WASHINGTON (Circa) — The ramifications of President Donald Trump’s trade policies may grow in the months ahead for United States manufacturers and farmers as trading partners respond to tariffs imposed on their goods with similar taxes on U.S. exports, and none of the countries involved have displayed any willingness to back down from what could prove to be a politically and economically costly fight.
Wisconsin-based Harley-Davidson announced Monday it will move production of some motorcycles for foreign markets out of the U.S. in the wake of the European Union raising tariffs on its products from 6 percent to 31 percent last Friday, a response to the Trump administration’s recent tariffs on foreign steel and aluminum.
"Harley-Davidson maintains a strong commitment to U.S.-based manufacturing which is valued by riders globally," the company said in a statement. "Increasing international production to alleviate the EU tariff burden is not the company’s preference, but represents the only sustainable option to make its motorcycles accessible to customers in the EU and maintain a viable business in Europe."
The motorcycle manufacturer has not said if this shift will result in any layoffs for U.S. staff, but it has asserted it will not pass the increased costs created by the tariffs onto customers. Absorbing the expense could cost the company $90 million a year.
In a tweet Monday, Trump accused the company, which he has praised in the past, of being "the first to wave the White Flag" and suggested businesses should be more patient as he attempts to negotiate better deals.
Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag. I fought hard for them and ultimately they will not pay tariffs selling into the E.U., which has hurt us badly on trade, down $151 Billion. Taxes just a Harley excuse - be patient! #MAGA— Donald J. Trump (@realDonaldTrump) June 25, 2018
As European tariffs were imposed Friday, President Trump was already threatening further actions. On Twitter, he floated the prospect of placing a 20 percent tariff on cars imported from Europe.
In recent weeks, Midwestern newspapers have featured many stories of local businesses endangered by imposed and proposed tariffs, and national media outlets have reported on businesses and industries in states that Trump won in 2016 that could take a hit.
One Missouri nail company reported a loss of half its business in two weeks due to tariffs Trump placed on Mexican steel it needs for production. One economist told The Associated Press the American pork industry could lose $2.2 billion per year if tariffs China imposed in response to Trump’s metal tariffs remain in effect.
While the tariff standoff with the European Union is forcing significant adjustments for U.S. businesses, a trade fight with China is also poised to escalate in the weeks ahead, potentially endangering more industries.
On behalf of @realDonaldTrump, the stories on investment restrictions in Bloomberg & WSJ are false, fake news. The leaker either doesn’t exist or know the subject very well. Statement will be out not specific to China, but to all countries that are trying to steal our technology.— Steven Mnuchin (@stevenmnuchin1) June 25, 2018
The Treasury Department plans to announce new investment and export restrictions this week that are reportedly aimed at preventing China from overtaking U.S. leadership in industries like robotics, electric cars, and aerospace. Specific details of the proposal have not been made public but Treasury Secretary Steven Mnuchin tweeted that it will be “not specific to China, but to all countries that are trying to steal our technology.”
Next Friday, tariffs on $34 billion worth of Chinese products are slated to take effect. China has already threatened to retaliate, and Trump has threatened to retaliate for that retaliation. If all of the president’s threats are carried out, nearly 90 percent of Chinese exports to the U.S. will be covered by tariffs.
“In the West you have the notion that if somebody hits you on the left cheek, you turn the other cheek,” Chinese President Xi Jinping said at a meeting with CEOs Thursday, according to the Wall Street Journal. “In our culture, we punch back.”
Though exact definitions of “trade war” vary, several economists agreed Monday that the U.S. is currently embroiled in at least one trade war.
“We’ve had tit and tat, President Trump has threatened another round, so I would say, yes, we absolutely are in a trade war…,” said Mary Lovely, a nonresident senior fellow at the Peterson Institute for International Economics and a professor at Syracuse University. “Any way you look at it, it’s happening, and the real concerning thing is it’s on multiple fronts, multiple products, multiple countries.”
