Trade war threat casts long shadow amid ris­ing un­cer­tainty

China Daily European Weekly - - Front Page - By AI HEPING in New York ai­hep­ing@chi­nadai­lyusa.com

It has been called a trade spat, a trade dis­pute, a trade con­fronta­tion, a loom­ing trade war and even a trade bluff. On July 6, un­less there is some type of deal be­tween Wash­ing­ton and Bei­jing, the rhetoric was set to be­come real­ity: a trade war.

The United States would im­pose 25 per­cent tar­iffs on $34 bil­lion (29 bil­lion eu­ros; £25 bil­lion) worth of Chi­nese ma­chin­ery, med­i­cal in­stru­ments, air­craft parts and other goods. In re­turn, China would im­pose the same tar­iff rate on the same value of US goods, mostly farm prod­ucts and seafood.

Those di­rectly or in­di­rectly con­nected to the hun­dreds of prod­ucts fac­ing tar­iffs from the US and China — man­u­fac­tur­ers, grow­ers, mid­dle­men, con­sumers and even other coun­tries — would face the im­pact.

The only cer­tain­ties would be the loss of sales for some, sales gains for oth­ers and higher prices for many. The big­gest un­cer­tainty is what comes next.

US Pres­i­dent Don­ald Trump has threat­ened more tar­iffs: 10 per­cent on an ad­di­tional $200 bil­lion of Chi­nese goods and then an­other $200 bil­lion in tar­iffs for any fur­ther Chi­nese re­tal­i­a­tion. He also said he is con­tem­plat­ing a 20 per­cent tar­iff on Euro­pean cars.

China’s Min­istry of Com­merce has said the Trump ad­min­is­tra­tion is capri­cious and has fur­ther in­flamed trade provo­ca­tions, forc­ing China to make a strong re­sponse.

China is fully pre­pared to take mul­ti­ple mea­sures to re­spond if the US comes up with a new tar­iff list to adopt trade-dis­tort­ing prac­tices, a min­istry spokesman said.

The im­me­di­ate im­pact is ex­pected to be min­i­mal for most busi­nesses and con­sumers. But econ­o­mists say the world even­tu­ally could be pushed into a re­ces­sion by the com­bi­na­tion of the June 1 steel and alu­minum tar­iffs that Trump im­posed on Mex­ico and Canada — which ac­count for about half of met­als im­ported by the US — and the Euro­pean Union, as well as re­tal­ia­tory tar­iffs, in­clud­ing Chi­nese tar­iffs.

But Daniel Rosen, part­ner at eco­nomic re­search firm Rhodium Group, told The New York Times: “No­body can hon­estly claim in high con­fi­dence that they un­der­stand what the over­all im­pact will be. You may as well pre­dict the weather on a Tues­day af­ter­noon a year from now.”

For Stephanie Nadeau, owner of The Lob­ster Co in Arun­del, Maine, the po­ten­tial im­pact of a 25 per­cent tar­iff is clear. Around 70 per­cent of her lob­ster ex­ports go to Asian mar­kets, es­pe­cially China.

China’s im­ports of US lob­ster in­creased from $108.3 mil­lion in 2016 to $142.4 mil­lion last year as an emerg­ing mid­dle class can now af­ford them.

“It is Maine lob­ster­men, the men and women on boats in Alaska, and fam­i­lies har­vest­ing and pro­cess­ing seafood in the Pa­cific North­west who will feel the brunt of the ad­min­is­tra­tion’s mis­guided pol­icy. It is not clear where these trade ac­tions will ul­ti­mately lead; what is clear is that they will neg­a­tively im­pact Amer­i­can seafood jobs,” John Con­nelly, pres­i­dent of the Na­tional Fish­eries In­sti­tute, said in a state­ment to China Daily.

Busi­nesses and in­dus­tries across the US econ­omy have been lob­by­ing the White House to let up on tar­iffs for months, as have politi­cians of both main po­lit­i­cal par­ties, with lit­tle suc­cess.

And Trump has con­tin­ued to sing his own praise of the tar­iffs.

At a ground­break­ing cer­e­mony for a $10 bil­lion Fox­conn plant in Racine, Wis­con­sin, on June 28, he said: “We’ve put tar­iffs on steel and alu­minum. Those busi­nesses are through the roof.”

Some US steel­work­ers, de­spite be­ing the in­tended ben­e­fi­cia­ries of the steel tar­iffs, may lose their jobs.

