The American Price for Trump’s Trade War

Californians who lost their homes in recent wildfires are having even more troubles as U.S. President Donald Trump wages a trade war on many fronts. Trump’s tariffs are now driving up the price of imported lumber, drywall, nails and other key construction materials needed to rebuild houses. As a result, the price of a typical new home in the state could go up by as much as US$20,000.

They are not the only victims of the tariffs imposed by the U.S. administration. The rising price of industrial materials and components is squeezing manufacturing profits. Companies absorbing the new costs are losing their profit margins and dismissing workers. Small businesses have suffered the fastest. Due to Trump’s 25 percent import tax introduced in July that included Chinese components for TVs and video equipment, Element TV Company, a television manufacturer based in South Carolina, announced it was laying off 126 workers, the vast majority of its employees, leaving behind only eight employees to watch its plant.

Increasing trade tensions are also plaguing steel and aluminum consumers in the country. Trump’s move to impose tariffs on steel and aluminum is meant to protect an industry at home that employs about 140,000 Americans. Yet the tariffs hurt a far larger group of U.S. workers—the 6.5 million in industries that buy steel and aluminum—ranging from automakers and aircraft manufacturers to suppliers of building materials. In early March, the Beer Institute, an industry trade group, predicted the American ten percent tariff on imported aluminum would lead to the loss of 20,300 jobs at bars, breweries and every beer job in between. The tariffs are also biting big companies. General Motors, Whirlpool and Ford all performed worse than expected in the second quarter of this year.

The increasing burden on manufacturers will eventually translate into rising price felt by American consumers, especially those with lower income. Moreover, the U.S. is finding foreign retaliation particularly troublesome.

China has announced tariffs primarily focused on agricultural goods imported from the U.S. Panic has been spreading among U.S. farmers, especially the 300,000 soybean planters, who fear that they will bear the brunt of China-U.S. trade tensions. Roughly one-third of the soybeans grown in the U.S., around US$14 billion worth, are destined for China. But now the soybean future prices decline sharply and the farmers are likely to lose the massive market in China.

The European Union’s retaliatory tariffs, which target motorcycles, blue jeans, and bourbon, also took effect. The EU raised U.S. motorcycle tariffs from six percent to 31 percent, and motorcycle manufacturer Harley-Davidson is one enterprise feeling the hit. The EU’s move led to a price hike of US$2,200 for each of its motorcycle sold in the bloc, a big blow to its sales in the European market, which account for 17 percent of its global sales. As a result, Harley-Davidson is planning to move some of it production overseas to avoid the duties.

If Trump continues his tariff play, more businesses in the U.S. are likely to take the bullets for trade conflicts. At a public hearing held by the Office of the U.S. Trade Representative on July 24 and 25, representatives from various industries spoke overwhelmingly against higher tariffs on the US$16 billion worth of goods imported from China. However, only five out of the 284 original tariff lines were scrapped when the list was published.

Chinese exporters are also hurting, of course, after the mounting pressure since Trump started his tariff talk. China’s exports to the U.S. amounted to almost US$430 billion in 2017, making up nearly 20 percent of its total. And household spending in China will also rise as more retaliatory tariffs are imposed on imports from the U.S. The increasing trade tensions simply hurt both sides.

China, Canada and the EU all warned that this trade war would yield no winner. Still, Trump has been persistent in making unilateral moves to “protect” the U.S. from its closest trade partners. As a business titan, he must know that everything comes with a price, but seems not to care much who pays his bills at home.

Joseph Brusuelas, chief economist at accounting firm RSM, compared tariff measures to killing a tsetse fly on a desk with an anvil: “You might kill the fly but you usually end up totaling the desk and damaging the floor.” President Trump boasted that a trade war is “good” and “easy to win.” But how many American citizens will be in the mood to join Trump’s celebrations when they are jobless, deeper in debt and struggling even harder to balance their checkbooks?