More Band For Your Buck : Planet Money To understand the Trump administration's approach to trade tariffs, look no further than the humble rubber band.
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More Band For Your Buck

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More Band For Your Buck

More Band For Your Buck

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STACEY VANEK SMITH (HOST): I'm Stacey Vanek Smith.

CARDIFF GARCIA (HOST): And I'm Cardiff Garcia. This is THE INDICATOR, Planet Money's quick take on the news.

VANEK SMITH: International trade has been in the news a lot lately - the things we get from overseas and how that affects companies in this country. And usually, we hear about these issues in big industries, like steel or aluminum, or with expensive products, like solar panels or washing machines. But international trade involves all kinds of things.

JASON RISNER (ALLIANCE RUBBER COMPANY): Our rubber bands are used across different industries, so it does include the stationary items. There's agricultural use. If you walk into a grocery store and you see broccoli bundled together with a rubber band or green onions...

VANEK SMITH: Oh, the big, thick ones.

RISNER: Yeah. So those are typically our rubber bands as well.

VANEK SMITH: Rubber bands.

GARCIA: The humble rubber band.

VANEK SMITH: The humble rubber band - they are an international product. They're part of international trade.

GARCIA: And today on the show - what the rubber band industry teaches us about the Trump administration's approach to global trade.

RISNER: The interesting thing about rubber bands is, yes, they are priced by the pound, but they're used by the each. So if we make rubber bands, let's say, with a high rubber content, they're actually lighter than other rubber bands. And so you get more bands per pound. But...

VANEK SMITH: More bands for your buck.

RISNER: More band - yeah, more bands for your buck.

VANEK SMITH: Sorry.

RISNER: (Laughter).

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

RISNER: Hello. My name is Jason Risner, and I'm the director of business strategy for Alliance Rubber Company in Hot Springs, Ark. Alliance Rubber Company is a rubber band manufacturer that's been in business since 1923.

GARCIA: Alliance owns about 40 percent of the U.S. rubber band market. But Jason says that just a few years ago, rubber band buyers started calling up and saying, nope, we're going another way.

RISNER: It's been happening more and more and actually really came to a head when we lost a very significant, large customer of ours to a low-cost import price.

VANEK SMITH: That large customer was Staples, the big office supply chain. And that is about as big as it gets in the rubber band-buying business. Staples had gone with an overseas competitor. Sri Lanka, Thailand and China - these are the big players in the rubber band market.

GARCIA: So Alliance, the rubber band maker, did some digging to see exactly how much less its competitors were charging. It was a lot less - 61 percent less - and Alliance got a little bit suspicious about that.

VANEK SMITH: So you saw the numbers, and you were like, this is not right.

RISNER: This is not right - big red flag. They're actually being sold to the U.S. at a - what we allege is a dumped price.

VANEK SMITH: A dumped price - dumping is when one country floods another country with something that is priced way below what it's worth. They take a loss on it. And the idea is that they will drive local competition out of business, take over the market and eventually drive the price up. Dumping is illegal.

RISNER: You see a lot of these cases in aluminum and steel, and you don't see a lot in, you know, everyday office products. But we were aware of another case in the late '90s on paper clips, and we used it kind of as the benchmark.

GARCIA: Paper clips.

VANEK SMITH: I know. Office products sticking together, making changes. But, actually, this is a big deal. Paper clips won a big victory in the '90s. Paper clip companies accused China of dumping cheap paper clips on the market.

RISNER: And they won the 127 percent duty.

VANEK SMITH: So that's, like, on all paper clips that come into the U.S. There's, like, a 127 percent markup on them.

RISNER: Correct. And that's still in effect today. That's from the late '90s.

GARCIA: An epic victory for big paper clip.

VANEK SMITH: It was an epic victory for big paper clip - 127 percent tariffs on paper clips coming into this country to this day. So anyway, Alliance saw this. They had their eyes on the prize. They went to Washington, D.C., to make their case to the government agencies that handle these issues - the International Trade Commission and the Commerce Department. Things went well, and an official investigation was launched.