No­volipetsk Steel, in Mercer County, Penn­syl­va­nia, im­ports as much as 2 mil­lion met­ric tons of steel slabs an­nu­ally. CEO Bob Miller has es­ti­mated that up to 1,200 jobs could be at risk. The com­pany could also pull back from planned plant in­vest­ments, in­clud­ing $600 mil­lion in Penn­syl­va­nia and In­di­ana alone.

Busi­nesses in Michi­gan are al­ready feel­ing the im­pact of the steel and alu­minum tar­iffs. Kent Ens­ing, vi­cepres­i­dent of sup­ply man­age­ment at fur­ni­ture man­u­fac­turer Her­man Miller in Zee­land, Michi­gan, says his com­pany does not im­port raw steel or alu­minum from Canada, Europe or Mex­ico, but has still felt the im­pact of the tar­iffs.

“US do­mes­tic mills raised their prices im­me­di­ately af­ter tar­iffs were an­nounced,” Ens­ing told the Hol­land Sen­tinel. “The cur­rent do­mes­tic prices are now equiv­a­lent to the im­ported prices with the tar­iffs.”

Behlen Man­u­fac­tur­ing Co in Colum­bus, Ne­braska, is a global leader in steel fab­ri­ca­tion, and now faces 30 to 40 per­cent higher do­mes­tic steel prices. Behlen does not use for­eign steel, but do­mes­tic prices rose af­ter the tar­iffs were in­tro­duced, just as they did af­ter tar­iffs in March 2002.

The Beer In­sti­tute — a trade group that rep­re­sents beer man­u­fac­tur­ers — says US brew­ers fill and sell about 36 bil­lion alu­minum cans and bot­tles per year. Alu­minum cans are the sin­gle largest cost in US beer pro­duc­tion, ac­cord­ing to anal­y­sis from eco­nomic re­search com­pany John Dun­ham & As­so­ciates.

The US beer in­dus­try cre­ates 2.23 mil­lion US jobs, which is 1.4 per­cent of the na­tion’s em­ploy­ment, ac­cord­ing to Dun­ham’s anal­y­sis. The alu­minum tar­iff will add $347.7 mil­lion in costs for brew­ers and put more than 20,000 of those jobs at risk, it says.

In Texas, oil and gas op­er­a­tors and con­struc­tion and man­u­fac­tur­ing de­pend heav­ily on steel and alu­minum from Europe, Mex­ico and Canada.

The new tar­iffs will only in­crease costs for those and other busi­nesses, still reel­ing from price rises from du­ties Trump im­posed ear­lier this year on steel and alu­minum from China and most of the world’s other sup­pli­ers.

Pa­trick Jankowksi, re­gional econ­o­mist at the Greater Hous­ton Part­ner­ship, a busi­ness ad­vo­cacy group, says the tar­iffs could spur an­other round of cost-cut­ting and lay­offs at Hous­ton en­ergy and man­u­fac­tur­ing com­pa­nies.

The state of Min­nesota said on June 28 that $641 mil­lion of its ex­ports — from steel to pork to soy­beans — would be af­fected by counter-tar­iffs from China, Canada, Mex­ico and the Euro­pean Union. This would com­prise $265 mil­lion in prod­ucts from Canada, $159 mil­lion from China, $150 mil­lion from the EU and $67 mil­lion from Mex­ico.

Wheat­land Steel and Trim is a Tower City, North Dakota, com­pany spe­cial­iz­ing in steel roof­ing. Moses Wipf, a man­ager with Wheat­land, says farm­ers might want to build them­selves a new barn, but the in­creased price of steel — and a lull in corn and soy­bean prices — might put this out of reach.

The only thing for sure is loss of sales for some, gains for oth­ers, higher costs for many “It is not clear where these trade ac­tions will ul­ti­mately lead; what is clear is that they will neg­a­tively im­pact Amer­i­can seafood jobs.” JOHN CON­NELLY pres­i­dent of the Na­tional Fish­eries In­sti­tute

The Kansas City Fed­eral Re­serve re­leased the re­sults of its June man­u­fac­tur­ing sur­vey on June 27, which showed strong growth, but man­u­fac­tur­ing ex­ec­u­tives are con­cerned that Trump’s tar­iffs on steel and alu­minum and Chi­nese prod­ucts could drive up prices and dis­rupt busi­ness ac­tiv­ity.

