Op-Ed: Trade Tariffs Have Become as Fickle as the Weather

Date: Tuesday, May 7, 2019
Source: Sourcing Journal

There’s a saying that if you don’t like the weather, just wait five minutes and it will change. Originally coined by Mark Twain about the New England climate, it is equally applicable to Washington, D.C., which experiences quickly changing weather patterns–particularly in the Spring–when storms and wide temperature fluctuations seem to materialize out of nowhere.

Now, more than two years into the Trump administration, it seems we can appropriate and update Mark Twain’s aphorism in this way: “If you don’t like trade policy, just wait five minutes and it will change.”

 

This was the case earlier this week when President Trump surprised trade policy experts, industry professionals, and global markets with a pair of tweets announcing that punitive tariffs on $200 billion worth of U.S. imports from China–including textiles, travel goods, gloves, hats, and other fashion accessories–will increase from 10 percent to 25 percent five days later. That tweet also resurfaced a long-standing tariff threat on shoes and clothes, which have so far escaped punitive tariffs.

In their entirety, those tweets read: “For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars…of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”

While tariffs have long been a staple of Trump’s trade arsenal–he is after all the self-described “tariff man”–the tweets suddenly shifted the narrative surrounding the U.S.-China trade talks. Going into last weekend, media reports and insiders, including the president himself, have been suggesting that progress was being made and that a deal could be finalized within weeks or even days. Sourcing and supply chain professionals were cautiously eyeing a return to predictability while policy wonks were anticipating a deal that might address longstanding U.S.-China bilateral trade irritants.

But now, in the flash of a tweet, we are faced with the prospect that a deal may be further away, that tariffs will increase, and that uncertainty will continue.

Or are we?

Other than the specific news that tariffs will increase, which still may be tempered if a deal is achieved, we can learn two things from those tweets.

First, although the tweets came as a surprise, they demonstrate a remarkable consistency on the part of the president as to his negotiating style, as well as to his apparent belief about how tariffs work.

Trump sees tariffs as a tool to build leverage for trade negotiations. Time and time again, the president has threatened or imposed tariffs as a way to bring trade partners to the table. While the jury is out on whether this has actually occurred–in each of those cases, trade negotiations were already ongoing–there is no doubt that the president uses this narrative to justify his use of tariffs.

Related to that point, he continues to state that tariffs are paid by foreign countries and extol the tariff revenues collected by the U.S. government as a boon to the U.S. economy. He seems stubbornly oblivious to the way in which tariffs hurt Americans and sees them only as a tool through which he can build leverage. But countless studies show U.S. tariffs, including those his Administration has imposed, are taxes that American companies pay. These taxes ultimately work their way through supply chains in the form of higher consumer prices or lower margins. And these tariffs usually trigger retaliatory tariffs, that worsen the damage by denying market access in foreign countries for U.S. exporters.

Second, tariffs aren’t going away any time soon.

While the president gets credit for weaponizing tariffs, he may also get credit for normalizing them. We’ve long known that the evolving U.S.-China trade deal, if it is completed, will include enforcement mechanisms that enable the U.S. to easily retain or reimpose tariffs. Moreover, the Administration has been reluctant to give up tariffs it has imposed on the margins of other trade negotiations, such as the U.S. Mexico Canada Agreement, even after the conclusion of those talks. This suggests that tariffs, in the mind of President Trump, are more than just a means to an end. They may now be an end as well.

This is not welcome news for the footwear, apparel and accessories industry, which is already the most heavily tariffed industry in the U.S. In 2018, this industry generated more $18 billion in U.S. tariffs, about $1 billion more than in 2017 when the industry represented 51 percent of all tariffs collected by the U.S. government. For an industry that is already heavily tariffed, the thought of more tariffs is nauseating.

So where does that leave us?

The world will be watching in the coming days and weeks to see if this past weekend’s tweets disrupt the trade talks, or if they are seen as just a part of the president’s style. Are they bluster, shrewd negotiating tactics, or a sign of more tariffs to come? Only time will tell.

Perhaps we should look to another saying, this one attributed to Chairman Mao, that “political power grows out of the barrel of the gun.”

Sensitive to that, as well as the optics of negotiating under the threat of tariffs, the Chinese have indicated they don’t want to negotiate with a “gun pointed to their head.” Unfortunately, given the way in which U.S. tariffs hurt the U.S. economy, it seems that the gun is pointed at our own head instead.

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Steve Lamar is executive vice president at the American Apparel & Footwear Association (AAFA). Steve is responsible for the design and execution of AAFA lobbying strategies on a series of issues covering trade, supply chains, and brand protection. In these roles, Steve also advises AAFA member companies on legislation and regulatory policies affecting the clothing and footwear industries. Steve is also President of the Washington International Trade Association (WITA), a non-profit, non-partisan organization dedicated to providing a neutral forum for discussion of international trade policy and related issues.

 

From the original source.

 

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