The American Casulaties of Trump's Trade War
Date: Thursday, November 29, 2018
Source: The New York Times Magazine
Sam Cobb was surprised to see so many people lined up for a hearing at the International Trade Commission in Washington on the morning of Monday, Aug. 20. The chief executive of Real Wood Floors, Cobb was a veteran of such proceedings, which were usually sleepy affairs, populated by white-shoe attorneys fighting over arcane legal definitions. For this hearing, though, the line stretched out the door and onto the sidewalk along E Street, where the people waiting to get in were surrounded by a scrum of television cameramen. In the preceding weeks, the Trump administration had floated a proposal to place punitive import tariffs on $200 billion of Chinese goods, and the politics of global trade had suddenly burst into the headlines.
In the packed hearing room, Cobb listened as dozens of witnesses detailed how tariffs on Chinese-made bicycles and tires and fruit juice — and the reciprocal taxes that would inevitably be imposed on American exports to China in response — would lead to higher prices and lost jobs in the United States. This was part of a series of public hearings to address a proposed Section 301 tariff list, named after the provision of the Trade Act of 1974 that permits the United States to impose tariffs on other nations in response to unfair trade practices — in this case, the administration claimed, the Chinese theft of intellectual property. The proposed tariffs would hit businesses from virtually every industry, including many that had little to do with intellectual property.
For Cobb and the 247 employees of Real Wood’s affiliated companies, the stakes were high. Their business is exporting hardwood from the forests of southern Missouri to their partners in China, who mill it into veneer, laminate it to a plywood subsurface and finish it into designer flooring. The partners then ship the engineered hardwood back to Real Wood, which sells it to high-end builders from coast to coast — an ocean-spanning supply chain that nevertheless keeps costs down. The simple possibility of tariffs had killed virtually all the company’s orders for engineered hardwood from China. Real Wood was already paying an anti-dumping duty of as much as 25 percent on much of the flooring it imported from that country, a tariff that the International Trade Commission had levied on a number of Chinese flooring companies whose prices it deemed to be below market value. The Trump administration’s proposal called for an additional 10 percent tariff, with the threat of a further 15 percent in 2019, which Cobb claimed would force Real Wood to make large price increases and would hamstring the whole industry.
Cobb, 42, a genial, bearlike, bearded father of seven, stayed up late the night before the hearing, rehearsing his performance in the mirror of his hotel room, cutting it in half to make sure it stayed within the strict time limit. He was dressed sharp for the event, in a three-piece suit, with a pocket square and nonprescription eyeglasses to make him look smart, or so he hoped. He purchased the entire outfit in China while on one of his countless trips there.
Now he got up to make his pitch for real. “You have five minutes,” an official from the Office of the United States Trade Representative told Cobb.
“Our group of companies comprise the second-largest employer in the poorest county in Missouri,” Cobb said. He talked about how high-quality engineered flooring couldn’t be manufactured domestically at a competitive price. He talked about the hardship of the potential loss of good jobs in his heartland hometown. As he spoke, Cobb suspected that the hearing, despite the presence of career officials from a broad cross-section of departments and agencies, wasn’t designed to give him a meaningful voice in the process. Questions from the government panel were perfunctory, typically one per witness, and it seemed to him that the decision to levy the tariffs had already been made.
As the session adjourned, Cobb started to chat with one of the Chinese reporters covering the proceedings, who was astounded at the damage the tariffs might do to American companies. A senior policy adviser from the Department of Agriculture, who had sat stone-faced listening to the testimony, approached Cobb — an unprecedented breach of protocol, in Cobb’s experience. “I’m sorry you have to go through all this,” the official said to him quietly, according to Cobb. “We have no idea what’s going on here, either.”
Companies were also permitted to submit written arguments for why they should be excluded from the tariffs, and the deadline for those written submissions was in less than three weeks, at midnight on Sept. 6. Liz Levinson, a trade lawyer whom Real Wood and a group of other flooring companies had retained, made sure her tightly reasoned 11-page brief arrived on time. Thousands upon thousands of other companies from across the private sector had made similar submissions, arguing that the tariffs would gut their businesses, and that the reasoning behind the Trump administration’s proposal made no sense. “Duties on flooring would accomplish nothing with respect to encouraging China to reform its intellectual-property regime,” Levinson wrote. “Flooring is not a high-tech industry.”
For a person to read and weigh all the submissions would take weeks, if not months, but the day after the deadline — as if to prove his indifference to the formality of the investigation — President Trump announced that the tariffs on $200 billion in goods could “take place very soon.” He also upped the ante, saying, “Behind that there is another $267 billion ready to go on short notice if I want.”
The tariffs, which took effect on Sept. 24, have been front-page news, but their impacts on the domestic economy — which traded $710 billion in goods and services with China in 2017 — have not been reckoned with yet. Tariffs are a powerful weapon in a trade war, but finding the right targets can prove challenging. “It’s very hard to impose tariffs on billions of dollars in imports without shooting yourself in the foot,” says Wendy Cutler, a former acting deputy United States trade representative. Historically, Cutler says, the various branches of government that deal with global trade — the Departments of Commerce and of the Treasury, and the Office of the United States Trade Representative — have tried to carefully study the domestic impacts of sanctions like tariffs before they were imposed, aiming to anticipate unintended consequences, calculating ways to minimize harm to the United States while maximizing pain for the intended target.
By contrast, in Trump’s new tariff regime, Cobb and other business owners see a hurried and blunt approach that has been carried out, they believe, with little public debate about how it could affect the American economy and equally little sense of the long-term strategy. Was Trump playing a giant game of geopolitical poker with President Xi Jinping, or was he unilaterally declaring war?
“At first, the Chinese saw Trump as a businessman and assumed he wanted a deal,” says Chad P. Bown of the Peterson Institute for International Economics, a nonpartisan think tank devoted to economic policy. “Now they don’t know what Trump wants.”
West Plains, Mo., population 12,000, is an unlikely front in a global trade war. A four-hour drive south and west of St. Louis, the small city in the Ozarks was a North-South fault line during the Civil War, a place where brothers really did wind up fighting against one another. Today the town looks like many others in the region, with abundant churches, pickups and strip malls and the occasional fluttering Confederate battle flag. “The center of nowhere,” as a resident described it to me, West Plains voted overwhelmingly for Trump in 2016.
Real Wood’s headquarters sits down a gravel road off the main highway, a collection of warehouses filled with various kinds of flooring packed onto shrink-wrapped pallets. When I visited in late October, one side of the main warehouse was piled high with finished flooring from China, veneered in different varieties of American hardwoods like white oak and walnut and hickory. On the other side were finished boards that had been manufactured in Cambodia and Indonesia. Real Wood’s 55,000-square-foot facility was filled with more than $6 million in flooring, the most the company had ever had in inventory; Cobb was racing to import as much as possible from China before the additional tariff of 15 percent was imposed at the end of the year.