Friday, 29 June 2018 11:42

Lapeyre: Trump's deregulation, "tremendous boom" for economy, but tariffs, very risky

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Might President Donald Trump, whose anti-regulations policies have helped boost the economy, reverse some of the country’s gains with his trade policy, specifically tariffs and potential trade war? 

That appears to be the question that many economists and business persons are wondering right now as the tariffs have begun but has not filtered down to some of the component manufacturer’s yet. Yet! Which is the point that Jay Lapeyre appears to be making in my interview that I did with him yesterday. 

Lapeyre is the President of Laitram LLC, a major Louisiana manufacturer. He was interviewed in a recent Bloomberg article focused upon the current and potential impact of tariffs and the looming tradewar might have upon Louisiana and its businesses. 

On Thursday, I posted part one of my conversation with him, which you can read and watch here.  Part two transcript and video are below.  The interview was streamed live to Facebook, Twitter, Youtube, Linkedin and Bayoubuzz.com. 

 

SABLUDOWSKY: So i'm just looking at the article itself and it says tariffs would change the structure of every one of long-term contracts with clients and suppliers. And it also says that either you would have to eat the cost of good goods elsewhere and then there's the issue if new parts or slightly different or they say change size or shape. And that's what would you refer to 

Lapeyre: Right  

SABLUDOWSKY: So that yeah so so is your company being impacted right now then or is it just the uncertainty as you're pointing out?  

Lapeyre:  It's it's the uncertainty. We're seeing we're seeing increases in the price of steel but there's some volatility in the prices, but i don't know the magnitude. They're not, they're not excessive at this point. I think all of our steel supply was from the US to begin with and i think, just for clarity, that's true for 75 percent of the steel market--75% of the U.S. steel consumption is from US sources is my understanding, so we're not unusual in that regard. 

Impact of Pres. Trump's Tariff, Trade War: Louisiana's Laitram LLC Pres. Jay Lapeyre discusses

Impact of tariff on Louisiana business

But as but that US consumption, that US supply is competing with the global game. Now a-- steel is not just steel. You have to think in terms of what all these varieties of specialties on it so there are micro supply demand pricing issues going on at all of the different spec  levels. With us, we've not seen, I think the last I had was a couple of weeks ago and we were talking about a 10 to 12 percent, maybe 14 percent on some things type of price increase which is a, which is a problem, but not massive because that's not yet hitting what i'll call all the components side. It won't hit the component side if the trade war stayed constant . And and but if it hits the component side then you can start to imagine all the things we're talking about becoming-- the the uncertainty becoming a big problem. 

So imagine you've sourced a motor from Germany, for example, and or Japan or wherever, and then that motor becomes unavailable and you then have to think well I need a motor that that is fit for the environment. It has to be able to handle a washdown. It has to have certain power, it has to have integration. Has to be tied into certain types of controls. Or you just have to eat the cost--so one of those two--and then if you make the change it has to go through all of that engineering design, you imagine that on, dozens of components for every, for every for every machine you make. And then you get a picture of what kind of a location you could deal with. 

I'll tell this quick story because it's kind of interesting: we decided to discontinue a product years ago but 20 years ago. It was a product that we had replaced with a better product. And we were just discontinuing because we didn't see enough demand and the we had some an equipment maker in in Germany who I went to visit and he said essentially "look-- if if I could hurt you and I could hurt someone important to you", he says "I would, I would feel that that would be the only way for me to feel equal to the justice". He says "your product is--the improved product does nothing for me because your your existing product works just great" he says "but the improved product has some time dimensional changes. 

And that will mean that i'll have to go through an engineering redesign on an old product that's stable that doesn't need any work--he says-- so you made my life hell". Well that's what this would do. It would make life hell for tons of manufacturers. 

SABLUDOWKY: That's interesting. I'm really involved in technology world and so software is a pretty good example of that companies coming up with new products and sometimes you just say hey , it doesn't make any sense. Because, like Windows for an example maybe. It's a good analogy, Windows,  when they make changes it impacts all of the components on your computer and on your network and so that might be from my standpoint lease a good analogy to understand the situation. So, so a few more questions if I might, and that is that let's look at from the standpoint of the administration, the Trump administration, and what they're saying is "look. These countries, even our allies, even our close allies, and certainly China-- I mean they're just not playing fair. There they're charging us too much on certain products in terms of tariffs, Canada-- and so this is the only way that we have to be able to even the playing field and to be able to--on those product--and to be able to increase the manufacturing in this country. 

