A Time to be Bought, a Time to Die

October 16, 2019 • 3 Replies

By Lloyd Graff

It seems like it’s the season for a lot of machining businesses to be selling out or auctioned off. I have worked as an advisor on some of these situations as well, so I have had an inside look at buyers and sellers contorting to get a deal done on an operating business. Selling a job shop as a going concern is really tough unless it is a big and growing business, blessed with depth of management and ownership that is clear about what it wants and decisive when an appropriate buyer materializes. Having a limited debt also helps because it keeps lenders out of the negotiations.

There are buyers constantly looking for deals for attractive firms. Often these sellers are businesses that have already been sold before.

A company I am familiar with near Chicago in the screw machine business started more than 60 years ago with three old Davenport multi-spindles. They may still have those Davenports, along with 100 other ones rebuilt several times, as well as Acmes and New Britains, even a few Brown and Sharpes. They have bought out many small players along the way, been highly disciplined on capital equipment purchases, built up a factory in Mexico, diversified their locations, avoided unions, and consistently rewarded their private equity owners. Their reward—being sold every five to eight years to a new private equity company that can take advantage of fresh depreciation to shelter cash flow.

For better or worse, this is the game for profitable job shops these days because private equity firms are decisive and clear about what they are looking for. For profitable businesses over $10 or $15 million in sales, private equity firms are usually vying against other firms like themselves because most other job shop owners do not have the expertise or banking connections to compete with them for clean, nonproblematic companies.

However, some job shop owners like John Habe IV of Metal Seal Precision in Mentor, Ohio, have decided to challenge the private equity guys on deals that are a little too small for them or that are turn around situations.

John has acquired several turned parts firms, most of them under the radar for private equity firms because they lack profitability or size. But they fit into John’s group of companies. They add value that is greater than potential auction value, or they have extra equipment that can be quickly turned into cash.

John has developed internal talent that can dissect the financials of a target like a private equity firm would do, and he has access to consulting firms to augment his own people. He also has his brothers as partners to run the day-to-day operations of Metal Seal.

Most job shops are not easy turnaround candidates or fertile turf for private equity groups. They usually end up as auction or liquidation situations, often dictated by a lender, but not always.

There are no perfect times to sell or buy a job shop. Often owners wait for a market improvement to build up their free cash flow numbers. Private equity buyers and most other potential buyers usually want to buy a job shop for a multiple of EBITDA (earnings before interest, taxes, depreciation, amortization). That multiple is usually 3-5 times depending on the buyer’s perception of the company’s strength.

This is not a rule set in stone. Businesses that are breaking even or losing money can be sold if they have some vital ingredient that other companies covet, like people, location, unique customer relationships, or unusual processes or licenses that are hard to duplicate such as nickel plating or FDA approvals. Sometimes a synergy with a company’s customer base enhances the value of a business.

Yet the sale of businesses as going operations is usually a long contorted happening. Lawyers always slow things down with cumbersome contracts which require other lawyers to untangle. Environmental issues often pop up. Family jealousies derail many deals. Often buyers and sellers dislike one another, and emotions count when family businesses are being sold to outsiders.

When you see the auction brochure of a competitor come across your desk it was probably a candidate for a buyout as a going operation at one time. In the end, at least one important missing piece led to its eventual liquidation.

Question: Will the 2020 election affect your business or job?

Swarfcast Ep. 56 – The Screw Machine Guy, Part 2

October 10, 2019 Comments Off

By Noah Graff

Today’s podcast is part 2 of an interview we did with Wes Szpondowski, plant manager at Wyandotte industries, a 60-year old screw machine shop in Wyandotte Michigan founded by his grandfather.

Wes talks about his aspirations to keep Wyandotte relevant for the next forty years. He also discusses the fatal traps a machining company can fall into if it’s not careful.

Scroll down to listen to the podcast.

Main Points of the Interview

(3:18) Wes discusses Wyandotte’s preferred quantities for jobs. He says the company’s sweet spot is 15,000 to 20,000 pieces, as opposed to million piece orders.