The tariffs on steel and aluminum that instigated these confrontations were ostensibly issued to protect national security, but Keith Maskus, a professor of economics at the University of Colorado-Boulder and former chief economist for the State Department, argued that will be a difficult position to maintain legally and logically when talking about metals produced by longtime allies.
“It’s really hard to make the case the U.S. is doing anything other than damaging the global trading system,” he said.
The ongoing volleys of threats and counter-threats have generated bipartisan concern on Capitol Hill. Many lawmakers interviewed last week applauded the president for challenging China’s questionable trade tactics, but they urged more caution and cooperation with allies in doing so.
“I give the president credit for trying to go after the Chinese,” said Rep. Darin LaHood, R-Ill., Wednesday. “They’ve continually ripped us off with intellectual property, with forced technology transfers, particularly in the military and cyber areas, we have to hold them accountable. But getting into a trade war where there’s retaliation on our agricultural exports is detrimental to our agriculture economy.”
Sen. Debbie Stabenow, D-Mich., said the White House needs a more strategic approach to tackle China’s misdeeds while limiting collateral damage.
“I would rather he be focused on China with all of our allies with us,” she said. “There are important ways China is stealing our ideas, our patents, there are unfair trade practices going on. I want to be tough on that, but at the same time, the way they’re doing it is going to have so many unintended consequences for our small businesses, large businesses, and farmers and ultimately consumers.”
Sen. Ron Johnson, R-Wis., said he had discussed the issue with the president and urged him to resolve differences with allies on trade.
“This is creating such a high level of uncertainty,” he said. “There’s a lot of micro damage being done right now. Steel prices are up, aluminum prices are up, making us less competitive on the global market. Jobs are being lost. This is not a good situation. It can’t go on forever.”
Sen. Jeff Flake, R-Ariz., told ABC News Sunday that he and “a number of senators” are willing to halt Trump’s judicial nominees to force votes on issues like trade. In a Senate where Republicans effectively hold a one-vote majority while Sen. John McCain, R-Ariz., receives cancer treatment, Flake’s vote could be a deciding factor for many nominees.
Sen. Jeff Flake urges his GOP colleagues to "push back" against Pres. Trump: "The judiciary has stood up well, the press has stood up well, in terms of institutions ... but the Congress has been lacking" https://t.co/MVMvFlgLyc #ThisWeek pic.twitter.com/c5pXdUCRWO— ABC News Politics (@ABCPolitics) June 24, 2018
“We’re in the nascent stages of a full-scale trade war, and the President simply seems to want to escalate, and it all stems to the steel and aluminum tariffs,” he said.
Flake is retiring in January and Trump has brushed off his criticisms many times before, but the threat represents a significant escalation, assuming other senators are truly willing to join him. Few Republicans have done more than strenuously object to Trump’s trade policies so far.
Earlier this month, Sen. Bob Corker, R-Tenn., who is also retiring at the end of this term, introduced legislation that would require Trump to get congressional approval for trade actions taken in the name of national security. Corker told reporters many of his colleagues agreed with him but were afraid to support the bill and incur Trump’s wrath.
Despite the increasingly frayed nerves of rank-and-file Republicans, GOP leaders have resisted calls to constrain Trump’s tariff-imposing powers, arguing such measures would undermine his negotiating position. Senate Majority Leader Mitch McConnell, R-Ky., dismissed Corker’s bill as “an exercise in futility.”
Experts say fighting a war on many fronts at once may not be the most effective way to redress legitimate complaints about unfair trade practices, especially concerning China. Many other trading partners share the U.S. government’s concerns about intellectual property rights, market access and regulatory restraints, but picking fights with those partners could make it harder to secure their cooperation against China.
“This has been an administration that has decided going unilaterally is the best way to get concessions,” Lovely said. “I think we’re seeing that does not work.”
Michael Hicks, director of the Center for Business and Economic Research at Ball State University and a policy adviser to the Heartland Institute, noted that presenting a united front against China was partly the purpose of the Trans-Pacific Partnership, which President Trump backed out of soon after taking office.
