Jonathan (Josh) Kallmer photo
Trump's tariff war is all self-inflicted pain, and likely no gain

The chairman of President Trump’s Council of Economic Advisers, Kevin Hassett, recently proclaimed that “there are a heck of a lot of U.S. companies” that will suffer and watch “their earnings being downgraded,” as the U.S.-China trade dispute slogs on.

He’s right. Tariffs are a direct threat to American families, workers and companies, hindering economic growth and slowing hiring.

But the administration’s assertion that this self-inflicted pain will lead to long-term gain is unfounded. As stock prices tumble and investor confidence erodes, the administration should not ignore warnings of tariffs’ increasingly negative impact on American businesses of all sizes and across sectors.

The turmoil that tariffs are imposing on America’s economy is not simply a minor inconvenience. Calls from tech to agriculture to retail to manufacturing underscore the systemic and potentially irreversible damage this misguided trade strategy is wreaking on American companies and, ultimately, consumers.

Manufacturers spend decades forging contracts with their suppliers and other producers to build product components around the world. Discovering new sources, vetting the competency of new suppliers, and waiting for new manufacturing capacity to come online requires a significant investment of time and money – an investment that will erase the benefits businesses and consumers currently enjoy from existing U.S. supply chains, which are quite cost-effective.

Higher costs imposed by tariffs and potential re-routing of supply chains force businesses to rethink future spending, reduce new investments and slow hiring levels. The diversion of resources to pay tariffs also means fewer dollars for research and development, stifling breakthroughs in new product design, deployment and cutting-edge innovations — just as the U.S. government turns its attention to ensuring America retains its innovative edge in emerging technologies such as artificial intelligence and quantum computing.

Consumers are also shouldering the burden with increased costs on everyday products, including technology devices such as routers, modems, e-readers, and headphones. While tech companies manufacture products across the United States, many of these products require components from China that can’t be obtained domestically or from other markets. As a result, these products are subject to tariffs, driving up costs for American consumers. A recent estimate found that Americans will pay an additional $3.2 billion this year alone for technology products because of the tariffs. And it’s not just tech. Tariffs have cost Americans more for other everyday goods, including groceries, baby products, pet food, and home appliances. American families should not continue to suffer on the false hope that the administration’s strategy will produce positive results.

Combined, these factors not only hurt consumers and businesses individually but also the growth of the U.S. economy and its ability to remain a leader in innovation.

Many sectors, including technology, appreciate the administration’s desires to crack down on China’s unfair trade practices and to seek open access to its market. These are serious issues that threaten America’s continued growth. However, tariffs are inflicting pain on U.S. consumers and businesses, creating new problems in supply chains without directly addressing China’s bad behavior. And the impact of tariffs on U.S. businesses, consumers and jobs will not be easily undone. New research shows that U.S. exports in categories subject to retaliatory tariffs dropped at least 37 percent in October 2018; once American companies lose market share, it’s exceedingly hard to regain those global customers.

As officials from China and the United States continue to negotiate, we urge the Trump administration to listen to American businesses and consumers and find a long-term solution that mobilizes an international coalition to address China’s unfair trade policies, eases the heightening trade tensions, and ends the tariffs that continue to inflict harm on the U.S. economy and American people.

This first appeared in the Washington Examiner on January 17, 2019.

Public Policy Tags: Trade & Investment