(4:08) Wes talks about Wyandotte’s automotive work. He says the company is Tier 2 or Tier 3. He says that American car companies always try to take every cent they can from suppliers, while Japanese automakers are less greedy and gravitate toward forming longterm partnerships.

(7:20) Wes says the shop has no plans to buy million dollar machines. It doesn’t have the work to justify those machines or the stomach for the risk. He says that the company can’t survive running mostly Acmes, not because of the inferiority of the machines but because it will be too difficult to get the next generation to work on them.

(10:10) Wes says he plans to buy LICO machines for Wyandotte. He says they are like Brown & Sharps that can do more sophisticated parts with a quick setup time. He said LICOs are much faster than typical CNC lathe and he thinks it’s a machine that young people would enjoy running. He thinks that $250,000 to $350,000 is a price range that is sensible for his company.

(17:40) Wes says he likes to examine the course of events that led machining companies to go out of business. He calls it “auction forensics.” He says people often repeat the same story—the grandkids ran the company into the ground and the company bought expensive equipment that did not pay off. As a grandson of Wyandotte’s founder, Wes says the story gives him extra impetus to work hard and make responsible equipment decisions.

(21:52) Wes talks about his first job at Wyandotte. He had to work his way up from the bottom and was not even given a full-time shift to start. Some of his coworkers liked him, and others felt threatened by him.

(25:50) Wes gives his thoughts on whether or not he will have partial ownership of Wyandotte in the future. He says ownership is a possibility, but in any case, he is grateful for the privilege of working at the company for so long and being plant manager.

(27:00) Wes says he is able to relate to the company’s employees because he started from the bottom.

(28:10) Wes talks about his admiration for his uncle who owns Wyandotte. He respects that he is almost 80 years old and still comes to work everyday.

(30:30) Wes likes his role as plant as plant manager at the company. He sees himself working as plant manager for the foreseeable future because the company does not have a replacement with his skills both for working with the machines and with the employees.

Question: Do you think we’re headed for a recession?

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The Auction Deal

October 8, 2019 • 5 Replies

By Lloyd Graff

Today, I thought it was time to write something that I actually know something about.

Why are some of the big players in the machining business selling out or being auctioned off these days?

One of the biggest screw machine sales in years is coming up in November at Triumph Manufacturing in Tempe, Arizona, just outside of Phoenix. Triumph’s owner Chris Mueller went into business in the late 1960s after coming to America from Switzerland as a Tornos employee. Mueller built Triumph into a strong player in long run parts and has been running the company with his daughter in recent years. He has had many ups and downs over the years but always managed to survive because of his technical acumen and resourcefulness. He was on the verge of selling to numerous operating groups but never seemed to get a deal that worked for all parties.

A person who is familiar with Mueller and Triumph Manufacturing told me he thinks Mueller felt an American was probably incapable of running his many Swiss and German screw machines effectively. I have also heard that he preferred Hilco as an auction firm because he liked their prominence in Europe. I believe that Triumph would have sold for quite a bit more money several years ago, but Mueller always believed he would turn the company around—a trap many entrepreneurial owners fall into.

Finally, a few months ago, he made the decision to let go and allow the auction process to proceed. Competitors quickly grabbed all the major contracts. Auction groups formed almost overnight to bid on the project. I chose not to be involved in the bidding because I saw the market weakening in Europe for the Swiss and German machines. With a falling Euro, I did not have the stomach for the risk, but many others did.

From a screw machine dealer’s viewpoint the seventeen 20mm 8-spindle Tornos machines are the key element in the sale. If they go at retail prices the sale will be a triumph. If not, c’est la vie. I wish them well.

Questions:

Do you like buying at Auctions?

Do you feel you are a more disciplined buyer bidding online?

