President Donald J. Trump signs the Section 232 Proclamations on Steel and Aluminum Imports – Photo: White House/Joyce N. Boghosian
Will America win the trade war?
It’s been said that no nation wins a trade war, but President Donald Trump disagrees. In March, he said that “trade wars are good, and easy to win.” With the imposition of tariffs today on $34 billion worth of goods imported from China, Mr. Trump will put his theory to the test.
China, which had said it would not “fire the first shot” in any trade war has responded to the American government’s action by imposing tariffs on a like amount of imports from the U.S. with likely targets including automobiles, pork and soybeans.
The Asian nation is not the only front in Trump’s battle, with Canada, the European Union and Mexico all imposing retaliatory tariffs of their own. Earlier this week, Canada placed tariffs on American goods valued at $12.6 billion in response to Mr. Trump’s imposition of levies of 25 percent on imports of Canadian steel and 10 percent on aluminum.
U.S. companies opposed to tariffs are taking steps to protect their businesses while drawing the public ire of the president. Harley-Davidson, the iconic American motorcycle brand, announced that it was moving some of its production outside of the U.S. to avoid some $2,200 being added to the sale price of its bikes in Europe. Mr. Trump has not taken the Harley news well. He recently took to Twitter to announce he is working with some of Harley’s foreign competitors to bring them to the U.S.
Retail industry groups have again voiced their opposition to the actions being taken by government.
“Retailers support a level playing field for America on the global stage, but punishing American families and the millions of American workers whose jobs are supported by trade is not the way to strengthen our trading relationships,” according to a statement issued by the Retail Industry Leaders Association. “This tranche of tariffs on both exports and imports threatens our nation’s prosperity, and will imperil millions of jobs if allowed to persist.”
“These tariffs will do nothing to protect U.S. jobs, but they will undermine the benefits of tax reform and drive up prices for a wide range of products as diverse as tool sets, batteries, remote controls, flash drives and thermostats,” said Matthew Shay, president and CEO of the National Retail Federation (NRF). “And students could pay more for the mini-refrigerator they need in their dorm room as they head back to college this fall.”
- Consumers Are ‘One Step Closer to Feeling The Full Effects of Trade War’ – National Retail Federation
- Retailers Warn Barrage of Tariffs Wil Put Consumer Jobs in the Crosshairs of Global Trade War – Retail Industry Leaders Association
- Trump’s Trade War Against China Is Officially Underway – The New York Times
- Trump doubles down: ‘Trade wars are good, and easy to win’ – CNBC
- Countermeasures in Response to Unjustified Tariffs on Canadian Steel and Aluminum Products – Department of Finance Canada
- Attacking Harley-Davidson yet again, Trump now says administration will boost competitors – Milwaukee Journal Sentinel
- International Trade and Investment – U.S. Chamber of Commerce
- Workers, Farmers, Families, and Business are All Losers in a Trade War – U.S. Chamber of Commerce
Discussion Questions
DISCUSSION QUESTIONS: How big of an impact will the trade war have on consumer purchasing and jobs in the U.S.? What should retailers do now in light of the Trump administration’s lack of responsiveness to their concerns?
Poll
BrainTrust
Paula Rosenblum
Co-founder, RSR Research
Mark Heckman
Principal, Mark Heckman Consulting
There is no question that the Trump trade wars will hurt American companies and workers. Retailers and other businesses need to express their opinions to their elected representatives and, come November, encourage employees to vote to protect their jobs (make it easier for employees to get to the polls). Only by throwing the rascals out do we gain their attention and force a move to the center.
Since major retailers like Walmart have already said they’re passing costs along to consumers, it will have a significant impact on the economy.
You know, not for nothing has China been around for 6,000 years (with six empires, I think over the course of that history — maybe more). No dummies there. We had a glorious century.
I always felt we should make more products in the U.S. Being a consumption-based economy is unhealthy. But not like this. This is too abrupt, not well thought-out, and will prove to be a failure.
As for the NRF, you lay down with the devil (Yay, tax cuts!) and you takes your chances (Boo, trade war!). You can’t have it both ways, kids, but no one asked my opinion. 🙂
Couldn’t agree with you more, on both points (trade war and NRF’s position). Let’s hope this craziness won’t last long enough to severely impact prices and families.
In such an interconnected world with intricate supply chains, it is hard to see how a trade war can have anything but a bad outcome. There may well be some small wins, but these will be offset by higher prices and higher costs for business. Ultimately that will negatively affect the consumer.
I agree with the President that some trade practices are not particularly fair, but these should have been worked out by negotiation rather than warmongering,
Trade wars often have unintended consequences — higher prices and job losses — but who besides the President doesn’t see this coming? The only question is whether the wave of tariffs will hurt consumers before or after the midterms, but it will have an impact. There are plenty of real issues (trade imbalances and China’s IP theft) that need to be addressed without punishing our allies over the issue of “national security.”
