June 26, 2018 – As a growing list of tariffs and retaliatory tariffs take effect, businesses are beginning to feel the economic impact. Manufacturers worldwide are bracing for the change and considering ways to manage.
Importers and Exporters Impacted
Manufacturers in Guangdong, China, for instance, say they are consider setting up factories in countries like India, Vietnam and Mexico, shipping their products to the United States through other countries first and charging U.S. buyers more. While the impact might be relatively small for Chinese industry as a whole, individual industries and companies, such as automotive suppliers, would be hit hard, according to South China Morning Post reporting.
Companies making metal products who are exposed to both tariffs and counter tariffs on steel are, perhaps, in the greatest danger. For example, the U.S. based Mid-Continent Nail plant is “on the brink of extinction,” according to its spokesman James Glassman. Facing higher cost of production materials, the company might shut down production by September.
“We are asking for an exclusion,” Glassman said in an interview with CNN. The problem, he said, is other companies have submitted 21,000 other applications for exclusions. “We want to save the 500 jobs and keep this company running.” Meanwhile, in a bit of irony, Glassman says Chinese nail manufacturers are “making windfall profits as a result of these tariffs.”
Canadian Buyers Face Higher Costs
Canadian boat retailers expect to undergo “irreparable and disastrous damage to the industry, from which it would likely never recover,” according to the Canadian National Marine Manufacturers Association President Sara Anghel. The association expects costs to climb by 15 percent under the new tariff scheduled to take effect July 1. In 2017, Canadians purchased 65 percent of boats from U.S. manufacturers.
While buyers are pushing back against Canada’s retaliatory measures scheduled to start on Sunday, steel producers are backing them. One of the largest steel producers, ArcelorMittal Dofasco, is considering laying off 1,000 workers and postponing $564 million (C$750 million) in investments, its CEO Sean Donnelly told Canadian lawmakers Tuesday.
Selling in the EU Just Got Harder
As of last Friday, some U.S. exporters to Europe face tariffs ranging from 10 to 50 percent higher. Motorcycles, in particular, face a new tariff of 25 percent. That is in added to a 6 percent tariff it already faced.
For manufacturers like Harley-Davidson, that would mean an incremental cost increase of about $2,200 per motorcycle. Rather than pass that cost onto the customer, and risk “an immediate and lasting detrimental impact to its business” with lost market share in Europe, the company plans to bear the cost itself by lowering its prices.
In a federal filing on Monday, Harley-Davidson Co. announced that it expects to bear an immediate annual loss up to $100 million and move some U.S. production operations overseas to avoid long-term losses. The shift abroad could take nine to 18 months, but it would help the company avoid restrictive tariffs. Last year, the company sold 40,000 bikes in Europe. The European market is second only to sales in the United States.
Tariffs and Counter Tariffs
Since the United States announced it would launch tariffs on steel and aluminum imports, its trading partners have responded. Here is a list of global tariffs going into effect:
- US Metal Tariffs. (The impact on European metal exports to the United States would be $1.7 billion a year, according to the EU Commission.) (See prior reporting, see more.)
- EU Retaliatory, “Rebalancing,” Tariffs that took effect June 22. They target $3.27 billion (€2.8 billion) worth of American exports, including agricultural goods (corn, grain, orange juice, tobacco), whisky, textiles, metal, motorcycles, vehicles, cosmetics, paper, household goods and appliances. (For more information, see the European Commission news release.) And for a full list of products impacted and the new tariffs, see the 19-page list document.)
- Canadian Tariffs on U.S. Products worth up to $12.8 billion (C$16.6 billion) of additional 25 percent and 10 percent to take effect July 1. Products include steel products, maple syrup, pizza, soups, chocolate, kitchenware, plywood, and toilet paper (See the full list here.)
- US Tariffs of 25 Percent on ‘Industrial Significant’ Chinese Goods worth up to $50 billion. The USTR said the tariffs are in response to China’s “Made in China 2025” industrial policy and theft of intellectual property.
- China Tariffs on U.S. Goods worth up to $34 billion in early July (hitting some agricultural goods, whiskey and energy products)
- Potential: Additional EU ‘Rebalancing’ Tariffs worth E3.6 billion within three years, if approved by the World Trade Organization.
- Potential: Additional U.S. Tariffs on China. The USTR announced plans to impose an additional 10 percent tariff on up to $200 billion of Chinese imports if the legal process — presumably playing out in the WTO — allows it.
How Long Will the Trade Battle Last?
The politics of the brewing trade war are taking place both in the domestic economies of the countries involved and on the world stage in the World Trade Organization’s legal framework. The standoff continues without a clear endgame in sight. In a sense, it’s like a game of chicken where each player dares each other to yield first.
“Needless to say, if the US removes its tariffs, our measures will also be removed,” said EU Trade Commissioner Cecilia Malmström.
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