How a Street Cleaner and a Hobo Bag Are Alike

U.S. cities might have to do without state-of-the-art street cleaning equipment while their affluent residents won’t have trendy European handbags.

Today, let’s start with some of the stories that tell more about tariffs and wind up with the anchors that bias our opinions.

European Exports

Streetsweepers

A Croatian street cleaning equipment manufacturer said neither he nor his U.S. customers could absorb double digit tariffs. While his private customers could not afford a price hike, his bidding to municipal markets required binding prices that he could not predict. As a result, the U.S. might not have access to the highest quality hydrogen powered street cleaners:

Luxury Handbags

For brands that include Chanel and Louis Vuitton, Ubrique Spain is a luxury ecosystem. Using a combination of specialized machinery and artisans, they can move from a  prototype purse to market-ready merchandise. Through its workforce of 4,000, the city has the unique ability to elevate its manufacturing capability with the stitchers, hardware attachers, and detailed finishing that only humans can provide.

The result could be a $3,000 Hobo bag from Chanel:

You can see that luxury bag makers have a dilemma. While they worry that “made in the USA” might not have the same cachet (and same quality) as a European label, they also wonder if their customers will accept a tariff pop in prices that already touch the stratosphere.

Our Bottom Line: Anchors

Last week, after President Trump spoke with the President of the European Commission, he postponed a 50% tariff.

We could call that 50% our anchor.

Anchors

Anchors influence our opinions. Assume, for example, that we are told a jar has 500 jellybeans, and then asked to guess the number of candy bars in another container. Based on Nobel laureate Daniel Kahneman’s experiments (described in Thinking Fast and Slow), people who are told the first jar has 200 beans instead of 500 answer the second question with a lower number. The reason? The first jar became an anchor that biased the second answer.

With tariffs, we’ve been barraged with slew of high numbers that could become our anchors. They ignore the real one percent rates that used to prevail:

The Bruegel think tank tells us that the US tariff rate on imports from the EU was 1.47 percent and the EU rate was 1.35 percent on imports from the U.S.

So, instead of 50 percent for EU tariffs, our anchor should be close to one percent! Only then can we see the whoppingly high tariff territory we have entered.

My sources and more: Thanks to the BBC’s World Business Report (May 23) for the street cleaner story and WSJ for taking us to Ubrique Spain and Hobo bags. Then, Bruegel had the analysis as did Daniel Kahneman in Thinking Fast and Slow.