A Generation of Delinquent Teenagers

The Real Estate Espresso Podcast

A Generation of Delinquent Teenagers

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A Generation of Delinquent Teenagers

Welcome to the Real Estate Express, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasche. On today’s show, we’re talking about some trade measures that make no sense whatsoever.

If you have children who grow into adults, you know that if those children become overly dependent on their parents, they ultimately fail to launch. These are the children in their 30s and 40s, still living at home with their parents and having their parents subsidize their lifestyle. There’s no incentive for them to figure out how to become an adult because they don’t have to.

When countries overly coddle their industries under the guise of protecting domestic jobs, they’re doing the same thing as coddling an adult child, not sending them out into the world to prosper. Sometimes children are forced to grow up too fast. That happened to me. My mother was sick from the time I was 5 years old. As a result, I was forced to take on a lot more responsibility as an early teenager, and that made me a responsible adult at a very early age.

Now when an industry is protected, it’s the same thing as letting your teenager hang out in your basement for the next 20 years. They’re content with the status quo. They’re not really achieving great things and this brings us to the walled gardens of protectionist economics.

The US is imposing tariffs on Canadian steel. Canada’s not the problem. The Canadian steel industry is the equivalent of 1.5% of China’s steel industry. China has so much excess capacity in their steel that few countries can compete with China in terms of volume or cost. Chinese steel is about half the price of US steel or Canadian steel.

Now, tariffs have the effect of raising domestic prices to match the import price plus the tariff. That’s as a minimum. In the short term, the desired effect is to redirect the demand from imported products to domestically produced products, but since domestic supply cannot flex that quickly, the impact is simply one of rising domestic prices.

Now we could be talking about steel, but frankly, we could be talking about any commodity. We’re seeing duties being imposed on Canadian copper. The average time for a new copper mine to go from concept to production on a global basis is 18.7 years, and it’s over 29 years in the United States. Now, I know there’s a new copper mine opening in Arizona in the next couple of years. They plan to enter production on a fast-track over the next few years, but you need to bear in mind that nothing happened this past year that brought that new copper mine from concept to production in under three years.

U.S. sources about 10% of its copper domestically. Even the addition of a single mine is not going to move the needle in a significant way. When the market conditions are structural, international and the time constants are long, political influence and regulations don’t have a measurable impact.

We’re seeing tariffs now from Canada in response to U.S. tariffs, with a view to keeping competition from lower-cost geographies like China at bay. But history has shown that erecting these artificial barriers and fragmentations does not actually achieve the intended results. Walled gardens are orderly and they make it easy to predict who your customers are, but they don’t promote growth.

Let’s look at an example of a mature closed market to see exactly what happens. In Ontario, Canada, the market for eggs is controlled through a supply management system. This system aims to provide stability in the egg sector through supply and demand, and they 📝claim it ensures consistent quality and provides a fair return to farmers. Here’s a breakdown of how it works. The Egg Farmers of Ontario is an independent, self-governing organization that represents about 500 egg farmers across the province. They’re funded through fees and levies that are paid by the egg farmers for every dozen eggs they sell.

There are three pillars to the supply management. There’s production control, a quota system, where the egg farmers forecast the annual demand for eggs for table consumption and industrial processing, and based on this forecast, they set production targets and quotas. If you want to enter the business and start a commercial egg farm, you have to acquire a quota first. This can be expensive and acts as a barrier to entry for new farmers without significant financial backing. The quota system matches the supply of eggs to consumer demand and is designed to prevent both overproduction and shortages. Small-scale producers who don’t hold a quota are typically limited to a small number of hens, like 100, and they often cannot sell their eggs off their own property without undergoing costly grading operations.

The pricing mechanism is another pillar, where prices are set by the Board. Lastly, there is im…

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