UserError, this is a great post! Not least because I wrote about General Motors and completely overlooked the impact that protectionism could have on prices!
Having posted about General Motors, I think it’s interesting to note that protectionism is impacting major US automakers in similar ways. Like Ford, GM is manufacturing certain in-demand US cars entirely in the US. And similar to Ford, GM’s lower-margin cars (e.g. the Buick Envision SUV) continue to be produced internationally (the Buick Envision SUV is made in China) in order to capture important cost efficiencies. While losing free trade between the US and Mexico looms large under a revised NAFTA, I fear that the future of trade between the US and China isn’t promising either. Earlier this year, President Trump championed a 45% tariff on imports from China. This raises the stakes for automakers like Ford and GM tremendously because transitioning production to China becomes significantly less appealing.
If automakers such as Ford confront costly trade restrictions that they are unable to absorb, the US economy stands to suffer. As you say, when automakers are hit with increased production costs resulting from trade tariffs, they will either pass costs to consumers by raising prices, or try to cut costs by cutting labor. For better or worse, the advent of new technology creates pathways to reduce labor costs through automation, which invariably means fewer jobs. In addition, an adverse impact on the auto industry could cascade to other industries that depend on the production and trade of automobiles, including steel, rubber, glass, and freight (specifically carriers that transport cars), among others. Hence, trade restrictions that have the potential to erode profits, and as a result limit production, should be evaluated with caution, lest we ultimately lose more than we gain.
Adam, this is a great and thought-provoking post! What a fascinating (if depressing) paradox. I agree that FAO should build self-sufficiency among farmers without relying on food aid, and to simultaneously help implement solutions that reduce carbon emissions in the food supply chain. In addition to these efforts, I wonder whether addressing issues of food wastage could help prevent Malthus’s prediction from materializing. According to the World Food Programme, the world technically produces enough food to feed our population, but a third of the food that we produce is wasted and never consumed.  While producing that wasted food is energy intensive and contributes to the very problems that you write about, I am curious about whether there is an opportunity to transport these food/agro surpluses to regions with food shortages. Perhaps we can even use emerging clean technology (drones? electric cars?) to do so. I agree that such an approach should stop short of food aid, but it could be effective where food scarcity is a function of poor distribution channels, and not necessarily supply. Thanks for writing about this issue!
M, in the grand scheme of things, I know that lost grape production is nothing to whine about, but I can’t help but feel a little nervous about the implications of your post. (I’m admittedly biased because California makes my favorite wine, and based on your post, the future doesn’t bode well for US wine country.) Given that last summer in the US was one of the hottest on record, I fear that, like you say, we stand to lose a significant portion of our wine acreage as the earth gets hotter. Reduced wine acreage in the US could mean the end of “three-buck chuck” (already up from “two-buck chuck” just last year!) at Trader Joe’s, which would certainly be a travesty.
My fear about vineyards such as Fetzer Vineyards in California is that they are focused on being eco-friendly, and not necessarily on making investments/pursuing opportunities that will allow them to shield their grapes from the impacts of climate change. I applaud Fetzer for refocusing its production process on eliminating waste and converting to clean energy. However, I worry that these initiatives are not necessarily transforming their operations to withstand the negative impacts that climate change has on the winemaking process. If US wine producers such as Fetzer continue to focus more on eco-friendliness and not resiliency, I fear that reduced wine supply in the US is inevitable. This would make us more dependent on importing wine. And if the cost of trade increases (as protectionist trade policy has us believing it will), I wonder if I should be counting my blessings for “three-buck chucks,” which stand to become “ten-buck chucks,” or worse. I do hope that Fetzer and its counterparts tackle resiliency more proactively, and soon!
DC, this is such a thought-provoking post, particularly because my post focused on a company that is none too pleased with the new age of protectionism. Responding to the title of your post: tariffs do not good neighbors make, methinks!
I wrote about General Motors, whose operations and profitability rely on a multi-national supply chain. As you note in your post, the auto industry is a significant source of revenue for steel production companies. Unfortunately, the auto industry would be adversely impacted by protectionism because import tariffs would cut into the cost efficiencies that automakers realize by manufacturing parts in cheaper, foreign markets. In the face of sudden and extreme import taxes, it is not clear that auto companies could sustain their product offerings. And as you note below, any impact on production would adversely impact ArcelorMittal, too. This domino effect applies to any company that uses steel products and maintains a global supply chain.
