Trade war talk causes the worry to spread
The U.S. is not yet embroiled in a full-scale trade war, but the first shots have been fired by both sides. And American companies, as well as the U.S. operations of foreign firms, are bracing for the pain.
Electrolux, Europe’s largest home appliance maker, has shelved a $250 million expansion of a plant in Tennessee. American automakers are forecasting rising prices. The maker of Jack Daniels is warning analysts of a potential hit to earnings.
President Trump on Thursday signed proclamations for a 25% tariff on steel imports and 10% on aluminum imports.
He said Canada and Mexico won’t be subject to the duties if the two countries and the U.S. can renegotiate
“Once the U.S. raises tariffs, we are going down the rabbit hole.” Mark Zandi Moody’s chief economist
the North American Free Trade Agreement.
The European Union has said it will retaliate by slapping tariffs on products such as bourbon, peanut butter, cranberries, orange juice, motorcycles and jeans.
Meanwhile, the White House is considering separate tariffs on China for intellectual property theft that could raise clothing prices for Ameri-
can consumers and threaten U.S. jobs.
The impact of the conflicts on the U.S. economy is expected to be modest under the most likely scenario — trading partners most affected by the steel and aluminum duties responding in kind. Over the next 18 to 24 months, the U.S. economy would be trimmed by 0.12 percentage point and the country would have 190,000 fewer jobs, according to Moody’s Analytics.
The effect would be subdued because other countries are likely to impose only measured tariffs that roughly equal the value of their exports to the U.S. that have been affected, says Gary Hufbauer, senior fellow at the Peterson Institute for International Economics.
But if the trade skirmishes cause NAFTA negotiations with Canada and Mexico to break down and the conflict spreads, it could bust out into a historic trade war that costs the U.S. economy nearly 4 million jobs, Moody’s says. The seventh round of North American Free Trade Agreement negotiations has wrapped up in Mexico City with only limited progress.
“Once the U.S. raises tariffs, we are going down the rabbit hole, and it is anyone’s guess how this plays out and how much economic damage it will do,” says Moody’s Chief Economist Mark Zandi.
The 25% steel tariff by the U.S. could push up the price of the imported material so sharply that it “could damage the overall competitiveness of (Electrolux’s) operations in the U.S.,” the company told Reuters.
Paul Varga, CEO of Brown-Foreman, which owns Jack Daniels, said in an earnings call Wednesday that the company could become an “unfortunate and unintended victim” of the tariffs if the iconic whiskey brand’s overseas sales are damped by European duties.
Car prices may rise
Hyundai spokesman Jim Trainor says U.S. steel and aluminum tariffs and potential retaliatory duties by other countries could “negatively impact our current U.S. production” by raising costs and leading to higher prices. The company has a plant in Montgomery, Ala., that employs 2,500.
Autotrader analyst Michelle Krebs estimated the proposed tariffs would add about $200 to the price of an average car. While that may not sound like much, she noted interest rates on car loans are already headed up, forcing many middle-income Americans to opt for used cars at a time when sales of new cars are already under pressure.
About half the increased expense of steel and aluminum would be absorbed by automakers rather than consumers, leading to lower profits, predicts Barclays auto analyst Brian Johnson. The auto industry accounts for about a fourth of the steel used in the U.S. If the tariffs take effect, Ford and General Motors would face increased costs of about $260 million and $215 million annually, according to Barclays.
Sergio Marchionne, CEO of Italian-American automaker Fiat Chrysler Automobiles, which would face similar challenges, urged restraint to prevent a trade war between the U.S. and Europe.
“I’m suggesting that we stop playing tit for tat, that we get our blood pressure to go back down to normal and we sit down at the table and find a way to resolve this issue. I don’t think we have to escalate this into a full-blown trade war,” Marchionne said at the Geneva Motor Show, according to CNBC.
Aerospace companies are also nervous. “America’s aerospace and defense industry is deeply concerned that the anticipated tariffs on aluminum and steel will raise costs and disrupt the supply chain, putting U.S. global competitiveness at risk,” the Aerospace Industries Association, the voice of the U.S. aerospace sector, said in a statement this week.
Last week, AIA President and CEO Eric Fanning told CNBC: “This is going to impact companies big and small in the aerospace and defense world. More importantly, we’re concerned about retaliation.”
Farmers threatened by job losses
Iowa farmers, meanwhile, worry that Canada, Mexico and China will slap tariffs on their corn, soybeans, pork and beef. The entire Iowa congressional delegation wrote to the president Wednesday urging him to back off the tariffs.
At a legislative breakfast over the weekend, Iowa Congressman Steve King, a Republican, told residents of his native northwest Iowa that he opposed Trump’s steel and aluminum tariffs because of what they could do the agricultural market. “It will be the ’80s all over again,” King said, referring to the 1980s farm crisis that put 10,000 Iowa farms out of operation.