MARIA PANEZI (CENTRE FOR INTERNATIONAL GOVERNANCE AND INNOVATION): You're trying to figure out if someone is trying to push out your domestic industries.

VANEK SMITH: Maria Panezi is a research fellow at the Centre for International Governance and Innovation.

PANEZI: And I'm a lawyer by training, so, to me, all these attempts to figure out if rules are being violated are essentially a good thing.

GARCIA: Maria says that the number of dumping investigations launched under the Trump administration in roughly the year that he's been in office is up 80 percent over the number of investigations in the last year of the Obama administration. By the way, that is today's Planet Money Indicator - 80 percent. Maria says the Obama administration was just prioritizing other things.

PANEZI: So I think that the Obama administration weighed the interests of the government vis-a-vis other countries a little bit more before starting.

VANEK SMITH: Kind of like, oh, we - we're making a deal with China right now. Let's not...

PANEZI: Right, let's not - exactly.

VANEK SMITH: And under Trump?

PANEZI: Imagine it as really being a rules stickler. They're catering to a domestic - domestic industries to domestic lobbies a lot more.

VANEK SMITH: And this is what Trump campaigned on - America First, putting the interest of domestic companies like Alliance before the interests of countries like China. And this can be a good thing, sticking up for our own, sticking up for the little guy, says Maria, but it can also cause some problems.

GARCIA: In particular, Maria says, there are a couple of tricky balances to strike here. First, a government, by protecting its own domestic companies, will risk ticking off its other trading partners.

PANEZI: You alienate, as a country, a number of your trading partners and you're creating such a bad environment for other negotiations. It comes back to, perhaps negatively, affect other areas of diplomacy, whether they're related to trade in the economy or not.

GARCIA: That's the first tricky balance. The second one is between a government protecting its own country's companies and overprotecting them at the cost of the overall economy.

VANEK SMITH: Right. I mean, if the government spends all of this money protecting companies from global competition, those companies won't evolve. And you can end up with a whole economy that isn't globally competitive, that's dependent on the government keeping competition out or distorting the market by making similar products from other countries way more expensive, like, say, a 127 percent markup on paperclips.

GARCIA: That's right. Overprotect your own companies and you end up possibly with more expensive products to sell to people who need to buy them and just less dynamism overall. And this is a really hard thing about the global economy. It is always evolving, always changing, and that change can sometimes be tough. It can be brutal. Sometimes, it just doesn't make any sense to make a product in the U.S. anymore, like maybe possibly rubber bands.

VANEK SMITH: You know, this is free trade, this is global competition. It can be pretty brutal. And maybe this is just an industry that shouldn't be in the U.S. anymore that's just not cost effective.

RISNER: You know, people might say that - we could be doing so much better if we weren't up against this unfair competition. We could be employing 250, you know, employees here in Arkansas. So we could be doing better, but the sense that this type of product shouldn't be made in the U.S., I don't agree with that. We've been - we've done well.

VANEK SMITH: Jason Risner says Alliance rubber bands can compete globally, and they are competing globally, but they just need a fair playing field, and the dumping needs to stop.

GARCIA: It'll probably take nearly a year for a decision to come down from the government on whether or not rubber bands actually are being dumped onto the U.S. market and therefore whether Alliance will get the 60-plus percent tariff it's hoping to see on rubber bands, specifically from Sri Lanka, Thailand and China.

VANEK SMITH: But Jason says he is optimistic. After all, the Trump administration has been favorable to companies like his, and there is the great paper clip precedent.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

VANEK SMITH: For you Planet Money fans out there - and I know there are a lot of you - our compatriots at Planet Money have put together some videos for you to watch. They're pretty great. The latest one is on the history of the price tag. You can check it out at npr.org/planetmoneyshorts.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

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