I also agree that another huge risk that ArcelorMittal might be overlooking is retaliatory tariffs imposed on the US by other countries. In my research, I learned that costly US import tariffs often end up hurting US industry. By way of example, when the US failed to comply with a NAFTA provision that permitted Mexican truckers on US roads in 2009, Mexico responded with duties of up to 25% on farm goods, resulting in $984 million of lost revenue for US farmers exporting to Mexico. Similarly, when the US imposed antidumping duties on Chinese solar panels in 2012, China responded with duties against US silicon, which prompted Hemlock Semiconductor to renege on its planned construction of a $1.5 billion silicon plant in the US.
Hence, based on my limited research, I’m tempted to say that ArcelorMittal should take a longer-term view on protectionist trade policy, and reconsider its position.
AJ, this is a fascinating post! Having lived in a city my whole life, and worked in city government, I couldn’t agree more that city service delivery is in desperate need of modernization. GeoHub sounds like a terrific tool, especially in the way of traffic patterns, energy consumption, and certainly construction projects, which can be both a safety hazard and quality-of-life issue. The pot-hole challenge is also very real! NYC, which has one of the worst pothole problems in the country, integrated a pothole reporting feature into its NYC311 app, and ended up filling in thousands of reported potholes over the course of 2015/2016. Pothole litigation is exorbitantly expensive for NYC (in the realm of hundreds of millions of taxpayer dollars), so I assume that these fixes, while voluminous, were actually cost-effective.
That being said, I can’t help but wonder if we want to draw any lines when it comes to digitally transforming certain aspects of city life. For example, predictive policing is appealing on its face, however I’m curious about how such an algorithm would actually work. I think about how Watson applied historical data to conclude the probability of certain answers in Jeopardy. If predictive policing takes a similar tack and relies on historical data to forecast crime, I worry about the increased policing and surveillance of certain neighborhoods because they have bad track records, and not necessarily because they pose significant future risk. I worry about using this approach to predict individual offenders, too, which carries the added danger of bias and profiling. (My greatest fear about applying digital solutions to services such as law enforcement is that it places the spotlight on policing, and not necessarily on reducing crime.) In sum, while I commend LA for finally addressing an age-old problem of sorely lacking tech infrastructure in our cities, I think we may want to be wary of who will collect the data, who will use the data, how they will apply it, and whether personal information will accompany that data. Sorry to get all ‘big brother’ – I couldn’t help it! Thanks for a great and thought-provoking post!
kaizen, this is such an illuminating piece – thank goodness Chobani got its act together! I love Chobani, but I’ve also never confronted moldy Chobani – ick. Your piece reinforces that supply chain digitization has allowed Chobani to transform from a disjointed mess into a more unified operation with less waste, fewer bottlenecks, and better communication with suppliers, all of which resulted in a more competitive (and less moldy, phew) product. Our supply chain classes notwithstanding, it was still eye-opening for me to learn that at the end of the day, even a yogurt with a winning recipe is only as good as its supply chain is efficient.
Reading about Chobani’s ups and downs, though, I can’t help but wonder if there is an inflection point at which digitizing becomes more effective than old-school/classic supply chain practices, and whether there is an argument to be made for starting out with an old-school model. Chobani seems to have performed exceedingly well from 2005 through 2010, when it hit $1 billion in sales. It seems that digitization wasn’t necessary for that initial stage of rapid growth. It wasn’t until after 2010 that supply chain woes undermined Chobani’s performance. Was there something about the company’s expansion or operations at that point that merited digitization? I wonder if digitization was necessary to expand geographic reach. Or perhaps to manage a tipping point with respect to the number of suppliers Chobani worked with. In sum, reading this piece leaves me wondering if moving to digital sooner rather than later is simply the golden rule, or if there is a scenario where it’s in a company’s best interest to start out with a traditional model, and only make investments in digital once operations hit a certain point. Thanks for a great and thought-provoking piece!