Bruising Our Shins
By Stephen Tuttle | May 25, 2019
Let's see how that trade war thing is going.
Our Congressional Budget Office (CBO) says there is not yet evidence of any increased economic gain as a result of the tariffs we've imposed, and it appears the number of jobs gained and lost are about the same. Several companies, including Walmart, Target, and Macy's, have already indicated the tariffs will likely force price increases on multiple items.
And our trade imbalance with China this year is projected to be $45 billion more than it was last year. None of that sounds so good.
The tariffs imposed by the president are essentially one of his classic negotiating tactics, a kind of economic strong-arm approach. He hopes that Chinese manufacturers — and we import about $500 billion worth of goods from them a year — will lose business, forcing the Chinese to make a trade deal they don't want to make, or would have already made.
Analysts at the International Monetary Fund (IMF) believe a prolonged trade war really will hurt China. Declining exports to the U.S. would stunt their economic growth and add to their already ballooning debt. Manufacturers moving to other low-cost locations would make things even worse.
But all of that is a long-term hypothesis, and there is already some short-term pain evident here at home, especially in rural America and farm country.
Some of the electronic components crucial to rural power and communications grids are either being heavily tariffed or banned outright as being the product of intellectual theft. In some cases, nobody else makes the necessary components or replacement parts, so extra cost will result in higher rates.
It's been even worse for some of America's farmers who exported nearly $24 billion worth of agricultural products to China in 2017, more than any other country. China's retaliatory tariffs struck directly at that sector and went beyond on some products.
They added tariffs to soy-made products and oils but canceled soybean purchase orders outright. American farmers exported $14 billion worth of soybeans to China in 2016, but just $3.1 billion last year. According to the U.S. Department of Agriculture, net profits for American farmers fell $12 billion last year, due in part to sagging exports to China.
Now, for the second year in a row, we will subsidize farmers billions of dollars to help them survive the tariffs they were told would help them.
Even if this escalating trade war hurts China to the point that companies start relocating out of the country, it isn't likely they'll be coming here. Some have already moved out of China, especially apparel makers. If they could manufacture as efficiently and as cheaply by manufacturing in the United States, they would already be here.
Take a quick peak at the labels in your closet or in your shoes. Classic “American” brands like Nike, LL Bean, and Wrangler come from all corners of the planet but not here. My own none too impressive closet boasts labels from Sri Lanka, Bangladesh, Indonesia, Mexico, El Salvador, Malaysia, India, Nicaragua, and ... wait, what's this? A Hawaiian shirt made in Hawaii, an outlier.
Not content to feud with just China, our Commerce Department has now declared imported European and Japanese vehicles and vehicle parts to be a “national security threat.” I'm not making that up. The president has 180 days to determine if he'd like to slap tariffs of up to 25 percent on those demon European and Japanese imports.
That would impact every new vehicle sold in the United States because every one of them uses imported parts. Every one.
The Jeep Cherokee, assembled in Illinois, was the most American-made car in 2018, with about 75 percent American-made parts. Alas, the iconic American brand is no longer an American brand. Jeep is owned by Chrysler, which is now owned by Italian company Fiat. The Honda Odyssey, assembled in Alabama, is the second most American-made car.
There actually is no such thing as a purely domestic vehicle anymore. Everybody gets some parts from somewhere else. Increasing the cost of imported parts hurts GM and Ford as much as it does foreign-based makers. Stagnating vehicle sales aren't likely to help anyone. It sounds like we're creating a national economic threat rather than resolving a national security threat.
Add all of this together, and the Brookings Institution researchers say it could cost us 2.1 million jobs. The IMF says it could shrink our gross domestic product by three percent. Not good at all.
The president sees an America from the 1950s, with billowing smokestack and the auto and steel industries atop the manufacturing pyramid. He believes he can bluster his way into trade deals the same way he did business deals. But he clearly doesn't understand the realities of a global economy and the international interdependence of modern manufacturing.
Kicking China, Japan, and Europe may well leave bruises on our shins.