The flood irrigation tariff policy cannot block Chinese enterprises.

Source: Min Da is a Corgi

In the past few years, we have had a feeling about doing legal business in the United States. Although Trump said a lot of tough words during his first term, apart from a few key targets, most Chinese companies have been able to expand their business relatively quietly.

However, during the Biden administration, almost all Chinese companies have felt immense compliance pressure. By the time it reached us, it was evident that many new clients who had never dealt with U.S. legal compliance started seeking our services.

The reason is actually not complicated. The enforcement capacity of the U.S. federal government is very limited. If private enterprises cannot be fully mobilized, relying solely on the limited manpower of the federal government means that many policies cannot be implemented effectively.

The power of the federal government of the United States has increased significantly over the past few decades, but its scale is still not large. The total number of federal employees in the United States, from Mars to the bottom of the sea, is only three million.

Taking the Customs and Border Protection (CBP) as an example, they are responsible for managing import and export inspections and enforcement at customs across the United States, overseeing more than 300 major border ports, yet only have a total of 60,000 personnel.

Of course, I am not saying that there are few civil servants in the United States. The broad category of civil servants in the US includes government employees from various states, and together with the federal government, there are over 22 million people, which is quite a lot. However, when it comes to federal matters such as tariffs and foreign affairs, no matter how many state government employees there are, they cannot help.

This leads to the fact that the U.S. foreign policy, which relies on government enforcement for implementation, is always a minority.

For example, the Xinjiang-related legislation passed during Biden’s administration has affected nearly all Chinese enterprises. However, from 2021 to today, U.S. Customs has conducted inspections related to the Xinjiang legislation only 15,000 times in total, and among these, only a little over 8,000 cases were actually confirmed as denied entry.

During the same period, the United States imported millions of parcels from China every day, note that it is every day.

With the manpower of the U.S. Customs, it is absolutely impossible to inspect imported packages one by one, and even substantial random checks cannot be conducted.

How does the Biden administration ensure the implementation of the bill? They shift the compliance pressure onto private enterprises in the United States, requiring private companies to conduct supply chain compliance checks, while the government only oversees afterward in specific circumstances.

The vast majority of American private enterprises honestly pass the U.S. government’s requirements on to their Chinese suppliers exactly as they are. In this way, every American distributor and end customer becomes an informant for the U.S. government, closely monitoring the supply chain compliance of Chinese suppliers one-on-one.

From this perspective, the government enforcement resources mobilized by the Biden administration are not just a few tens of thousands of civil servants from U.S. Customs, but rather transforming millions and tens of millions of the most knowledgeable businesses into an extension of government power.

The new energy policies during the Biden era are similar. The Inflation Reduction Act (IRA) passed by the Biden administration provides tax credits of up to $7,500 for electric vehicles sold in the U.S., but there are prerequisites for receiving the subsidy:

The specific rules are more complicated, but in simple terms, more than a certain percentage of batteries for new energy vehicles must be produced in the United States (or the USMCA), and the Chinese background of the manufacturer cannot exceed a certain percentage.

Many of our clients have moved their factories to Mexico or Southeast Asia to apply for subsidies, gradually separating from their Chinese background. This is entirely a spontaneous action driven by economic interests, with almost no direct government oversight.

If the U.S. federal government has oversight, it is that when applying for tax subsidies, the U.S. Department of Energy and the Treasury Department will conduct separate written reviews of the application materials.

The law enforcement results achieved by the Biden administration far exceed the costs they incurred for enforcement.

If the Biden administration can do the same thing, why can’t the Trump administration?

Because the Biden administration places great importance on the feasibility of compliance policies. The premise for companies to cooperate with the government in implementing compliance policies is that companies assess that the benefits of complying with compliance policies outweigh the risks of violating them.

In other words, the government must provide a way out for businesses, so that they can continue to operate.

Biden has left a window for new energy companies in Mexico and Southeast Asia, attempting to gradually weaken domestic capacity in China. Trump undoubtedly believes that Biden’s measures are too slow. His blunt-force policy, which seems to dominate media coverage, actually pushes a large number of American private enterprises, which are also the main force of U.S. government law enforcement, to the opposing side.

Using the real historical Prohibition in the United States as a comparison, if the U.S. government were to precisely target Scotch whisky, it could indeed make Scotch produced in Scotland disappear from the American market.

But if the U.S. government implements a nationwide, one-size-fits-all prohibition, the end result will inevitably be widespread smuggling and home brewing, just as it happened in history.

It was originally smuggled liquor, so the place of origin is of no consequence. Not only is the policy unable to be enforced, but the prohibition will ultimately be overturned from the bottom up, even if a constitutional amendment is established through a stringent process.

Tariff policies are no different.

If the U.S. imposes a 10% tariff on China, the U.S. private sector will pass on the cost to Chinese suppliers, so that U.S. consumers will not feel the price increase.

If the United States imposes a 50% tariff on China, American private companies will urge Chinese suppliers to shift to Mexico or Southeast Asia, completing the decoupling of the Sino-American supply chain instead of the U.S. government.

But if the United States imposes high tariffs on the whole world, and the additional tariffs on China add up to over 100%, I actually feel optimistic.

Don’t say Chinese companies, even private American companies will come up with ways to circumvent the U.S. government’s regulations. These methods of theirs are definitely not what the U.S. government would like to see.

In summary, private enterprises are the main force behind the enforcement of the U.S. government.

When Trump stands on the opposite side of American private enterprises, relying solely on tens of thousands of federal government employees to advance implementation, his policies will certainly not be truly realized.