Swarfcast Ep. 55 – Wes Szpondowski, Screw Machine Guy

October 4, 2019 • 5 Replies

By Noah Graff

Today’s podcast is part 1 of a 2 part interview we did with Wes Szpondowski, plant manager at Wyandotte industries, a 60-year-old screw machine shop in Wyandotte, Michigan, founded by his grandfather.

Scroll down to listen to the podcast.

Wes gave me the inside scoop of what it takes to run a high production shop floor. We talked about getting the most out of employees, updating equipment, and his mission to NOT waste the company’s money.

Main Points of the Interview

(3:05) Wes gives history of Wyandotte industries. His grandfather made parts on Acme-Gridley screw machines for the custom fastener market—mainly various types of nuts. The company’s original machines were the Acme Model G machines that were taken from a junk yard.

(5:25) Wes talks about the evolution of Acme multi-spindles that Wyandotte used over the years. The company graduated from Model G to Model R and then to Models RA and RB, which people joked was the Cadillac of Acme.

(6:30) Wes talks about how Acmes were designed to run forever.

(10:50) Wes talks about taking over Davenport screw machine work from one of Wyandotte’s suppliers. He says it is his harder for him to find people with skills to run Davenports than to run Acmes, but he likes the speed of Davenports and likes that attachments for Davenports are more affordable than those for Acmes.

(13:35-20:45) Wes compares the challenges of making fasteners to those of more complex parts Wyandotte produces. He classifies the complex parts as “screw machine parts” such as pins, fittings and bushings. He talks about how Wyandotte’s employees have developed their skills over time, using more attachments and limiting the need for second ops.

(20:50-22:30) Wes talks about the company’s gravitation to using Mazak CNC lathes.

(22:35) Wes talks about when he bought Wyandotte’s first Mazak, fall of 2009.

(23:55) Wes talks about how he saved several hundred dollars on airfare when he traveled to New Jersey to buy the company’s first used Mazak. He says that no matter how rich a company may seem, being cost conscious with a company’s money is the only essential and ethical way to run a business.

Question: Do you think it is nuts to run 60-year-old Acmes?

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Talking to Strangers

October 2, 2019 • 8 Replies

By Noah Graff

Not long ago our company made a deal to purchase a significant amount of machinery outside the United States. The deal seemed like a great opportunity, but we thought the sensible thing would be to visit the seller before making any purchase because he was someone who we had never met before.

I traveled a long way to meet him, and we spent several days together looking at machines. He brought his wife along with him for the whole trip. We had dinners together during which they told me about their children. His wife repeatedly acted like a concerned mother when she noticed my runny nose. They seemed like decent people, and they gave us a good price so we made a significant deposit on some machines. In the end, things did not go as planned. The company attempted to pocket the deposit and did not send any machines.

We felt dumb. We asked ourselves, how could we not have realized we were being conned?

I recently finished listening to Malcolm Gladwell’s new book, Talking to Strangers, which sheds some light on our experience. The thesis of Talking to Strangers is that the majority of people are incapable of judging the true character of others based solely on “getting to know” them. The book contains many powerful examples of people who seemed genuine but then turned out to be liars, along with other examples of people who seemed suspicious but turned out to be innocent.

Early in the book, Gladwell tells a story about multiple double agents in the CIA who spied for Cuba for many years before being uncovered. The agents who were supposed to be spying on Cuba were in actuality spies for Cuba! U.S. Intelligence agents who were supposed to have been “experts” on judging the honesty of other people were made to look like complete fools.

Gladwell discusses another example of flawed human character assessment in a passage about judges in New York whose job is to choose which suspects should be released on bail and who is too risky to let out of custody. Several elite computer scientists, a Harvard economist and a bail expert from the University of Chicago created a computer program to research the ability of the judges for discerning which suspects should be released. From 2008 to 2013 550,000 defendants were brought for arraignment to the group of New York judges, and the judges released just over 400,000.

