As we are learning more about the Phase One trade deal with China, it’s important to keep in mind this is only a small step forward. The vast majority of the tariffs are still in place. To put this in perspective, in October 2019 Americans paid $4.1 billion in additional taxes because of the tariffs put into place by the Trump Administration. Under Phase One, American businesses and consumers would still have paid $3.4 billion in tariffs, or just 17 percent less than before. That leaves 83 percent of the tariff costs still in effect.
And from the initial glance at the deal, it doesn’t look like Phase One will address many of China’s structural changes that started the trade war. As Bloomberg’s Shawn Donnan wrote in yesterday’s Terms of Trade:“The text won’t be available until next month at the earliest. But it does appear that, when it comes to structural reforms, two years of economic warfare managed to extract little more than a codification of existing commitments by the Chinese.”
Phase One Doesn’t Undo the Economic Damage Caused by the Trade War
After manufacturing contracted for the fourth month in a row, Timothy Fiore, Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee said:
“Global trade remains the most significant cross-industry issue.”
As reported in The Hill, tariffs continue to threaten American jobs.
“President Trump’s trade war is putting 1.5 million U.S. jobs at risk, according to a study commissioned by the Port of Los Angeles, the nation’s largest container port. ‘Very simply put, less cargo means less jobs,’ said the port’s Executive Director Gene Seroka at a Washington, D.C., press conference.”
An unfortunate example of this comes out of Sharon, Pennsylvania.
“In spite of her efforts, Never Enough Yarn has become a casualty in the international trade war. Infante said she’s closing her Sharon shop mainly due to tariffs slapped on Chinese yarn.”
CNBC reported that the trade war with China has resulted in a steep drop in U.S. exports of the product and caused the hardwood industry to cut jobs.
“Workers at Northwest Hardwoods’ mill in Mount Vernon, Washington, don’t have much time left on the job. The mill is set to be shuttered in November, and all 70 jobs gone. The Tacoma, Washington-based company, which is one of the largest producers in North America, is also closing a plant in Virginia, cutting an additional 30 jobs, and is then laying off 30 more at the corporate level.”
Phase One Doesn’t Relieve the Tax Burden on Most American Businesses, Farmers and Consumers
Phase One has done nothing to ease the burden the trade war has created for companies impacted by Lists 1-3, including Misco Speakers that has been impacted by List 3. According to NPR:
“The Misco speaker company in St. Paul, Minn., is celebrating its 70th anniversary this year. But the company’s future is uncertain — a result of the trade war between the U.S. and China.”
The same is true of New Hampshire small business owner Darryl Meattey, who has items on both List 3 and List 4A4 – so he will continue to pay the tariffs.
“For the last 40 years, I’ve run a cold-weather accessory business in Troy. Our small business generates about $3 million to $5 million in annual sales, and we have anywhere from eight to ten employees. We’re what people would call a real ‘mom and pop shop,’ and it’s owned and operated by us…But tariffs are slowly driving us out of business.”
And as the Wall Street Journal reported on Columbia Sportswear, who has items on Lists 3 and 4A and will also continue to pay the tariffs, is having to raise prices on customers:
“‘It’s a massive expansion of taxation on American employers and consumers,’ said Peter Bragdon, chief administrative officer of Columbia Sportswear Co., whose firm had many apparel items hit in the latest tranche of tariffs. The company has notified customers that they would have to raise prices on many of those items, he said.”
Phase One Doesn’t Correct the Uncertainty the Trade War Continues to Cause
A recent Reuters report highlighted some of the uncertainty created by the trade war and the tariffs that were already in place – and will remain in place under Phase One. Win Cramer, the president of JLab Audio summed it up succinctly:
“The uncertainty makes it nearly impossible to make mid- to long-term business decisions. We have to make really short-term decisions almost week by week by week, because that’s how quickly it’s changing.”
Dan Digre, an American speaker manufacturer in Minnesota outlined how the uncertainty is stifling growth.
“It just seems wrong. We’re not creating anything new. We’re spending all this time and money trying to deal with a problem that’s more or less self-inflicted.”
Steve Lamar, the executive vice president of the American Apparel & Footwear Association, whose members will continue to pay additional taxes because of tariffs under Phase One, explained how this uncertainty hurts his industry:
“We are drowning in uncertainty. This guessing game is chilling investment, putting hiring plans on hold, and sowing sourcing chaos throughout our industry.”
Phase One Doesn’t Reverse or Halt the Significant Damage Done to 2020 Swing States
In Ohio, businesses and farmers are paying huge sums of additional taxes each month:
“From the start of the trade war in February 2018 to July 2019, Ohio paid over $1 billion in tariffs — and you can thank the president for that. On top of that, Ohio’s farmers and small businesses have faced $599 million in retaliatory tariffs from China, making it harder for them to sell their goods there.”
Adam Schweers, a small-business owner and former Mayor of Carroll, Iowais also feeling the sting of tariffs:
“Iowans have paid $186 million in additional tariffs since this back-and-forth with China started back in February of last year. Even more concerning, we’ve faced $386 million in retaliatory tariffs – or tariffs China has slapped on American exports to their country – which has significantly hurt Iowa farmers. Farmer bankruptcies are on the rise and exports are on the decline. That spells bad news for Iowa’s economy long-term.”
Angela Carr, co-founder of Turbie Twist, which is headquartered outside Pittsburgh, Pennsylvania, recently told POLITICO the tariffs are making her reconsider her decision to vote for President Trump in 2020.“It would break my heart to have to make a change, but this is my livelihood. I have to make choices that are best for my family and the families of our team.”
Americans for Free Trade