Trade Tariff Wars Already Costing Us More
August 3, 2018
By Arturo Castañares / Publisher and CEO
Import tariffs against America’s biggest suppliers were announced by President Trump to protect U.S. manufacturers and, therefore, U.S. workers.
But, the modern world of interdependent global trade is not a simplistic game of Monopoly with colored money and plastic hotels. In reality, trade is a delicate balancing act.
Last month, President Trump imposed tariffs on $34 billion of Chinese-made machinery and electronics to protect American businesses like Caterpillar and U.S. electronics companies, fulfilling one of his signature campaign promises of putting America first.
Economists, except for the few inside Trump’s orbit like radical former San Diegan Peter Navarro, cautioned that a trade war with China would result in higher prices for U.S. consumers. Critics be damned, Trump forged ahead.
“Tariffs are great,” Trump tweeted last week, claiming that America has been the “piggy bank” to other countries because of trade agreements.
In response, Chinese retaliated with tariffs on American soybeans, pork, beef, Whiskey, and other exports from our country’s heartland, and the heart of Trump’s voter base.
Similarly, Trump imposed tariffs on steel and aluminum from Canada, one of our greatest trading partners, claiming it was to protect our national security.
As expected, Canada imposed retaliatory tariffs on American goods and Canadian citizens began boycotting our exports.
Another one of Trump’s tariffs was aimed specifically on washing machines because American companies complained about less expensive Chinese brands stealing their market share. American retailers cheered.
And Trump also imposed tariffs on goods from the European Union, our largest trading partner, including their steel and aluminum, and even threatened to penalize German cars. The EU also responded with similar tariffs on U.S. goods, especially bourbon, jeans, cigarettes, and motorcycles.
American companies like Harley-Davidson, Alcoa, and Whirlpool welcomed Trump’s tariffs as important tools to combat cheap foreign imports and argued that Americans would be better off with tariffs.
We’re now months into a trade war that shows no signs of ending soon, and, instead, more tariffs are being announced by both sides.
So far, though, the tariffs seem to have backfired on the very companies Trump sought to protect.
Harley-Davidson recently announced that it plans to move some of its motorcycle production overseas because the new EU tariffs will add $2,200 to the cost of its motorcycles in Europe, and cost the company about $100 million per year. American jobs will be lost.
Whirlpool this week announced that its profits have fallen 15 percent despite trade protections because its steel and aluminum costs have skyrocketed. Overall, the cost of washing machines in the U.S. have gone up about 20% so far this year, and demand has fallen as consumers delay purchasing new machines.
Even American oil and energy companies are feeling the pain of import tariffs. Increases in new drilling operations for oil and natural gas require huge amounts of steel for pipelines and drilling wells, and U.S. steel companies can’t keep up with that demand. Traditionally, steel from South Korea helped meet the demand, but Trump’s 25% tariffs are putting some projects at risk. The American Petroleum Institute said the tariffs are undermining domestic energy production and raising gas prices.
And last week, Trump announced a plan to pay out $12 billion in emergency subsidies to U.S. farmers hurt by tariffs on their export products. The plan has already been called “welfare” and a “bailout” by Republicans lawmakers. U.S. soybean prices have fallen 25% this year because of the trade war and have left many farmers unable to make a profit on their harvests.
Ironically, government subsidies to prop up an industry not only distorts free markets, but it’s exactly what Trump complains that China does to support its domestic companies in undercutting U.S. producers. We’re now doing unto others as we wouldn’t want others doing unto us.
Trade wars are not zero-sum games with a clear winner and loser. When one country’s exports become less competitive in a certain country, they market those good somewhere else. Foreign manufacturers are now sending their goods to some of the countries the U.S. has alienated with tariffs, and those counties are also buying fewer American goods. In the end, a country with tariffs usually ends up with less supply and, therefore, higher domestic prices.
If the prices of BMWs go up and Americans look to buy Fords instead, those prices may be higher too because of higher steel and aluminum prices. Americans lose by having higher prices and fewer choices. GM and Chrysler stocks have fallen about 10% based on lower earnings forecasts because of, you guessed it, higher steel costs.
Very few American industries are truly self-sufficient to the point that imported raw material prices don’t affect them. Every American car has some imported parts, Alcoa buys raw aluminum for some of its products, and the majority of products in Wal-Marts arrive in containers from some foreign port.
Because of this trade war, our already-high gasoline prices may rise even more, new washing machines are now more expensive, and new cars prices are going up, too.
Launching trade wars and turning toward economic isolation is a dangerous, expensive, and painful road in today’s global economy. The U.S. is the world’s largest consumer market and needs a healthy balance of imports and exports to keep our economy in balance.
Smart negotiations in trade agreements with worker and environmental protections are good goals for our country. Punitive tariffs are ineffective blunt tools that end up hurting the very people they claim to try to help.
Last week’s meeting with EU President Jean-Claude Juncker sounded like progress but only included a commitment hold off on automobile tariffs and a promise to work to resolve steel and aluminum tariffs, not a complete settlement of our escalating trade war.
Trump should let experienced trade representatives hammer out changes to NAFTA, the TPP, and new EU pacts to deal with some inequities without bombastic threats of new tariffs or imposing self-inflicted economic chaos.
We cannot just ignore that China, Canada, and the EU are important trading partners that benefit both American consumers and producers. They are not our enemies.
Tariffs may be good campaign slogans, but they have already hurt Americans in the worst way: in the wallet.