Tim Cook's White House visit shows the true cost of tariffs

Time of India

3 days ago

One of the most provocative items in my wardrobe is a plain dark T-shirt designed by a libertarian economist. In 10 lines across the front, it reads: 'Tariffs not only impose immense economic costs but also fail to achieve their primary policy aims and foster political dysfunction along the way.'
In related news,
Apple
Chief Executive
Tim Cook
went to the White House last week to give President Donald Trump a large piece of gold. In exchange, Trump said that Apple would be exempt from a new 100% tariff the US is imposing on imported microchips. Officially, Apple gets the exemption because it committed to making a $100 billion investment in the US. Apple had already announced earlier this year a $500 billion investment program, which itself was a modest expansion of previous plans.
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No matter. To Trump, the important thing is announcing these pledges, not enforcing them. During his first term, there was an infamous vaporware investment from Foxconn in Wisconsin that never amounted to anything. The real benefit to the president is the sycophantic photo op, when the CEO smiles for the cameras and praises Trump's dealmaking prowess.
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This is the political dysfunction described on my T-shirt.
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A flat tariff instituted for the purpose of raising revenue would, whatever its downsides, basically be just a peculiar form of tax. But
tariffs
are almost invariably marketed as having strategic or economic-development benefits. And that leads to exemptions. The chip tariffs are supposed to foster the growth of an electronics manufacturing industry in the US. But because chips are an input into other manufactured goods, the tariffs could easily backfire. So if you can convince the president that you are in fact making investments in manufacturing in the US, you can get an exemption from the tariffs.
The problem here — and with the dozens of other exemptions and waivers baked into Trump's various tariff announcements — is that there is no objective criteria or process at work. Who gets exemptions, and who does not, is almost entirely up to the whims of Trump and his appointees. This in turn raises the question of whether his primary policy aim isn't just to maximize his own power and influence.
Cook, for example, used to be a somewhat vocal advocate of LGBT rights. He's always been, first and foremost, a corporate executive. But he would occasionally take advantage of America's status as a free country to speak his mind about political issues.
That could now be a risky business proposition, because the viability of Apple's business hinges on not just its ability to keep making products people want to buy, but its ability to secure tariff exemptions. Other tech executives, such as Jeff Bezos, have also erred on the side of reticence: While he wants his newspaper to support and defend personal liberties and free markets, the company he founded backed down from a plan to list explicit tariff surcharges after facing pressure from the White House.
In a market economy with a functional democracy that protects free speech and enforces the rule of law, executives shouldn't have to worry that tax policy will swing wildly based on who pleases or angers the president. But in Trump's America, they do.
Which brings us to the economic costs.
A lot of attention has been paid to the impact of tariffs on prices, with Trump arguing implausibly that the entire incidence will fall on foreign producers and Democrats saying that consumers will pay the costs. The answer will almost certainly have political ramifications for next year's elections. In the long run, though, the American consumer can survive one-off price hikes, and the US economy can adjust to the distortions induced by tariffs.
And yet. Think about not the Apple of today, but the Apple of almost 50 years ago, the Apple of Steve Jobs and Steve Wozniak. The Apple I computer was built in 1976 on a shoestring budget with commercially available parts. Wozniak recalled in a 1984 interview that Jobs had made a deal with a local computer retailer to buy 100 computers for $500 a piece wholesale — $50,000 in revenue. To build them, however, they needed $20,000 worth of components, which they got by securing 30 days of credit from an electronic parts dealer after a phone call to verify the existence of the purchase order.
'We delivered the computers,' Wozniak recalled, 'paid off the parts suppliers, and only had to borrow $5,000 from a friend.'
This kind of minor-league transaction in what we now call Silicon Valley went unnoticed at the time and had no discernible impact on the national GDP. But it set in motion a chain of events that changed the world. And it illustrates the openness to entrepreneurs and innovators that is the foundation of America's world-beating economic dynamism.
Trump's mashup of 'populist' and 'pro-business' policies is the antithesis of this system. Corporate titans are put to work providing propaganda wins for the White House, and in exchange are accorded favors unavailable to any startup. This approach won't move markets or show up in the quarterly economic data anytime soon, if at all. But it will have a cumulative effect. Week after week, announcement by announcement, Trump is bolstering his ego at the cost of America's long-term economic future.