The researchers built an artificial intelligence system and fed it the same information that had been given the judges in the 550,000 arraignment cases, mainly the defendant’s age and criminal record. The artificial intelligence system chose its own 400,000 defendants to be released over that time period to see which 400,000 releasees committed the fewest crimes on bail and made their trial date. The 400,000 released by the computer were 25% less likely to commit a crime than those chosen by the judges. The computer program only had the defendant’s age and rap sheet to make its judgment, while the judges also got to hear the arguments from the lawyers and look the defendants in the eye.

Gladwell also writes about Neville Chamberlain misjudging Hitler after meeting him several times. He writes about the people who misjudged Bernie Madoff and sex offenders such as Jerry Sandusky and Larry Nassar.

Gladwell says that the usual inclination of people is to “default to truth.” People want to trust other people because that trust is what makes society function. If the default opinion of a youth sports team coach is that they are a pedophile nobody would let their child play on a team, and nobody would take a job as a coach.

If my default opinion of every person selling machines is they are trying to cheat me, I will never be able to make any deals. Business must go on, and life goes on because I know most people are relatively honest. Going forward I will try to keep my guard up, and I won’t put as much stock into looking people in the eye.

Questions:

Do you trust most people you do business with?

Have you ever been conned?

Swarfcast Ep. 54 – E.J. Daigle on Technical Education That Works

September 27, 2019 • 2 Replies

By Noah Graff

In today’s podcast we discuss what a person can get for $20,000 per year at a highly regarded technical college. Our guest is E.J. Daigle, Dean of Robotics and Manufacturing at Dunwoody College of Technology in Minneapolis, Minnesota. He is also lead faculty member of the school’s top ranked robotic snow plow team. Dunwoody College offers associate and bachelor degrees in a variety of fields, such as construction sciences, engineering, robotics, architecture, and machining.

Scroll down to listen to the podcast.

E.J. explicitly talks about how Dunwoody emphasizes hands-on learning. He says that Dunwoody students in the machining department receive 15 hours of lab time per week working on equipment.Main Points of the Interview

(2:55) E.J. gives the history of Dunwoody College, which was started in 1914 in Minnesota by William Hood Dunwoody, an entrepreneur who made his fortune as a silent partner in the Washburn Crosby company, which later became General Mills.

(5:45) E.J. describes Dunwoody as a polytechnic college that offers certificates, as well as associates and bachelors degrees. He says that the school believes in a “learn by doing approach,” and that it is not uncommon for Dunwoody students to be in lab (working on equipment) 8 to 15 hours per week.

(7:53) E.J. tells his personal story of going into the U.S. Navy out of high school, where he worked on nuclear submarines for 10 years. Before his first submarine was commissioned, E.J. worked in the shipyards alongside the people constructing the vessel, which he says gave him a good view into a variety of manufacturing processes.

(9:50) E.J. draws parallels between the hands-on learning style he experienced in the Navy to that at Dunwoody College.

(13:50) E.J. talks about how Dunwoody approaches the diverse previous academic backgrounds of its students, particularly in math.

(16:05) E.J. talks about the success of a significant portion of older students at Dunwoody who are former laid off autoworkers

(16:55) E.J. says Dunwoody graduates around 20 students a year from its Machine Tool Program and the school generally receives 300 requests to hire them.

(20:10) E.J. cites studies which say in the next 10 years the manufacturing industry will be 2 million workers short.

(23:00) E.J. says that a 2-year associate degree costs $40,000 in tuition. He says that last year’s Machine Tool class had a 100 percent job placement. He also says it is not uncommon for a third of the students in the Machine Tool Program to quit after only one year because they find jobs they like before graduating.

(27:40) E.J. says that Dunwoody encourages its associate degree graduates to continue their education with the school’s programs for entrepreneurship, management, or engineering. Often students work and go to school part-time to further their education.

(32:00) E.J. says that too many kids pick colleges based on the wrong criteria, rather than choosing based on what they are interested in doing after graduation.

(35:35) E.J. talks enthusiastically about his experience as the lead faculty member of Dunwoody’s autonomous robotic snow plow team, which is ranked number one in the world.

