Trump

Tariffs and the Industrial Distribution World

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That last tariff post sparked an interesting comment thread so I thought it would be appropriate to throw in my $.02 on the subject.

For those who may not know, I own an HVAC distributor, which is a subset of industrial distribution.

Almost all residential and light commercial HVAC products sold in the USA are touched by Mexico (if not made there entirely), and all are touched by other countries. No vendor in the space will be immune.

So far I have a bunch of letters from a bunch of vendors saying “hey man, we might have to do something about this” blah blah. I had one vendor that announced a price increase since a lot of their stuff is made in China, but they called me on Friday and said “nah”. One vendor gave me a “tariff surcharge” three weeks ago. I called them up and gave them the riot act and they removed it (since none of the tariffs had even taken effect).

Speaking of surcharges, we won’t accept them. We must have a general price increase to keep our costing and accounting in order.

I imagine most of the rest of the industrial distribution world will be facing these same issues.

We will have a mix of responses from our vendors. Some manufacturers will absorb part of it, some all, some none, etc. I’m expecting some supply chain issues as I imagine some manufacturers will “slow walk” production outside of the US if they sense a solution to the tariffs will be coming.

This is about the last thing my industry needed after covid, the onset of A2L refrigerants, and industry consolidation. But as always with any type of disruption, I look at this as an opportunity. But more hard work ahead.

Quote of the Day

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Dominic Cummings:

The EU has kneecapped itself and is failing in all important areas: productivity, debt, public order, immigration, defence, technology, political extremism. Brussels chose self-sabotage on advanced technology. Unlike Britain which at least has DeepMind here, the EU has none of the leading labs. As the Commission said, we will be leaders not in AI but ‘trust in AI’! Mission semi-accomplished comrades! Brussels can kneecap itself and other countries that choose to follow its regulations but it will not compete with US and PRC or shape the global struggle over AI. Valley companies have already made clear they will simply not release models in the EU rather than follow EU regs. Taliban today can download new models now blocked for Brussels elites. Those who think AI will be like aspects of post-war car regulation are wrong. AI is ultimately about power and Great Powers will not let Brussels set the rules. I’ve watched SW1 repeat soundbites from the EU for 25 years on ‘strategic autonomy’ and ‘now we’re going to get serious on technology’. They’ve always been hollow. I said in 2022-4 that covid predicted that not even wanting to prevail in Ukraine would force either the MoD or Brussels to stop the delusions. They babbled and watched. They left defence industry and procurement a farce. They encouraged deindustrialisation and sabotaged industrial production while babbling about net zero. Thanks to Brexit and the work we did in 2020 with the secret part of the Integrated review exposing the disaster zone of the MoD and agreeing a plan for radical change, we could have sorted ourselves out. Instead, 2021-4 the Tories worked with the worst parts of the MoD to continue the lies and delusions and followed the EU into escalating a dumb war which could have been avoided. The latest defence review is a disaster and the UK and EU will be humiliated month after month.

 

Thoughts:

1. There but for the grace of God go we.

2. UK and EU politics and culture are farther gone than ours. However, as in the 1970s with Thatcher and perhaps now with Trump, political and cultural course reversals are possible given gifted opposition leaders and a preference cascade or two.

3. The British establishment, by criminalizing dissent, insure that even more than our Democrats  they will not see the political wave coming that turns them out of power.

4. It’s never over.

DOGE is an Oxymoron: Unchecked “Democracy” is the Problem

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Unlike the private sector, where operational efficiency is necessary to survive, the public sector is and always has been inherently inefficient. But that’s not the main problem. Think of federal public polices justified as being in the “public interest” as a building. On the upper floors are the best of them, the merely inefficient. At the mezzanine level are those suffering from extensive waste, fraud and abuse. On the ground floor are policies and programs rife with self-dealing and crony capitalism. Down in the basement is the “temple of virtue” where taxpayers are sacrificed to multiple ideological isms.

