Trade war’s wounded

Com­pa­nies im­pro­vise to dodge cost hikes

The Guardian (Charlottetown) - - BUSINESS - BY PAUL WISE­MAN

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.”


Pres­i­dent Don­ald Trump speaks at the United States Steel Gran­ite City Works plant in Gran­ite City, Ill., last year.

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