Retailers can do only one thing. They MUST pass the price increases on to the consumer just like they would do with any other tax. A retailer like Walmart that is buying directly from abroad will have a heavy tax burden (yes, tariffs are taxes by any other name).
Those that are not buying direct will feel the same pain as they will be paying more to their distributors. Even “Made in the U.S.” product is filled with foreign parts and components and the tariff will be passed on.
Tariffs have come and gone and have historically proven to be a job killer. The difference this time is that the global supply chain is so complex that even if the tariffs are withdrawn, the damage can last for decades.
Consider Airbus. About 20 percent of Airbus components are made in the U.S. Airbus is already working to find other suppliers. And they will. There is no uniqueness to what can be supplied by the U.S. versus other countries. Once Airbus replaces those U.S. components, they will not go back, even if tariffs are withdrawn.
China has just cancelled 1.14 million pound order of soybeans from the U.S. and replaced it with product from Brazil and various African countries. About 50 percent of U.S. soybeans go to China.
No need to go on. The winners of this trade war will be China and Europe. The U.S. will suffer irreparable harm. The U.S. trade team making policy has been wrong on every aspect of trade since Day 1. They are up against professionals who understand trade and are pragmatic.
The very concept of a trade war ignores the interconnectedness of the global economy. Supply chains are frequently integrated across countries. In addition, the perceived imbalance is often a result of focusing exclusively on goods rather than goods and services. The result of trade wars is likely to be inflation and a decline in both revenue and profit for American companies — the very ones that Trump states he wants to protect. Wasted time, wasted effort, lots of cost and a slowdown to the economy.
Now there are unequal playing fields, particularly with China, that need to be rebalanced. But trade wars are not the way to do it.
The bully tactics of President Trump have been a wake up call for trading nations. As a congenial younger sibling in North American life, Canadians (I am one) are caused to question their actions in the relationship. A few Boycott America groups have sprung up and sensitivity to the origin of purchases has increased. But the greater impact is below the surface as Canada naturally assesses areas such as Product of Canada labeling where economic inputs may include just packaging, warehousing and marketing. Canadians will reconsider profit transfer out of the country by American firms, brain drain of STEM graduates from an education system heavily subsidized by taxpayers, and even travel and tourism plans to America.
While trade tariffs have been the shot from the south, this shot has caused a renewed consideration on a number of fronts in the nature of the relationship between closely-knit neighbors.
Well I must be the only one who feels differently, as many of these countries have been taking advantage of the very low tariffs as they have exporting goods into our country. This can not be ignored, and Trump is just beginning to negotiate for a better deal, and it will eventually work itself out, as he certainly knows how to strike a deal that will be better for the U.S.
These other countries already know that the old way of dumping stuff here is over, and it should be, because in the long run American products need to be sold overseas with a level playing field, so we’ll see who blinks first, and I’m betting on us to come out with a deal that makes us competitive, which is what is needed to fix the imbalance that has been going on for five decades.
There is no winning. The U.S. will lose jobs as companies shift production to other countries to stay competitive. Companies will pay more for raw materials. Consumers will pay higher prices. In addition to all this the economy of the U.S., and possibly rest of the world, will slow. None of this is good news. Remember all the things retailers had to do when the economy was in bad shape after the 2008 crisis? They will have to do that again.
If I hear a so-called economic pundit tell me that “a tariff is a tax and not good for anyone” my head may explode. What I have not heard from any of these experts is that if the current round of counter-tariffs are not the answer in leveling the playing field among international traders and intellectual property cheaters — then what is?
The short answer is that there are few other viable options to motivate countries, friend and foe, to walk away from the gravy train they have enjoyed for decades when it comes to trade. The fact of the matter is that tariffs are not new. Onerous tariffs imposed on U.S. manufacturers and farmers by other countries have been inherently unfair and in fact have led to the demise of many industries.
Those that prognosticate doom and gloom should keep in mind that the tariff salvos that are being batted about are projected by the Tax Foundation to effect U.S. GDP by a less than 1 percent, which could easily be neutralized by continued domestic growth. While soybean farmers and a few other sectors may need some short-term help, the end game is a noble one.
In addition, China has much more to lose in a full fledged trade war with the U.S. Unlike the U.S., their economy is sputtering already and is heavily dependent upon U.S. exports to fuel their growth.