The Dal­las Fed’s man­u­fac­tur­ing sur­vey, re­leased the day be­fore, also con­tained con­cerns about the ef­fects of Trump’s tar­iffs.

“I can’t be­lieve the ef­fect the tar­iff re­sponse has had on the met­als trade,” a fab­ri­cated-metal pro­ducer said in re­sponse to the Dal­las sur­vey. “Some­body needs their head ex­am­ined if they think this is good for the Amer­i­can econ­omy.”

US agri­cul­ture will bear the brunt of the coun­ter­mea­sures to be im­posed by China.

Soy­bean grow­ers face a loss of 69 per­cent of Chi­nese sales, says Pur­due Univer­sity agri­cul­tural econ­o­mist Wal­lace Tyner, who an­a­lyzed data for the US Soy­bean Ex­port Coun­cil.

Soy­bean prices hit a nine-year low re­cently as China sought to buy the crop from other coun­tries.

US soy­bean ex­ports to China to­tal more than $12 bil­lion an­nu­ally.

The loss of US sales comes be­cause the re­tal­ia­tory tar­iff will make US soy­beans more ex­pen­sive than those China can buy from other coun­tries, prin­ci­pally Brazil.

Pork-pro­duc­ing states face re­tal­ia­tory tar­iffs on cer­tain prod­ucts shipped to China be­cause of Trump’s tar­iffs. Mex­ico has said it will raise the tar­iffs on cer­tain US pork prod­ucts from 10 per­cent to 20 per­cent on July 5.

As Mex­ico — a prime buyer of pork — looks for al­ter­na­tive sources, Brian Buhr, dean of the Univer­sity of Min­nesota’s Col­lege of Food, Agri­cul­tural and Nat­u­ral Re­source Sciences, says tar­iff-free Cana­dian and EU pork pro­duc­ers are look­ing to ben­e­fit at the ex­pense of US hog farm­ers.

Robert Ku­drle, an in­ter­na­tional trade pro­fes­sor at the Univer­sity of Min­nesota, says, “When­ever a buyer can eas­ily sub­sti­tute some­thing cheaper for your prod­uct, your mar­ket goes down.”

Whether the US pub­lic cares about farm­ers’ suf­fer­ing is any­body’s guess, Tyner and Buhr say. But what may rouse con­sumers is the rip­ple ef­fect of tar­iffs.

As In­di­ana, a steel- and alu­minum-pro­duc­ing state, cel­e­brated Trump’s im­po­si­tion of tar­iffs on im­ported metal, Tyner wrote a news re­lease re­mind­ing his fel­low res­i­dents that the state also is one of the largest pro­duc­ers of auto parts, and those ma­te­ri­als were about to cost sig­nif­i­cantly more.

The same can be said of ris­ing farm ma­chin­ery costs in ru­ral com­mu­ni­ties or any of the 300 fre­quently used boat parts fac­ing the tar­iffs im­posed by China, says Ni­cole Vasi­laros, senior vice-pres­i­dent at the Na­tional Marine Man­u­fac­tur­ers As­so­ci­a­tion. They cu­mu­la­tively could mean a $2,000 in­crease on 14-to 16-foot boats that gen­er­ally cost in the low five fig­ures.

The rip­ple ef­fect may fi­nally hit home when most peo­ple di­rectly ex­pe­ri­ence the im­pact of tar­iffs at the cash regis­ter, Ku­drle said.

The US tried to limit the first list of Chi­nese prod­ucts to be taxed to those that were not ev­ery­day pur­chases, Ku­drle added.

“You can do that when you’re putting tar­iffs on $34 bil­lion or $50 bil­lion worth of prod­ucts,” he said, adding that with Trump’s lat­est threat to add an­other $200 bil­lion worth of Chi­nese prod­ucts to the tar­iff list, that “will be im­pos­si­ble.”

SER­GIO FLORES / GETTY IM­AGES

A fish­er­man loads seafood into a tank on a boat in Texas. China’s US seafood im­ports have in­creased rapidly as an emerg­ing mid­dle class can now af­ford them.

TI­MOTHY FADEK / GETTY IM­AGES

An em­ployee ar­ranges cloth­ing at a Wal­mart Inc store in Se­cau­cus, New Jer­sey. Wal­mart is ex­pected to be hit if a trade war starts.

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