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Oct
15

It’s complicated.

Let’s have a reasoned and fact-based discussion of why I believe the trade war is bad for your business and your job.

At its most basic level, the issue is this – there are few simple answers to big problems. Sure, there are soundbites and memes that may make you feel good… but like that second helping of dessert, it tastes great but leaves you feeling bloated and unhappy.

For example – “Trade wars are good and easy to win.”

If you want to get a country to change it’s industrial policy or actions, a trade war is certainly one option.

Some think the tariffs on China were an appropriate way to get its attention. And no doubt, the import duties on steel and aluminum and manufactured goods got noticed.

But tariffs are a two way street; the Administration’s actions resulted in China imposing retaliatory taxes on US exports of coal, farm goods, motorcycles, asphalt, Vaseline, cars, meat, airplanes and a bunch of other stuff.

It’s not just China – The tariffs on Canadian newsprint were crushing US newspapers, many of which have been barely staying afloat. The tariffs were finally overturned after hundreds of jobs were lost.

Farmers aren’t as fortunate; there are hundreds of millions of bushels of soybeans piling up – with no buyers in sight. Farmers looking to store this grain can’t afford new silos, as the price of steel has gone up 25%.

And jobs are at stake.  From Forbes:

“The tariffs, quotas and retaliation would increase the annual level of U.S. steel employment and non-ferrous metals (primarily aluminum) employment by 26,280 jobs over the first one-three years, but reduce net employment by 432,747 jobs throughout the rest of the economy, for a total net loss of 400,445 jobs.” [emphasis added] The analysis found, “16 jobs would be lost for every steel/aluminum job gained.”

It’s not just employment; tariffs don’t operate in a vacuum, but are one tool governments have to influence other countries. In fact, there are real national security issues in play here.

One is North Korea; China has more influence on North Korea than every other country combined, so when we anger the Chinese, they get a lot less interested in enforcing arms and energy embargoes on the rogue state of North Korea.

Then there’s China’s illegal building of naval bases in the South China Sea, which is a shipping bottleneck; over a quarter of the world’s shipping transits the Sea. It is also home to huge reserves of carbon-based energy deposits. The pace of construction has greatly accelerated of late and the number of troubling incidents in the area has increased – a Chinese naval vessel almost collided with a US destroyer a few weeks ago.

Okay, you say, we’ll get this resolved and all will go back to the way it was, farmers and pork producers and Boeing and coal miners will be fine.

Not so fast.

In reality, China – and other countries affected by our tariffs – have already shifted their purchasing to other countries. Brazil and Argentina are huge grain and meat producing countries, and they are benefiting greatly from the trade war.

US farmers are getting hammeredUS wheat exports globally have plummeted by 21 per cent in just the first half of 2018. This means fewer dollars for farm equipment, fencing, fuel, fertilizer.

And farmers are the canary in the coal mine; this trade war is going to have lasting and serious repercussions for our economy and each one of us; the longer it goes on, the worse it will get.

What does this mean for you?

When you’re stuck in a hole, the first thing to do is stop digging. 

Why this affects you – a recession hurts all of us – lowering employment, increasing healthcare costs, increasing work comp claims.

But long-term losses of markets causes long-term damage to entire economic sectors. That’s the real issue here.

 


2 thoughts on “It’s complicated.”

  1. Trump is definitely playing with fire using tariffs. However, if you are in a camp that believes we are losing on trade with China and others already, it is likely one of the only tools in the toolbox to bring China and others to the table to negotiate or re-negotiate trade deals. Getting unbiased news these days is difficult, but it does appear that renegotiated NAFTA is more beneficial to the US and the EU/Germany is on the track for deals more beneficial to the US. Both the result of tariffs or threatened tariffs to motivate a deal. For the most part, the markets seem to be telling us that the US will come out on top with most of the global markets struggling in comparison to the US.

    1. thanks for the comment and observations Scott.

      I’d suggest that pulling out of the Trans Pacific Partnership was not helpful, as the TPP specifically limited China’s ability to negotiate “around” the US. Now, the Chinese are making full use of that ability. Instead of 1:1 trade battles, a partnership opens up markets and is much less burdensome on international business.

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Joe Paduda is the principal of Health Strategy Associates

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