Lapeyre: Yeah well I think this there's a question of what's the problem that we're trying to solve-- that's really important to think through. Trade has been becoming more free for the for the past 40 years. I don't know the data, in particular, but I would say most economists would say it's a pretty good trendline and the countries that that are protectionist are suffering more because of it. 

China is more free today than it's ever been and it's moving on a track to come more free. The countries that have gone the other way, have faced  huge problems. Brazil was once seen as a as a shining star in the economic game, not too long ago, three or four years, but they are not, they're pretty abusive with their tariffs and the end result of that is that their economy is is in shambles and they're they're dealing with their--shambles maybe an overstatement-- but they're dealing with some real setbacks tied to that.  

So I think the the natural market forces force  are moving to more freedom. And I can't say that that the what the right tactic is but I can say that the disruption of using a tactic like we're using needs to be integrated into the thinking. But I would have preferred to to just continue to say well  we're we're you're you're hurting your people, and you're hurting these markets and and we're we're gonna push for you to lower your tariffs but that has not been the primary message in the voice, that voice has been more about the balance of trade. So now if you start talking about the balance of trade numbers, because US manufacturers doing are doing well. We are not we're not in in disarray. We're producing more than we've ever produced we and we source from around the world. But if you look at the balance of trade then you have to recognize that let's not deal in macro let's get down to the micro and start thinking about what we mean by by by trade, and what we're talking about is is is millions and hundreds of millions and probably billions of individual transactions. 

And when someone, when I buy a product, I'm getting value. So you get two wins. You get the seller that's that's winning  and we're winning. But the only thing they can do with those dollars is reinvest them in the US. They take dollars from that trade and they can then buy our products and services or they can invest it in our bonds, or they can invest it in our in our stock, so they can invest it in property and whatever in the US.  I just don't see that as a terrible problem and truth is we remain the richest, the best per capita stunningly prosperous country compared to China, where I mean I don't know what their GDP per capita is, but Cato has some some great, the World Bank has has good data on that. And you can go in and look and see that we're just we're just so much so tremendously better off. That there, I think the game that has been working very well for us and and I think that what Trump has done with regulation has been tremendous boom and you saw what happened as soon as you started to make laws more predictable. 

And you're reduce regulation. Well now you saw this this immediate improvement. Well those are the kinds of things that I think make a lot of sense and there are lots of things we can do. I mean, we on them on the medical side, we don't allow the re-importation of drugs. If a medical pharmaceutical company exports, they sell the product here for a ten and then they sell it abroad for a two, we don't allow the re-importation of that drug. 

So we incur the cost of preventing that  with the US inspection and policing. But mostly we're funding cheap drugs for the globe and we should say no, we don't do that. If you you pharmaceutical companies you should have the world pay for your development, not just the US, and I think if we did that, it would it would materially improve the the kind of trade issues we're talking about okay. 

SABLUDOWSKY: So I have one question left and that is from one of our viewers of Lynn Matthews--it's actually two parts. It says how will these tariffs affect your division in Denmark and does the Denmark division manufacture in Denmark and sell here? 

Lapeyre: Well, it's probably referencing Amsterdam where the the vendor is--we do have an operation in Denmark, as well. But no we don't we don't manufacture there for re-importation here. We don't reimport from our satellite operations. We, we actually export to most of those. We provide components to most of those or they source separately in those locations. So that that is part of what would happen here is that you would be--if you can't, if you can't import and export efficiently then you we would need to move more US operations abroad in order to compete in those markets. Exactly, what you saw with harley-davidson, the last couple of days. 

SABLUDOWSKY: I was going to ask you about that, I'm glad you brought that up. Is there any, say, topic question related--that I haven't asked you, that you think, that maybe well that you would like to get out there? 

Lapeyre: no I think I think we've covered it. I think the the uncertainty you I can't--we can't overstate the importance of that for business. Predictability is everything and as you if you added uncertainty that said things are going to get better, you might be removing tariffs, that's that's different because it doesn't disrupt your--it doesn't force you to take an action. But if you go the reverse and you say we're going to eliminate options for you, well that that is a dangerous game and that's really what we're dealing with now. And the shorter you can make that time-frame the better for everyone.

 

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