The sooner foreign trade issue is resolved the better
By John R. Stone
Foreign trade is complicated.
We are starting to see that now that the United States seems to be headed toward a trade war with several other foreign nations. Usually these kind of things take place in the relatively quiet place of negotiating meetings where deals are struck. Now things are different.
The United States has enacted tariffs on steel, aluminum, softwood paper products and many other things to resolve issues with what it sees as unfair trade practices. In China’s case there are also issues with honoring international agreements on patents and property rights.
China has responded in ways designed to hit the areas that appeared to support President Donald Trump by putting a tariff on soybeans, pork and other agricultural products. Europe got more specific, putting tariffs on Harley Davidson motorcycles (built in House Speaker Paul Ryan’s district) and bourbon (made in Senate Majority Leader Mitch McConnell’s state).
The new foreign tariffs are hitting many businesses in the United States. If the tariff issues are resolved shortly, the impact might be minor; if not, the changes could be more significant.
Harley Davidson, for example, has already announced it will be moving some production overseas to countries that don’t have trade issues with Europe.
When the United States puts a tariff on imported steel and aluminum it is in effect raising the price on those products by the amount of the tariff. If the steel tariff is 25 percent, the price of domestic steel basically can go up to 25 percent higher without fear of being undercut by foreign steel.
Why? The tariff allows U.S. producers to charge more and make more profit without worrying about foreign competition. Part of this is by design; sometimes companies close plants because they cannot compete with lower-cost foreign metals. So, the tariffs are justified as allowing companies to make more money so they can hire more workers and/or update their facilities to become more efficient producers.
The flip side of that coin is that the cost of many things goes up for consumers. As costs go up companies and individuals have to make decisions about how to allocate their resources. A company that uses a lot of steel can’t just start charging 25 percent more for its product. It will lose sales. Or in some cases it is involved in contracts to provide a product at a certain price for a specific amount of time. So, it will try to find other ways to save money because it can’t pass all the increase on to customers.
Steel is a product that can affect many prices, even products not made of steel. Why? Machines that process manufactured products are made of steel. Trains and trucks that deliver products are made of steel. There is steel rebar in highways, railroad tracks and bridges. And, of course, cars, trains and trucks are made of steel.
If the trade skirmishes remain that and don’t escalate into a trade war there will be damage. There already has been damage. If the trade issue drags on and turns into an outright trade war the impact could be much more severe.
Around here we have the agricultural industry that has already seen a drop in commodity prices due to trade issues. And this is on top of commodity prices already falling to levels that are not sustainable for some. Here in Glenwood we have multiple manufacturers that use lots of steel and some of these companies sell products in foreign countries.
Foreign imports have not been all bad. They have kept consumer prices low. They have forced U.S companies to become more efficient and competitive if they wish to play in the international trade business. U.S. autos for example, are on par with their foreign counterparts or even better than many. That didn’t used to be the case.
Some of the U.S. concerns fueling the trade skirmishes are legitimate. Some are misrepresented. No matter what, the sooner this gets resolved the better.