The Ripple Effects of Trump’s Steel and Aluminum Tariffs: Expect Widespread Change (for Good or Bad)
The Administration’s latest move to shore up the U.S. trade deficit could have unintended consequences on businesses that account for the lion’s share of American jobs.
PHOTO CREDIT: Getty Images
When Nicole Sahin launched her recruitment firm, Globalization Partners, in Boston in 2012, she banked on the premise that U.S. businesses were increasingly looking to grow and expand their teams internationally. Her more than $100 million services company helps businesses hire foreign workers in more than 130 countries worldwide, but she's concerned that new tariffs on imported goods could give her clients pause, and ultimately impact their bottom lines.
"Tariffs make everybody freeze up," Sahin says. "Our clients need to have [some degree of] predictability to build and expand their businesses globally, which includes pricing and sales decisions. Now, any company that relies on steel or related businesses is not as likely to hire salespeople abroad or try to capture new markets."
Earlier this month, President Trump announced that he would impose sweeping tariffs on steel and aluminum imports. The tariffs--of 25 percent and 10 percent on steel and aluminum, respectively--are set to take effect this week, though some countries may be exempt. The move is aimed at reducing the U.S.'s staggering $568 billion trade deficit, which is particularly steep with China. On the campaign trail, Trump repeatedly lambasted the world's most populous nation for what he described as shady trade practices that impacted local manufacturers, and promised to introduce new trade policies that would benefit U.S. businesses.
The impact of these tariffs on local manufacturers could be costly--particularly those that source, say, auto parts from abroad--but what's less clear is the impact such tariffs might have on U.S. services. Indeed, some have argued that the more Trump focuses on obtaining favorable terms for the producers of goods, the worse off services businesses will be; for instance, they could lose valuable clients as makers rush to reallocate funds. Travel, alone, represented $204 billion in service exports in 2016, while financial services and the trade of intellectual property notched $59.9 billion and $66 billion in 2016 exports, respectively, according to the most recent available Fed data. As the New York Times' Neil Irwin pointed out last week, services actually account for the lion's share of American jobs: 84 percent of private sector workers, while manufacturing represents only around 20 million total positions.
Irwin suggests that the ripple effects to the new steel and aluminum tariffs could put dozens of service entrepreneurs at a competitive disadvantage, and ultimately hurt companies' sales, potentially leading to layoffs.
"We really believe there is a possible negative chain reaction," says Melissa Blaustein, the founder and CEO of the Brussels, Belgium-based advocacy group Allied for Startups, which represents the interests of private companies across borders to local governments. "Anytime you introduce a new barrier to entry--including tariffs--it makes it more difficult for startups to create the products and services they want in the long run," she adds.
To wit, Allied for Startups is among the more than 40 U.S. business groups--representing giants including Walmart, Google and Costco--that recently joined the U.S. Chamber of Commerce in urging the President to reconsider the tariffs. In a letter issued on Sunday, the groups highlighted concerns with the new moves. "The imposition of sweeping tariffs would trigger a chain reaction of negative consequences for the U.S. economy, provoking retaliation stifling U.S. agriculture, goods and service exports; and raising costs for business and consumers," the letter said.
David French, the senior vice president for government relations for the Washington, D.C. -based National Retail Federation, puts these "negative consequences" in more concrete terms. The trade group represents hundreds of businesses serving U.S. customers that pitch everything from food to clothing and household products. French argues that these firms might even struggle to afford basic office repairs under the new tariffs. "If you're doing renovation or an improvement of your retail store, you are probably using steel components for structural support. There's also a fair amount of steel that goes into racking systems in distribution centers," explains French. "This [steel tariff] will make it more expensive for retailers on an every day basis, but it also makes it more expensive for them to evolve and grow, adding to the cost of renovations," he adds.
The Upside of Change
Other service entrepreneurs, however, anticipate that Trump's tariffs might be generally productive for small businesses. Ryan Neal, the co-founder and CEO of the Bellevue, Washington-based consulting firm Blueprint Technologies, anticipates that many of his clients--including those that extract oil and gas, for instance--may need to become savvier in how they operate. Blueprint generated more than $47 million in 2016 revenue, landing the Inc. 5000 list at No. 161 last year. "Most of the industries in the U.S. and most of the buyers of steel and aluminum are ripe for innovation," Neal says. "This forces some of our clients to get innovative around changing the materials that they use in their pipelines, which gets them to think differently about their business."
Neal waves off concerns that he could lose business, should the tariffs create added costs for his clients. "The tariff isn't necessarily going to put anyone out of business--and most companies turn to technology [like ours] to get more efficient," he suggests.
Globalization Partners' Sahin also sees winners--just not American ones. "Unfortunately, the impression of America as a place of global commerce has been replaced," she says. "The idea that America is going to become reclusive on the world stage is making other countries trade with each other to diversify their risk, if the U.S. is no longer reliable as a partner."