(39:00) E.J. discusses some of the extraordinary projects that Dunwoody graduates have worked on, such as making components for the Mars Rover, and components that went into the drills that saved the Chilean miners.

Question: Is higher education worth the money?

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Baseball Hug

September 25, 2019 • 2 Replies

By Lloyd Graff

By the end of the phone conversation, we were both in tears. My daughter, Sarah, and I were lamenting the collapse of the Chicago Cubs again this year, right after they had blown their fifth game in a row in the last inning. It wasn’t the pain of the loss that caused the tears 2,000 miles apart during our cell phone hug. It was the raw emotion of the moment shared that epitomized thousands of moments of exultation and despair over a team that we both love.

This is the time of year Sarah and I talk sermons and baseball. She is a rabbi in the Bay Area, and her congregants know that somehow she will make a Cubs reference in her most listened to sermon of the year on Yom Kippur. For me, it is a treasured opportunity to reconnect with my first-born child, who I love deeply and respect so much.

How many of those ineffable shared moments do you get in a lifetime, when you both realize that there is just a finite number of those precious times left and you’d better grab and squeeze it like it’s a long fly ball that you have to leap for at the ivy in Wrigley Field and hold on to as you hit the bricks?

Sarah doesn’t know every batting average or the meaning of all of Javy Baez’s tattoos, or the kinds of cancers Jon Lester and Anthony Rizzo beat early in their Major League careers, like I do. But she has the love, the passion, and the hurting of a true fan.

Sarah’s husband, Scott, who I often text with during games, shares the whole Cubs thing with me, too. When Scott got back home last Sunday after attending a high school reunion in the suburbs of Chicago over the weekend, one of the first things he did was call me to commiserate over the implosion of our beloved Cubs to the hated Cardinals.

I love Scott as a person, as a husband for Sarah, and a wonderful father, but as lifelong bleeding Cubbie blue fans, we have something very special that few in-laws have—that sharing of moments, the jumping for joy feeling that makes up for those terrible emotions of watching a walk-off homer for the opposition in the ninth inning.

When I read the morning sports page, I often wonder why I spend so much time on the Cubs. Why do I still feel like Ernie Banks is my first cousin? Why do I still think of the Chicago Cubs when I bring up the memory of my mother, Thais Graff?

It’s the moments. It’s the moments that turn memory into feeling tears. You don’t know when they will come, but when you experience them, picture them, place them in the frame of your life, they bring a special joy that punctuates the everyday hurly burly.

This season has been a disappointment for me and the Cubs. It has been a long, often sad journey, but it has given me so many marvelous moments to share with Sarah and Scott and my wife, Risa, who has become a fan in her 60s, and Noah, and my granddaughters.

When I experience one of those shared moments, when I feel welling tears of shared emotion that don’t require any words, I feel so grateful to have my Cubs.

Question: Do you bond with your family over sports?

My Other Country

September 18, 2019 • 8 Replies

By Lloyd Graff

As I write this piece, Tuesday’s election in Israel is too close to call. Bibi Netanyahu and Benny Gantz are running neck-and-neck again. This is the second election because Netanyahu could not form a government after the first one in April, though he had a tiny majority of the seats in the 120-seat parliamentary free-for-all.

Why does this election mean a lot to me?

Israel is my country, almost as much as America is.

It was born when I was three, in 1948. Its wars were my wars. Much more than Vietnam, which was my war to fear and despise, Israel’s wars in 1948, 1956, 1967, and 1973 were the wars I felt in my bones. These wars were the wars where I prayed for victories. These were the wars that absolutely could not be lost, because that would have meant death to the heart and soul of the Jewish people.

I’m sure it is very hard for most people to understand how I feel about Israel – even for many younger Jews today

I am not a Holocaust survivor. I am not the child of a survivor, but I truly identify with their suffering. The passion of the survivors to build something great out of the ashes of their parents and relatives, as well as the passion of the children of the early settlers from Eastern Europe who did not come to America but lived the dream of making something wonderful out of the sand and dirt of the Holy Land, was a feeling I always connected with.

