It seems like months ago, though it was just a mere few weeks ago, that President Trump alarmed much of the industrialized world with his move to slap tariffs on steel and aluminum imports. ASA heard from many that believed this would harm their business in a big way.
What we didn’t hear was from those that supported these actions.
While ASA joined with a wide swath of collective stakeholders expressing our concerns over the tariffs, we wanted to know more of what our membership felt. What we learned was that while this may raise costs, it also is beneficial to increase the demand and capabilities of our domestic manufacturing base.
After surveying our membership, there was no strong tilt toward support or opposition, no consensus on whether this would be bad or good. In fact according to wholesalers surveyed, 43% support the tariffs, 42% do not support the tariffs and 15% were uncommitted, while almost 100% of manufacturers polled did not support the tariffs.
As we continued to listen to all sides, we met with House Ways and Means Chairman Kevin Brady, and Trade Subcommittee Dave Reichert, key staff to Senate Majority Leader Mitch McConnell, as well as Democrat and Republican staff of the Senate Finance Committee.
As industries met with these key offices, the White House began to pull back on their initial demands. While the initial announcement offered no exemptions to allied countries, our partners in NAFTA, Canada and Mexico, were to be spared. Then, we learned other allies such as members of the European Union, South Korea, Brazil, Australia and Argentina also would be exempt. Suddenly, it became just a tariff on China (and Japan). It’s worth noting these exemptions were granted with an expectation the countries would come to the negotiating table. Other than Korea, many negotiations have not concluded, making their exemptions temporary, expiring April 30. The president’s goal here seems clear: to bring trading partners to the table and force them to make a deal.
With global markets beginning to breathe a sigh of relief, the next shoe dropped, one that was not unexpected. By the year 2025, China intends to be a dominant force in 10 different sectors. From aviation and aerospace to agricultural machinery, medicine and medical devices to information technology, China intends to be a global powerhouse.
According to a report by McKinsey & Company, “While experience reminds us that success will be elusive in some sectors, in several it is likely that Chinese companies will become much, much stronger global leaders by the end of this period as a result of very Darwinian competition.”
According to the report, China intends to accomplish this by: 1) Increasing R&D spend as a percentage of sales from 0.95% to 1.68%; 2) Increasing labor productivity annually by 7.5% to 2020 and by 6.5% annually thereafter; 3) Reduce energy consumption per unit of added value by 35% by 2025; and 4) Reduce water consumption per unit of added value by 35% by 2025.
In an attempt to confront this growth, the Trump administration issued what are known as “301” tariffs. The previously discussed tariffs on steel and aluminum are known as “232,” both of which are the number designations given to provisions in previously enacted trade law.
Specifically, section 301 of the 1974 Trade Act and section 232 of the Trade Expansion Act of 1962 give the president the authorization to carry out the actions.
By taking the 301 action, the president announced he would be slapping tariffs on hundreds of goods manufactured in China. Items ranging from car parts to clothing, cell phones to electronics, the goal of the Trump administration is to “change Chinese behavior while limiting the impact on Americans,” though the fear expressed in the markets was that we all would suffer at the hands of these decisions.
Not to be outdone, as expected in a trade war, China went ahead and retaliated against the U.S. and issued 128 tariffs on American-made products, mainly agricultural-based such as pork, wine, fruits and nuts, but also included is stainless steel pipe. American growers will now pay a price for access to the vast Chinese markets. As we’ve learned, this is just the first round. More tariffs are to be expected by the Chinese.
As this went to publication, the 301 list had just been released. With its announcement is the path that allows businesses and groups such as ASA to advocate for the removal of products, along with the addition of products, including a public comment as well as an in-person hearing on May 15.
With a renegotiated NAFTA aiming to be wrapped up by mid-April, it’s believed that, like the original 232 actions, the initial announcements will be scaled back and used as a carrot and stick. But that will not be done unless impacted groups speak out and use their collective voices.
Who will blink first?