Dear Fellow Frustrated Value-Priced Saint-Émilion Grand Cru Classé Shoppers,
It’s hard to take the Trump administration’s global trade tariffs seriously. They’re causing markets to melt down, with worse to come, and enormous pain for many people, but, hilariously, the consensus among experts is that they used an AI chatbot to determine policies and percentages (summary of views here), How else to explain big tariffs on islands inhabited solely by penguins and US military bases like Diego Garcia? Russia is exempt (surprise!), but all other countries appear to have been hit by a simple math formula applied by AI.
For an industry observer, there are many questions, and very few answers, and again more chaos to come. So, in the spirit of the laziness with which these tariffs were rolled out, I did what the administration did: I fed a few of my many tariff questions into ChatGPT. Here are the results, excerpted for length (ask these to ChatGPT yourself to get the full answers):
Question: Will there be a national security exemption for President Trump’s tariffs?
ChatGPT: “President Donald Trump’s recent implementation of reciprocal tariffs does not include national security exemptions…. This approach has raised concerns within the defense sector, as the tariffs could disrupt global supply chains critical to U.S. defense manufacturing, potentially impacting national security.” My comment: So far, so good, although no experts really call them “reciprocal.” That NatSec part was unprompted; this is a patriotic chatbot!
Question: As a consequence of President Trump’s tariffs, will the US military likely pay more for US defense products than export customers pay for those products?
ChatGPT: “Yes, there is a real possibility that as a result of President Trump’s tariffs, the U.S. military could end up paying more for defense products than foreign export customers…. Export customers, such as allied nations, are often able to avoid some of the impact of tariffs [since] defense contractors may be able to get a refund or credit for the tariffs paid on imported components used in producing products that are exported…. However, if the product is sold to the U.S. military, those refunds typically don’t apply. So, the U.S. military could end up paying a higher price for products compared to foreign customers who benefit from these tariff exemptions.” My comment: Wow. Thanks chatbot!
Question: I understand that airframers get an export credit for tariffs paid. For example, if Boeing brings in a landing gear from Canada, pays a tariff on it, and then exports that plane, it gets a credit for that tariff payment [a.k.a., “Drawback”]. But what if that jet goes to a US airline? If the US airline has to pay the costs of those tariffed components, doesn’t that mean that the US is hurting domestic airlines relative to foreign ones?
ChatGPT: “Yes, you are correct that under certain circumstances, U.S. exporters, including manufacturers like Boeing, can receive a credit or refund for the tariffs they pay on imported components used in the production of goods that are later exported.… [T]he lack of an exemption or credit for U.S. airlines buying domestically produced planes could lead to a situation where the U.S. airline industry is inadvertently disadvantaged relative to foreign competitors due to the tariff structure on components used in manufacturing aircraft.” My comment: My human trade expert friends aren’t sure that Drawback will apply, owing to the haphazard and incompetent way these tariffs have been rolled out.
Question: [Same question, for business jets]. A US business jet company imports an engine from Canada, pays a tariff on it, then exports that plane, then gets a credit for that tariff. But assuming that jet company’s US customers have to pay the costs of those tariffed components, doesn’t that mean that the US is hurting domestic businesses relative to foreign ones?
ChatGPT: “Yes, your understanding is largely correct, and the scenario you’re describing does highlight a significant concern for domestic buyers (such as U.S. companies) in the context of tariffs and their potential competitive disadvantage relative to foreign buyers.”
Question: Do President Trump’s new tariffs include an exemption for civil aviation products covered by the WTO’s Agreement on Trade In Civil Aircraft (ATCA) treaty provisions?
ChatGPT: “President Trump’s recent tariffs have removed the 45-year duty-free status for civil aviation products previously covered under the World Trade Organization’s (WTO) Agreement on Trade in Civil Aircraft…. While the administration has indicated a willingness to negotiate certain aspects of the tariffs, as evidenced by discussions with countries like Vietnam, India, and Israel, there is no clear exemption for civil aviation products covered by the ATCA. This lack of exemption has raised concerns within the aerospace industry, with companies like Howmet Aerospace warning of potential disruptions in their supply chains due to the tariffs.” My comment: Hooo boy. It even identified the Howmet force majeure announcement as a warning sign. Better go in with the obvious next question:
Question: If President Trump’s tariffs violate the WTO Agreement on Trade in Civil Aircraft, what will be the consequences for the global jetliner industry?
ChatGPT: “A violation of the WTO agreement on trade in civil aircraft and the implementation of tariffs could significantly disrupt the global jetliner industry. The consequences could include higher costs, market instability, retaliatory actions, and long-term disruptions to the supply chain, impacting both manufacturers and airlines. The industry could also face legal and political challenges, depending on how the WTO resolves the dispute.” My comment: It goes on and on. Again, I advise anyone to feed my question into ChatGPT. Its answer was well thought out, and unpleasantly dystopian.
Question: Will Airbus be able to leverage its Republican political connections to shield its Alabama-based jetliner production lines from President Trump’s new tariffs?
ChatGPT: “While Airbus could potentially use its Republican political connections and the presence of its Alabama-based production lines to advocate for protection from President Trump’s new tariffs, the effectiveness of this strategy would depend on a variety of factors, including the nature of the tariffs and the broader political and economic landscape.” My comment: I don’t know either. The Alabama Strategy worked in Trump 1.0, but this time might be different. My human expert friends think Alabama-built jets could be 20% more expensive.
This chatbot, with minimal latency and no preparation, was able to correctly evaluate how bad these tariffs are for our industry. Question: when will AI achieve sentience and be able to tell its users that they should not implement important national policies using a computer algorithm, and that they are using AI for wrongheaded purposes? I hope I live to see that day. I think.
Yours, ‘Til MY AI Shopping Assistant Gets Me Better Deals On Smuggled Bordeaux,
Richard Aboulafia