On Tariffs, Trade Wars, and Unintended Consequences

Trucking largely supported Donald Trump for president because of his promises to reduce regulation (which he’s been working on) and put in place pro-business policies (such as the tax cut.) But his trade war has a great many businesses concerned, if not up in arms – and it could even affect the economy.

The administration has slapped tariffs on billions of dollars worth of steel and aluminum imports from China, the European Union, Canada and others, and the president has said he is considering extending them to the auto sector.

So what’s the problem? One, the steel tariffs imposed by the administration are affecting U.S. companies that make things with steel. Two, worldwide retaliation for U.S. tariffs are affecting everything from Harley Davidsons to cheese and soybeans.

While Trump promised to “bring the steel industry back,” his tariffs are having a negative effect on other industries in the U.S.

Two economists with the Council on Foreign Relations analyzed historical data to estimate the impact of a 25% steel tariff on auto sales and project that steel tariffs will force an increase in auto prices, leading to a decrease in sales, which could result in auto-industry job losses ranging from 18,000 to 40,000 by the end of 2019 – up to nearly a third of the industry workforce.

CNN Money reports that the largest U.S. nail manufacturer is “on the brink of extinction” because of steel tariffs.

Wisconsin-based Harley-Davidson last year sold about 16% of its bikes in Europe. The manufacturer announced June 25 in a regulatory filing that it would shift some production of motorbikes outside the U.S. to help it avoid the burden of retaliatory tariffs slapped on the bikes.

U.S. ports are worried that the trade battle could affect their business. Los Angeles, the nation’s largest container port, said 15% of its cargo business could be affected.

The Wall Street Journal reports that Cummins is preparing to deal with tariffs on products the engine maker imports from its own factories in China to sell in the U.S. or use in its American plants. “China accounts for about 10% of Cummins’s global sales, and the U.S. tariffs could expose the company to retaliatory tariffs from other countries where it sells its U.S.-made engines. That could hit plants like one in Seymour, Ind., where Cummins has invested more than $300 million to make more engines for export.”

And these are just a few examples.

More than 55 trade associations raised alarms over these trade policies in a letter sent to leaders of the Senate Committee on Finance leadership and the House Ways and Means Committee leadership, including the Truck & Engine Manufacturers Association and the Motor & Equipment Manufacturers Association (which includes the Heavy Duty Manufacturers Association), alongside such groups as the National Retail Federation, the Grocery Manufacturers Association, and the American Soybean Association.

CBS News reports that “some economists say a trade war could cancel out faster economic growth from last year's tax cuts, while rising prices would effectively eat up the small tax windfall most Americans got.” Given the fact that consumer spending makes up some two-thirds of the nation’s gross domestic product, that’s a concern. In fact, a June monthly survey of 272 U.S. business leaders by Chief Executive magazine found growing fear about global conflict on trade matters.

The U.S. Chamber of Commerce is expected to spend millions of dollars ahead of the November elections to help candidates who back free trade, immigration and lower taxes.

“The administration is threatening to undermine the economic progress it worked so hard to achieve,” said Chamber President Tom Donohue (onetime American Trucking Associations chief) in a statement. “We should seek free and fair trade, but this is just not the way to do it.”

Nobody "wins" a trade war – but there may be a lot of losers.

Related: Daimler Talks Truck Sales, Tariffs, and Globalism