Trump’s tariffs could prove costly to Americans

CHINA, MEXICO

PAUL WISEMAN AND JOE MCDONALD WASHINGTON • American consumers and businesses would pay — literally — if president-elect Donald Trump followed through on his campaign pledge to slap big taxes on imports from China and Mexico.

Trump said during the campaign that he’d impose tariffs of 35 per cent on Mexican imports and 45 per cent on Chinese imports to protect American jobs from unfair foreign competition. Companies that import those goods would pay the tax at the border.

Many of those firms

“Everybody talks about tariffs as the first thing,” Wilbur Ross, an investment banker who is Trump’s choice for Commerce secretary, told CNBC Wednesday. “Tariffs are part of the negotiation.”

They would also be risky. Tariffs could ignite a trade war if, as expected, China and Mexico retaliated by imposing tariffs or other sanctions of their own on the United States.

Analysts say Trump might rethink his tough trade talk once he fully weighs the costs — not all of which would be economic. A trade war would likely have diplomatic consequences, making it harder, for example, to enlist China’s help in trying to defuse the threat from North Korea’s nuclear ambitions.

“It will only result in collateral damages to both sides,” says economist Song Lifang of Renmin University in Beijing.

Even without a broader conflict, tariffs can damage corporate America. Back in 2002, president George W. Bush imposed tariffs of up to 30 per cent on imported steel. American steel producers took advantage of the tariffs to raise their own prices, thereby squeezing U.S. industrial companies that buy steel. The Consuming Industries Trade Action Coalition, representing steel buyers, has said the tariffs cost thousands of U.S. jobs.

“That was an awful thing for us,” says Bill Smith, president of Termax Corp. of Lake Zurich, Ill., which makes fasteners for the auto industry. “We are pretty nervous here at Termax” that Trump will target Chinese steel with tariffs again.

Smith says Termax wouldn’t be able to pass along the higher cost to its automaker customers — “They can just choose to use a different (foreign) manufacturer” — and would have to absorb the costs itself.

Ford Motor CEO Mark Fields warned on CNBC last month that a 35-percent tariff on imports from Mexico, where Ford is building its Focus compact car, “would affect the entire auto sector.”

“A lot of us are hoping that his overriding need to grow the economy and create jobs will soften and mitigate some of the more harmful actions he could take on the trade front,” says Joshua Meltzer, senior fellow at the Brookings Institution.