Tariffs are a "Short Reprieve"
Canada Makes an Old, Familiar Mistake
The reader will sense the fact that not only is the style of American management unfitted for this economic age, but that many government regulations and the Justice Department’s Antitrust Division are out of step, propelling American industry along the path of decline, contrary to the well-being of the American people.
When we size up the job ahead, it is obvious that a long thorny road lies ahead—decades. Dependence on protection by tariffs and laws to “buy American” only encourages incompetence.
Deming, W. Edwards. Out of the Crisis, 3rd Ed. (Preface) . MIT Press. Kindle Edition.
THE AIM for this brief entry is to share with you some observations about how my country is making a mistake that has echoes stretching back well over 40 years to a similar time in history when the Japanese auto industry was in its ascendancy and there were concomitant calls to bury them with tariffs.
Now, in 2024, Canada is following the lead of its largest trading partner, the US, by imposing a 100% tariff on imported Chinese EVs starting October 1st, with our Prime Minister declaring that they are “not playing by the same rules” by intentionally employing a “state-directed policy of over-capacity”. (Source: Reuters, Aug 27/24)
What would Dr. Deming make of our situation today? What would he recommend we do, instead?
Cowardly Tariffs
In Out of the Crisis, Dr. Deming mentions tariffs seven times, placing them in a category of cowardly protectionist policies alongside production quotas and government subsidies. In his view, all they accomplish is to reward mediocrity and stave off the hard work for improving quality, and thus productivity, for another day - which is to say, never.
In his 1990 book, Dr. Deming: The American Who Taught the Japanese About Quality, Rafael Aguayo recounts a supporting lesson he learned from Deming:
I predicted in 1950 that in five years manufacturers the world over would be screaming for protection [by adopting an emphasis on improving quality]. It took only four years. Years later I was told by top management that I was the only man in Japan who believed it in 1950.
Aguayo, Rafael. Dr. Deming: The American who Taught the Japanese About Quality (p. 120). Millennia Mangement Associates, Ltd. . Kindle Edition.
You can also hear Dr. Deming speak about his contributions to “putting together” the parts of Japanese talents and skills that enabled this near the tail-end of the June 1980 NBC documentary, If Japan Can, Why Can’t We?
The frustration is palpable in Dr. Deming’s assessment of the situation America was in back then, but also his optimism that the miracle could be replicated if there was a will to do so, and indeed for a short period there was. But always, the spectre of heavy-handed government intervention loomed large. As he wrote in a 1978 letter to the Dean of the School of Business Administration at American University:
Unless productivity and innovation in the United States can compete with the Japanese, the fear looms up that the United States will push further toward protectionism through higher tariffs and quotas. As you have remarked, a more effective and constructive way to deal with this problem is to increase our own productivity, not to penalize the higher productivity of a foreign industry.
It will be difficult to dislodge from American minds some of the unfounded ideas that they have about the responsibilities of management and about Japanese industry, but it can be done to an effective degree, I believe, if the right effort and organization be put to the job.
Deming, W. Edwards; Deming, W. Edwards. The Essential Deming: Leadership Principles from the Father of Quality (p. 95). McGraw Hill LLC. Kindle Edition.
There is a solid lesson here for Canadians, if they are wise enough to learn it: in the absence of better ways of seeing and thinking, the blunt-force instruments of government will always be reached for, first.
At the time, Dr. Deming was stumping at the time for the creation of establishing a centre to bring together a critical mass of business leaders and individuals from private industry together with government officials to learn from their Japanese counterparts how to improve US productivity.
Rx: Hard Work on Quality
For Deming, the great lever the Japanese wielded was quality, which allowed them, at the time, unparalleled productivity. I’ve mentioned this lever in a previous newsletter:
This is, of course, the beginning of the Deming Chain Reaction that we’ve discussed previously:
Thus, Dr. Deming would tell us today, as he did decades ago, that the answer to challenges from competitors like Japan who put in the hard work to improve their quality and productivity was to take the energy away from erecting protectionist walls and put it toward improving our own domestic quality and productivity, that for too long we have been asleep at the switch, delegating our capacity to others to fulfill.
Our challenge is how to improve our competitive standing in the world so that we become the world-market of choice for goods with the ability to scale production at home rather than relying on imports to fill demand.
Epilogue: A Short Reprieve
As reported by Reuters and elsewhere, China has responded with allegations of protectionism against the US and Canada for the tariffs and it will likely come to blows at the World Trade Organization who will act as an “honest broker” in assigning blame for who “injured” whom. Parts manufacturers are overjoyed with the move, however, with Flavio Volpe, president of the Automotive Parts Manufacturers' Association, stating:
We feel vindicated and motivated. Let's now get to the business of defending our market with the best of Canadian innovation and resolve.
What innovation will that be, I wonder? Where’s the imperative to improve once the market is “defended” ?
Which brings us back to the quoted Blacklock’s article at the top of this post where a House of Commons Standing Committee on International Trade was told by a witness that at best, the tariffs represent a “short reprieve” from the pressures of Chinese competition. I imagine Dr. Deming would sternly agree, and also admonish us for not getting to work on our quality and productivity problems sooner given the three decades since he published The New Economics.
Related Newsletters and Sources
Earlier this year, I wrote an open-letter to the Deputy Sr. Governor of the Bank of Canada in response to her speaking tour for business leaders, pleading with them to improve productivity as a ward against inflation. Within, I made the case for rediscovering Dr. Deming’s teachings on quality to bolster our competitive standing in the world. I think my case could be augmented further with a pitch to establish a government-sanctioned and funded department under the Ministry of Economic Development and Trade for the improvement of quality and productivity. Perhaps, with the right leadership, this could happen. What do you think?
Other newsletters on this topic include:
I do realize I have an owed newsletter on my view about whether Canada will ever meet the challenge of improving its competitive standing with a short visit into how we cannot even function as a system within our own borders. Look for this, shortly.
In the meantime, I am still hard at work on getting PBC Analyzer PRO ready for prime-time after introducing some necessary breaking changes to make it easier to code and maintain for future development. Paid-tier subscribers will get first notice on progress and early access to the tool when it goes live!
Thanks for your continued support of the newsletter!