Businesses involved with international trade don’t need to agree with the tariff policies of the Trump administration — many probably don’t. But they should try to understand the thinking behind them and why they are likely here to stay.
“So (trade) deals are something that can help adjust the tariffs, but again, 10% seems really sticky at the moment,” Penelope Naas, a trade expert with the German Marshall Fund, told a Denver crowd during lunch at World Trade Day. She was introduced as a “tariffologist.”
Tariffs are such a stressful topic that the World Trade Center, sponsor of the annual event, offered a “Tariff Therapy Oasis” room for attendees.
Naas put up a clip of a New York Times advertisement that Donald Trump purchased in 1987 to criticize trade deficits. In repeated interviews over the years, he has used the same language about the country being ripped off and people taking advantage of the U.S. or failing to pay for their fair share for military security.
Trump promotes four key benefits from higher tariffs, Naas said. They will reduce the country’s trade deficit, encourage more domestic manufacturing, create political leverage over trading partners and companies, and generate revenues for the country, which can be used to reduce budget deficits or fund other priorities, such as the tax cuts the House approved this week.
Despite his strong convictions, Trump can be swayed by the fallout his supporters are facing, the opinions of CEOs he respects and complaints from Republican members of Congress, not to mention the action of the bond markets, said Naas, who urged businesses to lobby their political representatives so they understand the hit they are taking.
When JPMorgan Chase CEO Jamie Dimon warned on May 8 on Fox News that the tariffs could crash the economy, the administration announced a 90-day pause on reciprocal tariffs the next day, she said. When the CEO of Walmart warned about empty store shelves because of tariffs of 145% on Chinese goods, the administration announced a deal to reduce them to 30% for 90 days.
Apple CEO Tim Cook’s Oval Office visit, which was likely used to point out how iPhones couldn’t be produced easily outside of China, resulted in a high tariff exclusion for smartphones and other electronic goods made in China.
And the influence can also work in the other direction. A 100% tariff on movies produced outside the U.S. seemingly came out of the blue, but it followed a meeting Trump had with actor and producer Jon Voight, who advocated for the levy to protect Hollywood.
Canada, the European Union and China have strategically used Trump’s concern for his base to target tariffs on specific products, such as rice from Louisiana and bourbon from Kentucky. Their pushback has also thwarted expectations for a quick resolution.
More than 60 countries have been hit with reciprocal tariffs. But trade deals are complicated and can take a long time to work out. The administration has found itself understaffed in terms of having the capacity to reach so many agreements at the same time, Naas said.
The end game, however, appears to be a reset of the trade relationship between the U.S. and China, which is pushing to become a top military power under President Xi Jinping and has come to dominate manufacturing globally.
“China has taken over manufacturing around the world and while they consume about 55% of what they make, they export about 45%. And that is taking over and damaging every country’s manufacturing,” Naas said.
The U.S. is especially vulnerable to disruptions from China when it comes to smartphones, computer monitors, video game consoles, energy storage systems, baby carriages, toys and recreational gear. China is also a dominant supplier of the ingredients needed to create antibiotics and of rare earth minerals.
China’s military is not strong enough yet to defeat the U.S. and Europe. To compensate, the country has adopted an approach to make any enemy “blind, deaf and dumb” in the first hours of an outbreak of war, Naas said.
Chinese electronic products, such as routers from TP-Link, have reportedly been used to launch cyberattacks by Chinese state actors. Naas said electronic products from China have been found with embedded kill switches that can’t be explained by any benign intent, including recently in solar power systems.
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