U.S. Businesses Brace for Tariffs as Trade Hearings Get Under Way
The Trump administration has extended a public hearing on trade this week, allowing some 130 businesses and trade groups to weigh in on proposed tariffs on Chinese goods.
PHOTO CREDIT: Getty Images
Dozens of business leaders are headed to Washington this week, as the Trump administration prepares to make a decision about whether to impose sweeping tariffs on more than $60 billion worth of Chinese goods. While many local manufacturers say the moves--intended to punish China for shady trade practices and alleged currency manipulation--could help to boost their revenues, others are gravely concerned that tariffs could hurt their bottom line.
"If the tariffs go through, we are anticipating that we will lose half of our business," said Rick Hampton, the co-founder and chairman of Circuit Interruption Technology, or CIT, a Rogers, Minnesota-based maker of electrical components. Specifically, Hampton is referring to a proposed 25 percent tariff on certain relays, an electrical apparatus, in China, where CIT outsources much of its production. "We're assuming that there would be up to a 50 percent layoff," he adds. The company currently counts 24 employees.
Starting on Tuesday, CIT will join a chorus of businesses including General Electric, Best Buy and Electrolux in opposing the administration's approach to trade with China. The U.S. trade representative's office will hold three days of public hearings--extended from the originally planned single day event--to accommodate the nearly 130 voices that want to weigh in on recently-proposed tariffs on more than 1,300 Chinese goods. The tariffs--of 25 percent--will apply to a wide range of products including heavy machinery, batteries, aircraft parts and motorcycles, according to a document the U.S.T.R. released last month.
The administration is expected to receive plenty of criticism, both from businesses facing supply chain disruptions, as well as those that export products to China, such as nuts, fruit and pork, and are now concerned at the prospect of retaliatory tariffs on those goods.
"Overall, the proposed tariffs would raise most Americans' cost of living, boost inflation, and reverse the economic benefits of President Trump's tax cuts," suggested Sage Chandler, vice president for international trade at the Consumer Technology Association, or CTA, in a summary of her testimony. The CTA estimates that tariffs would force U.S. customers to pay $711 million more than they otherwise would have for televisions alone. The trade group adds that the tariffs would cost the U.S. up to 134,000 jobs.
Hampton is especially eager to demonstrate how Trump's tariffs could have an unintended macro-economic impact. "Imposition of additional duties would have the unintended consequence of significant employee layoffs within the U.S., while actually rewarding the Chinese," the entrepreneur said in his testimony, a copy of which was obtained by Inc. To his point, Hampton says he was planning to launch a relay manufacturing facility stateside, but says he could only do so with the help of his Chinese affiliate. The tariffs, he continues, "will kill the very embryos that ultimately can manufacture in the U.S," since the Chinese affiliate would no longer assist with the factory in the event that additional duties are imposed.
Supply Chain Pinch
David French, the senior vice president with the Washington, D.C.-based National Retail Federation, is also planning to oppose the tariffs on behalf of the retailers his organization represents. His testimony, scheduled for Wednesday, centers around the difficulty associated with re-adjusting an existing supply chain. "There are a lot of decisions that go into where a retailer bases their supply chain--it's not done capriciously," French tells Inc.. "It's not as simple as flicking a switch and moving to another country. Some countries don't have the port capacity to serve a market as large as the U.S., so even if you could find the manufacturing capacity, it could take longer to get it onto a container ship," he continued. And, depending on the time frame for implementing sweeping tariffs, many retailers could end up passing the cost of importing Chinese goods onto the consumers, French suggests. Others, meanwhile, could feel the pinch, should China retaliate by imposing tariffs of its own on U.S. exports.
To be sure, some manufacturers support the administration's proposal, particularly steel and aluminum makers. "We thank the president for meeting with our industry and following through on his commitment to addressing the steel crisis," said Thomas J. Gibson, president and CEO of the American Iron and Steel Institute in a statement earlier this year. And executives at Emerson Electric, a St. Louis based equipment manufacturer, are generally supportive of targeted tariffs, going so far as to suggest additional tariffs on some garbage disposals, according to a Wall Street Journal report.
It's unclear to what extent the office of the U.S. trade representative will be persuaded by calls to scrap or modify the tariffs. CIT's Hampton, for one, suggests that the three-day hearings are all for show. "My perception is that it's a placebo," he says. "I'll be watching closely this week, but I anticipate that we'll see imposition of these tariffs at the end of the month."
Dean Baker, the co-director of the non-partisan Center for Economic and Policy Research in Washington, D.C., agrees that the testimonies are unlikely to amount to much. And while he anticipates that some concessions might be made--large companies may be able to negotiate a reduction of tariffs, from, say, 20 percent to ten--he suggests that small businesses will still stand to be hurt the most. "This is the worst story for small businesses," Baker says. "If China retaliates with tariffs on U.S. goods, I'm sure Boeing has a lot of contacts in China and could work out a deal. But a small company--who are they going to call?"