I have always been extremely emotional about Israel. I am sure I have mythologized it since I read Leon Uris’ book Exodus and watched Paul Newman in the movie. My wife and I named our first son Ari, the name of Newman’s character in the movie.

For most of my adult life my biggest charitable contributions have been to support Eretz Yisrael, the Hebrew name for Israel. I have only visited twice, but I think and dream about Israel often.

I am interested in the current election but not excited about it. From a practical standpoint, there is not that much to distinguish between the leaders, Netanyahu and Gantz, on the issues I care so deeply about, except that Gantz is allied with the secular parties.

They are both warriors who achieved their fame and importance through military service. Bibi Netanyahu spent part of his childhood in America and achieved a name partly from the valor of his brother who died on the Entebbe raid to free the Israelis whose plane was hijacked to Uganda.

Benny Gantz was a top general in the Israeli Defense Forces. They both stand for Israeli strength in the face of hundreds of millions of Arabs who hate the tiny Jewish Nation.

Netanyahu has the luster of presiding over the economic stardom of the country in recent years, as a cheerleader of “Startup Nation.” He has also been tarnished by pettiness, corruption, nasty politics, and unholy alliances with ultra-Orthodox religious parties.

Gantz and the opposition coalition have made the election about Bibi, just as the Democrats will make 2020 about Donald Trump, one of Netanyahu’s fans.

I have been listening lately to Steven Pressfield’s stunning book, The Lion’s Gate, about Israel and the 1967 six-day war against the Arabs led by Gamal Abdel Nasser.

Reading about the incredible valor and brilliance of 20-year-old Israel with 2.7 million people fighting alone for survival against the Russian-equipped armies of Egypt, Jordan, Syria, and Iraq is inspiring. I know Israel is not pure and unblemished. No country is. But I love it to my core. It is an integral part of my life. I really don’t care who wins the election as long as Israel always wins.

Question: Does Israel mean something to you?

Swarfcast Ep. 53 – Chris Manning on the Beauty of Bar Loaders

September 13, 2019 • 2 Replies

By Noah Graff

On today’s podcast we’re talking about bar loaders for multi-spindle screw machines. Our guest is Chris Manning. Chris has been installing and repairing integrated bar loaders around the world for 20 years, primarily Cucchi bar loaders. Integrated loaders, usually those made by Cucchi or IEMCA, replace the traditional stock reels on multi-spindles.

Scroll down to listen to the podcast.

Bar loaders may sound like a boring topic, but they are actually quite expensive and complex equipment. One integrated loader can enable a single machinist to run three machines at a time.

Main Points of the Interview

(3:10-8:05) Chris talks about his career path. He started as a chipper at a machine shop in Ohio in the ‘80s. Eventually he graduated to running and setting up cam multi-spindles. In the late ’90s he went to work at Gosiger, a machine tool distributor in Dayton, Ohio, where he sold Euroturn multi-spindles and Cucchi bar loaders. Later, he worked with Luca Lanzetta who took over distributing Cucchi. Since then he has worked for various other machine tool firms and started his own company Bar Loader Services.

(10:10-10:45) Chris explains that integrated loaders are best suited for long parts such as shafts and typically cost around $125,000.

(11:42-13:50) Chris discusses the mechanical process of integrated bar loaders. He says that if they are properly implemented in a shop, a Cucchi or IEMCA bar loader can enable one person to run three multi-spindles at a time.

(15:20) Chris explains the differences between Cucchi loaders and IEMCA loaders. He says the fingers on Cucchi loaders enable it to absorb vibration well and that they are far superior at running hex stock. He says he prefers IEMCA loaders for running very small diameters, 1/8” or smaller.

(20:10-21:30) Chris talks about the main technical problems he encounters in the field when bar loaders are poorly maintained.

(21:30-22:25) Chris speaks highly about the new MBL bar loaders produced by INDEX. He says they seem like a cross breed between IEMCA and Cucchi, taking the best characteristics of each.

