is rooted in a market expectation of all the money they’ll earn in the future.
Which explains why extraordinarily low U.S. tariffs on goods produced in foreign countries have long been most advantageous not to the foreign countries where they were made, but to the U.S. itself. American giants like Apple and Nike show us why.
While their products are aggressively snapped up globally by acquisitive buyers, none of what both sells is manufactured in the U.S. The production state of play described isn’t a function of other countries bullying American corporations as much as it’s Apple and Nike wisely leaving the low-margin aspects of production to the rest of the world while saving the high-margin profits for themselves, and that are realized when the final product is purchased.
As Cal-Berkeley professor Enrico Moretti explained it in his 2012 book The New Georgraphy of Jobs, when the picture of innovation known as the iPhone finally reaches the buyer, “only one American worker has physically touched the product: the UPS delivery guy.” Apple is the clear winner here, as are other U.S. corporations so wise as to globalize production.
Which is why there’s mystery to seesawing equity markets alongside Trump arrogating to himself the power to rearrange where market goods are produced. In demanding the reshoring of manufacturing through taxes on foreign production, Trump is demanding that the most valuable U.S. corporations take on the low margin work formerly done by others.
Assuming such a tradeoff is even possible, it’s no insight to observe that the result will be reduced earnings for U.S. corporations. Stock markets that provide hindsight in real time are indicating just that.
Supporters of Trump and his tariffs say that the near-term pain is a necessary step on the path to the nirvana that awaits, but they can’t have it both ways. Considering cratering equity markets yet again, their decline is a signal that localized production will come at a heavy cost that includes the world’s leading corporations perhaps conceding that status. That’s a tough ask amid already low unemployment defined by jobs that pay a lot more than the factory work done overseas.
Which is a reminder yet again that economic growth is an effect of what we’re not doing. And stock markets are offering us a helpful hint now that if we bring back the work of the past, we’ll be bringing back much slower economic growth in the future.
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