DOGE is peeking inside the locked doors on all four levels. As DOGE exposes “Dirty Deeds, Done Dirt Cheap,” politicians cry foul, as “they were implemented (by us) democratically. To paraphrase Churchill, “democracy is less bad than totalitarianism,” but, he might have added “generally worse than competitive private markets.” At this stage in US democracy, DOGE revelations have lost some of their shock value as commonplace, and politicians emphasize their good intent. DOGE needs to demonstrate that “good intentions” often lead to bad outcomes, and do not justify corruption in any case.

DOGE alone can only win a few skirmishes against Congress and its massive army of rent-seekers feeding off their largess. With public understanding and support, the Trump Administration could bring about more permanent structural changes that provide greater voter control.

Life is a Competition

Americans love sports, from 5 & 6-year-old soccer leagues through high school, college and pro teams, where the competition to succeed is intense. Pro sports is a business, as the recent Luka Donic trade to the Lakers reminds us, with winners and losers. It is incredibly “democratic” as millions of fans choose what players to follow, games to attend or stream at the posted price, and owners respond continuously to fan expectations. The competition is subject to a massive set of complicated rules and limitations enforced by referees and judges whose integrity is subjected to coaches’ challenge, instant replay and fan fury. That reflects the system of checks and balances that a competitive private market incorporates.

Now imagine a pro sports league designed and governed by the most honest and altruistic national politicians. They would deem it unfair to pay some athletes more than others, or to exclude the weak or physically impaired from the competition. Winners would be determined by political deal making in smoke-filled back rooms. Prices would be determined according to “ability to pay” and ticket purchases would be mandatory whether or not attending the games, with revenues first flowing through party coffers. Fans would be told who to root for and losing teams and cities would be declared winners so as not to result in hurt feelings. Voting against this system would result in your team being designated the loser but you would still be required to buy the tickets. That’s a metaphor for our current “altruistic” federal democracy.

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Should President Trump Abolish FEMA?

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FEMA is arguably the federal government’s most compassionate agency, helping households when they need it most. It became a 2024 campaign issue when it was reported that it refused help to households displaying Trump political signs. Then, in the wake of the recent massive California wildfires, California’s Governor Newsom recoiled at President Trump’s suggestion that aide may come with strings attached. President Trump has responded by suggesting he may once again attempt to reform FEMA or even abolish it.

FEMA was created by an executive order issued by President Carter in 1979 with a “dual mission of emergency management and civil defense.” It has gone through numerous reforms and restructuring efforts since, growing to over 20,000 employees and an elastic budget of $30 billion, plus supplemental appropriations as needed. In 2001, Congress put this now huge agency into the new Department of Homeland Security, a behemoth with over 260,000 employees – third behind DOD and the VA – with a budget of $108 billion.

FEMA says its current role is to provide “experience, perspective, and resources in emergency management….. to help people and support the Nation’s disaster and emergency management needs.” By 1979 there were multiple agencies of the federal government that responded in one way or another to “national disasters,” so FEMA was created to improve management efficiency. But FEMA’s 52-page mission statement, titled “We Are FEMA: Helping People Before, During and After Disasters” doesn’t define what a “disaster is” (whatever POTUS says) or exactly what people, how and how much. It also does not address the role of state, local and other governments, nor the role and responsibility of households, primary casualty insurers or reinsurers.

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Of Window Frames and Air Traffic Controllers

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There is a lot of talk in politics concerning the “Overton window,” the range of discourse that is acceptable to the mainstream population at a given point in time.

While a window defines a space, another key and related metaphor defines an object. A framework provides a central point or idea from which other concepts can hang (or, more importantly, collect). While a friend of mine said that the better metaphor would be a magnet, given that it “attracts,” the framework is better conceptually because it defines something that one consciously constructs.

Trump has shown himself to be a master at constructing new political frameworks that redefine the political landscape. He has been called crazy, but sometimes it’s crazy like a fox. His comments, often outrageous, shock the existing political system and allow new political movements to form and ideas to be injected into the political discourse. His promise to build a “big, beautiful wall” was not only to be both a deliverable and a symbol of his commitment to securing the southern border, but provided a new framework for how to deal with the problem of illegal immigration. Trump was reframing illegal immigration as something to be decisively stopped at the border rather than managed. The same with his “Remain in Mexico” policy which functioned as a virtual wall, enlisting Mexicans into stopping immigrants from approaching their aside of the border

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