“If you’re going to go against something that’s bad,” he said, “it’s better to do it with a lot of friends, not just one screaming guy.”
Based on the Tariffs and Trade Barriers long placed on the U.S. & its great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!— Donald J. Trump (@realDonaldTrump) June 23, 2018
Tensions are rising between the U.S. and the European Union, but EU officials met with high-level Chinese representatives Monday in advance of a planned summit on trade and economics.
"I am confident that the exchanges we have had with my new counterpart, Liu He, have been useful in paving the way towards a successful EU-China Summit in the economic and trade field. I am particularly pleased with the progress achieved in our investment negotiations and look forward to an exchange of offers at the Summit," Jyrki Katainen, European Commission vice president, said in a statement.
In theory, Hicks said, eliminating all trade barriers would great, but in reality, it would amount to “unilateral disarmament.” Countries, including the U.S., keep some tariffs in place for a reason to protect narrow industries and interest groups, and it will be difficult to convince democratically-elected leaders to abandon them.
“The president is right—the trade deals could be better,” he said. “They’re not crummy, the tariffs are smaller than they’ve ever been, they’re not bad deals, but they could always be better.”
With European retaliatory tariffs taking effect and China preparing new tariffs of its own while the Trump administration moves to restrict Chinese investment, the situation could get worse before it gets better. Once this cycle of tariffs and retaliation begins, it is hard to find an off-ramp.
“It took a long time and a severe reduction in trade volumes back in the 1930s,” Maskus said. “I don’t know how comparable that is to today’s world.”
Even if Trump rolls back his tariffs, there is no guarantee the retaliatory penalties will be lifted. If for no other reason than to discourage American presidents from doing this again, Hicks predicted they likely would not be.
“Our trading partners won’t want to regard this sort of brinkmanship and so are likely to preserve the tariffs long after we’ve dropped them,” he said.
Trump’s strong-arm approach has left even countries that would have been amenable to making some concessions holding firm to avoid looking weak.
“I definitely think they would have been willing to have serious negotiations at the beginning,” Lovely said of China. “Now we’ve given them very little political space.”
Trump may be playing to protectionist supporters who see his policies as fulfilling his promise to put America first, but Xi Jinping has his own constituency.
“Being bullied by the U.S. is something he cannot be seen as allowing,” Lovely said.
PM Justin Trudeau of Canada acted so meek and mild during our @G7 meetings only to give a news conference after I left saying that, “US Tariffs were kind of insulting” and he “will not be pushed around.” Very dishonest & weak. Our Tariffs are in response to his of 270% on dairy!— Donald J. Trump (@realDonaldTrump) June 9, 2018
Other leaders who faced off with Trump at the G-7 summit in Canada expressed similar sentiments.
“Canadians, we’re polite, we’re reasonable, but we also will not be pushed around,” Canadian Prime Minister Justin Trudeau said after the meeting. “I don’t want to hurt American workers. They’re our neighbors. They’re our friends. But my job is to stand up for Canadian workers, Canadian interests, and I will do that without flinching.”
Tariffs planned and implemented by the EU, China, and Canada seem carefully crafted to carry the heftiest political impact. Harley-Davidson is based in House Speaker Paul Ryan’s state of Wisconsin. Bourbon distillers in McConnell’s home state of Kentucky have already been targeted. Farmers and manufacturers who make up a sizable portion of President Trump’s base are squarely and deliberately in their crosshairs.
“Nations want to impose the greatest political pain on the administration enacting the tariffs,” Hicks said. “That means targeting the production of U.S. goods made in places that are the strongest supporters of this current administration.”
According to Hicks, 17 percent of U.S. GDP growth in 2017 was accounted for by exports, as was much of the recent resurgence in the manufacturing sector. As a result, trading partners constructing obstacles to exports could substantially hamper the economy over time.
“The biggest economic effects will take many months, maybe even a year or so to be fully realized,” he said. “But, as early as the end of summer, manufacturing and farming intensive communities should start feeling economic pain associated with tariffs.”