Trade war’s wounded
Companies improvise to dodge cost hikes
In Rochester, New York, a maker of furnaces for semiconductor and solar companies is moving its research and development to China to dodge President Donald Trump’s import taxes - a move that threatens a handful of its 26 U.S. jobs.
In California’s San Joaquin Valley, the CEO of a company that makes precision parts for the biomedical and chip making fields jokes bitterly that he’s running “a non-profit” and might have to cut jobs.
And east of Detroit, a metal stamping company that supplies the auto industry is losing business to foreign rivals because Trump’s steel tariffs have raised metals prices in the United States.
Trump frequently boasts that the taxes he’s imposed on imports - steel and aluminum and nearly half of all goods from China - have showered the U.S. Treasury with newfound revenue. “We are right now taking in $billions in Tariffs,” he tweeted last month. “MAKE AMERICA RICH AGAIN.”
Yet tariffs like Trump’s account for barely 1 per cent of federal revenue. It’s actually companies like Linton Crystal Technologies in Rochester, Accu-Swiss Inc. in Oakdale, California, and Clips & Clamps Industries in Plymouth, Michigan, that are paying the price for his trade wars.
Tariffs tend to swell the cost of these companies’ materials and leave them at a competitive disadvantage to foreign rivals unburdened by import taxes. And their exports can be taxed when other countries retaliate with their own tariffs.
“Wars are messy,” said Todd Barnum, chief operating officer at Linton Crystal Technologies. “All the troops get hurt.”
Back in December 2017, Trump gave those companies and others a gift when he signed a measure that slashed the corporate tax rate from 35 per cent to 21 per cent. The next month, though, he started slapping tariffs on imports - beginning with solar panels and dishwashers, before moving on to steel and aluminum and then hitting $250 billion in Chinese goods.
“Thank you for the tax cut,” said Jeff Aznavorian, president of Clips & Clamps. “However, I’m not going to be benefiting because I’m not going to have any profits to pay tax on.” For his company, “tariffs have completely undermined everything good that those tax cuts brought.”
The higher costs resulting from Trump’s tariffs have yet to inflict much overall damage to a still-robust American economy, which is less reliant on international trade than most other countries are. Fueled by lower taxes, the economy grew at an impressive 3.4 per cent annual rate from July through September after having surged 4.2 per cent in the previous quarter. And employers added 2.6 million jobs last year, the most since 2015.
And while numerous companies are hurting from the president’s confrontational trade stance, some are benefiting from it. An aluminum smelter in Missouri reopened under new ownership this year, for instance, and credited the aluminum tariffs for reducing foreign competition and bringing 450 jobs to New Madrid County.
But for many businesses, the tariffs are escalating costs, creating hardships and magnifying uncertainty. The Institute for Supply Management’s manufacturing index plunged last month to its lowest point in more than two years partly because of the tariffs. And the Federal Reserve appears increasingly worried that damage from the trade war will undercut the economy.
The potential costs of Trump’s tariff campaign become clear early this month when Apple warned that trade hostilities with Beijing were hurting its business in China - a key reason why its first-quarter revenue would fall below expectations.
“It’s not going to be just Apple,” Kevin Hassett, chairman of the White Council of Economic Advisers, acknowledged to CNN. Companies with significant sales in China will “be watching their earnings downgraded next year until we get a deal with China.”