Finally, if the prognosticators of doom are correct and the U.S. economy stalls due to these new measures, the Trump administration is keenly sensitive to the relationship of economic growth and their political standing. I think we all hope for some behind-the-scenes negotiating that mitigates the likelihood of a full out trade war. My counsel to retailers is to be mindful of the overall health of the U.S. economy and understand they may have to take short-term steps to cut costs and expense to remain competitive on commodities that may be affected. Retailers have proven they are rather good at taking such steps.
It would be a compliment to call this trade war mindless stupidity. It’s way worse than that. It’s premeditated stupidity. Yes, there are some real issues that need to be dealt with — with very mindful negotiations. But those don’t get headlines and they aren’t tweet-worthy. We are treating our friends and allies and the nation’s consumers with utter disrespect for what will surely be a painful outcome.
The inter-connectivity of trade between nations took years to develop and become a highly-functional supply chain manufacturing system. The decisions to place an auto plant in a specific location based on sending parts back and forth across the Canadian and Mexican borders for example were long-term capital investments based on an assumption of stable trading rules. Turning those rules on their heads virtually overnight will lead to unpredictable cost outcomes but also supply chain disruptions. Of course prices to consumers are going to go up, not just due to tariffs, but likely due to inefficiencies and interruptions that are now going to surface in a global system. These impacts will not just be difficult to model, they will also be difficult to undo later on. The largest impacts will probably be to those least able to afford increases on staples and basics. Good thing they have those tax cuts to balance the differences — oh wait …
Hang on to your hats folks and batten down the hatches. We are in for some rough seas because of (you fill in the blanks).
Straight from the Heritage Foundation.
Some Americans will be badly hurt by the President’s plan to jack up the price of steel and aluminum by imposing tariffs on those imports.
A new report utilizing the same economic model as the Commerce Department found that the net job losses caused by the proposed tariffs will be 146,000 jobs.
Engaging in free trade with other countries is not a zero-sum activity. Winners from free trade vastly outnumber the losers both in and outside the United States.
To this I will add what my grad school advisor, Dr. Larry Ritter, head of the Economics Department at NYU, told us in his International Economics class 30 years ago — free trade is required for a healthy international banking and monetary system. Anything that staunches (he liked that word) free trade will ultimately staunch the flow of capital and that in turn will cause economic contraction in the offending countries.
It all depends on how long it goes. If it’s short, the impact should be negative, but easily overcome in time. If it continues, even for a mater of months, it could create a huge downturn. As to the second question, the only way to get his attention is to vote in candidates, from either party, who won’t automatically tow his line.
The primary reality not being raised loudly enough when government officials and politicians talk about trade wars is that this is not a zero-sum game. Today’s supply chains are far too intricately connected and heavily globalized that to believe otherwise is purely naive. Gone are the days when you can assume a label that says it was made in any particular country was fully sourced in the same country. When even “made in the USA” cars only have to have 75% US-made parts to qualify, what are we really trying to protect with these trade wars? There can be no winner. Now, are there unfair trade practices? Absolutely. But imposing senseless tariffs and taxes won’t accomplish anything positive, only negative results that hurt every individual and family consumer.
It truly makes me believe our government leaders failed basic economics. Perhaps when you’re one of those government officials (or politicians) you don’t think price increases on consumer goods matters, but to the rest of us, it does!
Everyone loses in a trade war. Unencumbered trade thrives because it has proven time and again that trade is the economic lubricant of success. Its impact on US jobs, products, and economic performance cannot be overestimated. Retailers should encourage their employees to push their congressperson to close the trade loophole which empowers the president to impose trade tariffs unilaterally during “time of national security”. The power to tax is vested in Congress except for this exception which Congress passed in 1962. Only Congress has the power to revoke this.
Given that we have record low unemployment*, I’m not sure which jobs were not being protected, and presumably will be coming back; but we’ll see, and perhaps Studebaker will announce they’re planning on resuming production. As for prices, I expect the impact will start off small…and stay there.
Retailers will do what they always do: the best they can to muddle thru.
* Qualifications apply, see an economist for details.
This president had the good fortune to enter office with a strong economy, and now has the opportunity to put his own spin on things. Our trading partners will have no choice but to match his tariffs, and retailers will have no choice but to raise prices. Winning!
We need a scalpel. We picked up a machete instead.
America, as in the United States of, is the only prize in the so called trade war. That said, we may conclude with a great deal of accuracy that the war ended already. The emerging third world nations are full of very low income consumers that struggle with basic needs to the extent that discretionary income is measured in pennies. Collectively this amount of money is staggering, but the cost of profitable access is highly evasive at best with a dangerously low net profit and high risk. Had the European Union remained intact and profitable, the Third World producing nations might have made a go of it without the USA. But even with this they would be confronted with slower and lower turns with an intense drive to lower prices further.
That said, the world must come to a new trade perspective and much more skill at negotiating.