A quantity control, or quota, drives a wedge between the demand price and the supply price of a
good; that is, the price paid by buyers ends up being higher than that received by sellers.
The difference between the demand and supply price at the quota limit is the quota rent, the
earnings that accrue to the license-holder from ownership of the right to sell the good. It is equal to
the market price of the license when the licenses are traded.
quantity controls typically create the following undesirable side effects:
- Inefficiencies, or missed opportunities, in the form of mutually beneficial transactions that
don’t occur
- Incentives for illegal activities
“Caught in the Middle of the Trade War,” – Natalie Kitroeff
May 16, 2019, in The Daily, produced by The New York Times, Podcast audio
natalie kitroeff
Remind me exactly what you manufacturer and how you use Chinese metal.
kevin watje
Yes, we manufacture trash trucks and street sweepers.
kevin watje
We don’t get so much raw materials from them as we get components from China.
natalie kitroeff
Do you feel as though the relationship with China in the past — before President Trump took office —
that that relationship was bad for your business?
kevin watje
No, absolutely not. It had no bearing on us whatsoever. In our opinion, that relationship was not
broken. We did business with them, but we were on the buying end of it for the most part.
natalie kitroeff
When the president imposed tariffs last March, what did that mean for you and your business?
kevin watje
Well, it costs us more to procure those products now, and it disrupted our supply chain quite a bit.
Like chrome rod for cylinders, a lot more of that is procured by our domestic manufacturers as well
from over there, because it’s easier to obtain it over there. So, that’s interrupted a lot of supply
chains. And, on a whole, it is kind of like throwing a rock into the pond. It ripples out over the whole
entire pond. And that’s what it does when you say we’re going to raise tariffs on steel, and then that
starts impacting something else, that impacts something else. So, we get requests for orders and
they say how soon can you get it? We go, well, we’re at the mercy of those suppliers because they’re
at the mercy of their suppliers.
natalie kitroeff
How much more are you spending?
kevin watje
Well, I would say it’s probably added 10 percent to the costs of our product, which we don’t have
that high of margins. Twenty percent margins is probably in the norm.
, natalie kitroeff
So, even 10 percent is a big hit for you.
kevin watje
Absolutely.
natalie kitroeff
How have you managed that? How has it affected the business?
kevin watje
Well, you know, we keep slugging along — got to do what we’ve got to do. And we’re at the mercy of
politicians in this case. So, the only change that you can make to some degree in manufacturing is go
more robotic, so there’s less and less labor involved to cut costs. So, that’s one strategy.
But, in our case, we don’t have a lot of options because, like I say, we’re buying from our suppliers,
and they don’t have a lot options either. We don’t have easy answers for this. And the economy
being as robust as it is, we also can’t get employees. So, one of the reasons we go overseas is that
they get plenty of labor. And here in the Midwest, everywhere you go you see signs out on their front
lawn saying, now hiring. And everybody is scrambling trying to get employees. I’d say maybe last
year, we’ve lost about 30 percent of our workforce.
natalie kitroeff
Wow. You’ve lost them to your competitors?
kevin watje
Lost them to my competitors. They have hired them away. Now, we’re in a union contract, so we’re
stuck in wage scale. But, even if we weren’t, I’m not sure being able to outbid somebody else would
be beneficial to us, because, as I said before we don’t have the margins in our products to be able to
do that. So, it’s difficult.
natalie kitroeff
Has it always been that way? Why is this happening now?
kevin watje
Well, some years back — it was about four or five years back — a young lady came to me from the
economic development group in our area. They had been doing studies where every year they would
go to the high school graduates and say, if you were guaranteed a job after you got out of tech
school, we would pay the tuition, and we would guarantee a certain wage rate. Would you be
interested in doing this? And, so, this young lady came to me and said when they started doing this
20, 25 years ago, I think it was like 60-some percent of those people they questioned about this said,
yes, they would be willing to do this. She said we’re down to 5 percent.
So, she said you’re looking at just a de-minimis amount of people that want to come and do these
type of jobs — work in a factory, do welding. She says everybody wants to go to college and get some
kind of job in gaming or something like that. She says they’re not as attracted to these kind of jobs as
they were before. And she was certainly right. So the jobs that President Trump says let’s bring back,
I don’t know who he thinks is going to do those jobs.
natalie kitroeff
Kevin, you support President Trump, right?
kevin watje
