Editorial: Trumpian trade troubles

The U.S. president should listen to his own manufacturers.
Patrick Flannery
August 20, 2018
By
The Trump administration announced this summer tariffs on around $50 billion worth of imported manufactured goods from China, including such things as compact off-road vehicles, concrete mixers and tractors. So the U.S. Association of Equipment Manufacturers should be thrilled, right?

Wrong.

The AEM came out against the tariffs, saying in a June press release that it was “disappointed.” Why should this be, when the measures are ostensibly designed to protect American manufacturers from unfair competition with a trade rival capable of producing comparable equipment for less?

The reason is the AEM, like anyone else who understands trade, realizes that its members stand a lot more to gain from doing business with China than they do to lose. Aside from finished equipment, the tariffs affect a lot of components, tools and instruments that manufacturers use. Even equipment with Made in America proudly stamped on it often contains a lot of parts sourced offshore. Raising the price on those parts means the manufacturer either takes less or asks customers for more – not an appealing choice.

Sure, manufacturers could probably find American parts makers to supply the same things. But they were getting them offshore in the first place because the U.S. suppliers were unable to provide them at a competitive price, even considering the costs of shipping and working with people who speak a different language half-way around the world. The tariffs might go some distance toward leveling that playing field, but then manufacturers are still in for a new round of costs as they deal with the disruption of changing suppliers. And who knows how long the tariffs would last under a new administration? The U.S. Senate has already pulled back tariffs imposed by Trump on a broad range of consumer goods.

But the larger concern was China’s reaction, and it was as predicted. It imposed retaliatory tariffs on American exports of similar goods. Now, instead of enjoying equal access to China’s mammoth and growing construction market and dealing with Chinese competition at home, where they have an advantage, U.S. manufacturers only get to play in their home market, which is mature and has very little potential for growth in terms of market share. Whatever opportunities existed to get a foot in the door with huge Chinese contractors (we really can’t conceive of the scale of their industry) has been shelved until the Trumpian trade squall blows over, by which time it may be too late.

What makes Trump’s moves even more mystifying is the impact they are likely to have on global currencies. As demand in the U.S. market for overseas products is constricted, the currency of exporting nations will drop in value. That will have two effects: consumers in those countries will be less able to afford American goods, and the exporting manufacturers will become more competitive as they are able to produce and sell for less while retaining the same margins.

It looks like we might be the next target for tariffs if Trump makes good on his threats and tears up NAFTA. That would be an even bigger blow to AEM’s members, as the U.S. exports more machinery and equipment here than it does to China. Obviously, the cost to all of us who depend on imports of U.S.-made equipment for our businesses would be high as well. Here’s hoping the AEM can fight the good fight down there and get its message to penetrate the bad comb-over.

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