(22:34) Chris says he is seeing more and more shops in the United States replacing multi-spindles with single spindle CNCs and CNC turning centers.

(26:45-29:05) Chris discusses the process of replacing a stock reel on a multi-spindle with an integrated loader. He says it is harder to replace a bar loader with a stock reel than to replace a stock reel with a bar loader.

Question: Do businesses need fewer people today?

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Trade War 7th Round

September 11, 2019 • 8 Replies

I keep trying to make sense out of the trade war with China. It isn’t easy. I use metaphors to describe the tariffs and the tit-for-tat jabbing of the two major powers. It is a bit like Ultimate Fighting Championship, but it is much more complicated. Donald Trump has an election battle coming up, and a booming economy is his biggest asset going into 2020. China’s Xi has no election, but he has Communist cronies who are not all fawning stooges.

Trump has immigration woes that he is trying to turn into a positive politically, but it isn’t working well. Xi has Hong Kong mass demonstrations, which are now more than an annoyance to his regime. It is a problem that is a public relations horror and potentially could spark rebellion within China, despite its rigidly controlled press. Just like a million people leaving Central America desperately knocking on the door of a country built by immigrants is a problem without an easy solution here, the longing for freedom in Hong Kong ultimately overflowing into China is a problem that just won’t evaporate.

China under Xi wants to overwhelm the United States in every way other than a shooting war. Manipulating outdated trading norms developed by Kissinger and Clinton and maintained without a whimper by every administration since then out of convenience and laziness has served China beautifully as it has eviscerated American industry and workers in exchange for $5 t-shirts at Walmart and Target. The Obama Administration timidly objected to the Chinese trade bullying, but had no taste for a trade war which would have been rather uncomfortable and unpopular.

Pugnacious Donald Trump was looking for a fight. He seems to thrive on nonphysical, non-shooting warfare. Advisors convinced him that it was a winnable war if he played it right. Tariffs were his weapon of choice.

Tariffs probably hurt China a bit more than they hurt the United States because we buy a lot more from them than they buy from us, and if the farmers take a fist to the jaw, Trump and Congress can cushion the hurt with subsides. If t-shirts bump up $0.50, Walmart can eat a little bit and the richer American workers can absorb their annoyance with fatter paychecks. China can manipulate its currency to cheapen its goods and the Fed can manipulate interest rates to make mortgages cheaper.

This is why, after two years of trade war, the American economy is still quite good and China’s economy is still growing.

The mavens in the press here have exaggerated the impact of the tariffs, and some are trying to talk the country into a recession for political purposes. It is having an effect: capital spending is slowing, and big business bureaucrats are becoming fearful because they tend to be sheep. Machine tool sales are weakening. Japanese production of machine tools is soft.

Was Trump right in picking this fight with China? Short-term, politically, it was dumb. Since most politicians only think in terms of the next election, it was a stupid aberrant move in their eyes. He hurts his base in rural America. Any gain for American industry is far away and foggy.

Barack Obama saw the same things as Donald Trump, but was afraid of confrontation. Trump relishes confrontation, but appears to lack a coherent strategy. The Chinese want to outlast Trump and may succeed, but Xi may be in trouble at home amongst his enemies because Trump has not folded yet. Hong Kong is potentially very dangerous for the regime with the Chinese home economy softening, and China’s ambitious plans for a Belt and Road initiative to aid developing countries seeming to have faltered.

Trump’s Huawei gambit has given Xi a black eye, but the company evidently has some attractive 5G products at good prices, which will allow it to weather the storm.

Put it all together and the two fighters have fought a draw through six or seven rounds of a 15-round bout. China has not given in on intellectual property theft, and America keeps jabbing them with tariffs.

I do not see a knockout or surrender in the foreseeable future. The stock market will be a yo-yo. Big business will play defense. Growth in both countries will gasp a little, but keep on going.

Is the battle worth the trouble? The Chinese certainly think so. Do we?

Question: Where were you on September 11, 2001?

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