It’s a very crucial time for U.S.-China trade relations.
By as early as the start of next week, the Trump administration is considering imposing tariffs on nearly 1,300 Chinese exports as a punitive action for alleged theft related to intellectual property (IP). CNN Money provides an indicative list of items that may be subject to tariffs and includes items belonging to the aerospace and marine equipment, manufacturing, and medical supplies sectors, among others. The combined worth of the Chinese items is estimated to be around $50 billion. (See also, The Basics Of Tariffs And Trade Barriers.)
The tariffs are the result of what the Trump administration says are its efforts to level the playing field with China, which has been long accused of dumping low-cost products in America and breaching intellectual property rights.
Will Tariffs Hit America More than China?
While the Trump administration is keen on tariffs, the bulk of American businesses and trade groups have a different point of view – tariffs will come at a big economic cost.
The reason is simple – America is primarily an importing nation. Tariffs will make goods costly and setting up manufacturing units locally will be a costly and time consuming venture. The cost advantage currently offered by goods made in China has many U.S. businesses running profitably.
Additionally, many startups will now be at a disadvantage if they have to import high cost goods and components due to the tariffs. Their foreign competitors will now have an edge as they will be able to continue to benefit from Chinese imports. Tariffs will also reduce the choice for consumers. Failure to import low-cost components for manufacturing and/or assembling in the U.S. for downstream products will have a detrimental effect on such businesses.
Before the tariffs are imposed, the US Trade Representative (USTR) will hear concerns, if any, from the various businesses, industries and trade groups representing various sectors such as retail, technology, steel and agriculture industries. The discussions are scheduled for this week, and will see participation from more than 120 business groups and industries.
Reactions from Trade Groups
One of Washington’s largest trade organizations, the National Retail Federation (NRF), has been vehemently opposing the tariffs, and its efforts include raising awareness among the public by running ads during popular TV shows. Highlighting the realistic problems faced by businesses, the NRF argues that retailers finalize vendors six-to-12 months in advance leaving no scope to cancel orders of Chinese items facing tariffs. The retailers will end up passing the high cost to end consumers.
Another trade group, the Consumer Technology Association (CTA), which represents more than 2,200 developers, manufacturers, and retailers in the consumer technology industry, is worried that the proposed tariffs will not only increase the cost of TVs made in China by around 25 percent, but also that of domestic TVs as certain parts are imported. CTA has also prepared a specific list of 193 items that it demands should be kept out of tariffs, which includes cash registers, steel nuts, and home dishwashers.
“Tariffs are the wrong approach and will only drive up prices for American consumers,” said Matthew Shay, president and CEO of the retail trade group, which represents retailers like Macy’s, BJ’s Wholesale Club and Sam’s Club, reports CNN.
The Story from the Manufacturing Side
The opinion of the steel industry differs.
U.S. Steel (X) said in its request to appear that it “wants the US government to apply more tariffs, specifically on the full range of tin- and chromium-coated steel sheet products,” reports CNN. Similarly, InSinkErator wants kitchen waste disposers — its main product — to be added to the list. These obvious demands are from domestic U.S. manufacturers who have been regularly taking a hit due to the cheaper Chinese imports.
Conglomerates like General Electric Co. (GE) are expected to be impacted in a big way. Of the 1,300 items potentially facing tariffs, roughly 1,000 are used by, and hence would impact, the diversified company in some way. GE has come out against the tariffs, but in case the government proceeds with the decision it wants certain items to exempt. They include “components that cannot be easily replaced.”
The Bottom Line
The buck may not stop at the initial list of 1,300 items. Another $100 billion worth of Chinese items are on the radar of the Trump administration, which may be added to the tariff list in the subsequent phase. With China starting to retaliate with similar measures and by imposing import duty on American goods, the risks of a massive trade war looms large. A recent NRF study suggests that 450,000 American jobs may be at risk if the two large global economies proceed with their respective tariff plans. (See also, Stocks That Could Be Hit by a Trade War With China.)