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In this June, 19, 2018 photo, a ship to shore crane lifts a 40-foot Evergreen Line shipping container off a jockey truck onto a container ship at the Port of Savannah in Savannah, Ga. The U.S. has threatened to impose 25 percent duties on $34 billion in Chinese products starting Friday, July 6, and China has said it will fire back with corresponding tariffs. (AP Photo/Stephen B. Morton)

Why do 71 percent of business owners support additional China tariffs?

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WASHINGTON (Circa) — As President Donald Trump threatened a double-digit increase in tariffs applied to $200 billion worth of Chinese goods, a new UBS Investor Watch survey showed strong support among small and medium-sized business owners for additional duties on goods from China, as well as Mexico, Europe and Canada.

The report suggests that in spite of growing trade tensions, the private sector is confident that the Trump administration's tactics are more likely to create business opportunities, rather than result in an all-out trade war.

Among the 300 business owners surveyed by UBS, the majority expressed growing concerns about a U.S.-China trade war. Roughly half (49 percent) said they expect it will negatively impact the U.S. economy and less than one-third (32 percent) said their businesses would be negatively affected.

UBS Investor Watch: Business owner optimism keeps going by lbernstein on Scribd

Yet, an overwhelming 71 percent said they support additional China tariffs. More than 60 percent approved of additional tariffs on goods from Canada, Europe and Mexico.

The report seemed to run counter to conventional wisdom in Washington, where critics of President Trump's tariff policy are urging the administration to step back from the brink of a possible trade war with China and other U.S. partners.

Just hours before the survey was released, President Trump announced he is considering additional tariffs as high as 25 percent on roughly $200 billion of Chinese goods, up from the previously proposed 10 percent tariff on those goods. According to U.S. Trade Representative Robert Lighthizer, ratcheting up the pressure was intended to "encourage China to change its harmful policies."

If approved, those tariffs would be added to the existing 25 percent duty on $34 billion worth of Chinese goods, plus another $16 billion waiting to be finalized.

China responded Friday threatening new tariffs on $60 billion of American goods. The Chinese Ministry of Commerce warned against further actions that "escalate the conflict and hurt everybody's interests."

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An array of trade and agricultural associations, economists and policymakers cautioned the administration not to proceed with the new tariffs, warning of severe economic consequences. A bipartisan group of lawmakers introduced legislation in an effort to rein in the president's ability to unilaterally impose tariffs.

The different reactions beg the question of why American business owners seem so calm, cool and collected while others sound the alarms and dig trenches in anticipation of a full-scale trade war.

Much of the response from the private sector has to do with optimism, said Michael Crook, head of UHNW and Institutional Strategy at UBS's chief investment office.

"Many business owners remain optimistic that the U.S. will be able to revamp trade agreements without engaging in a full-scale trade war," Crook told Circa. "Some of that optimism comes from a nearly-universal belief that China, in particular, engages in unfair trade practices and additional tariffs will lead to fairer trade in the long run."

Even against the backdrop of growing trade tensions, business owners expressed a high degree of confidence in the long-term outlook of the U.S. economy as well as their individual businesses. Three-quarters of respondents were bullish about where their businesses were headed over the next year with 44 percent planning to expand their companies through additional hiring or investments in that same period.

Crook added, "Despite trade uncertainty, we continue to see strong economic growth."

A separate UBS study of about 500 high net worth investors (with at least $1 million of invested assets) found a similar degree of confidence in the economy, but more anxiety about a possible U.S.-China trade war.

UBS Investor Watch: Investor optimism high, despite trade concerns by lbernstein on Scribd

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Nearly three-quarters of the investors said a U.S.-China trade dispute would negatively impact the U.S. economy and stock market. Still, a large majority, 59 percent, said they approved additional China tariffs.

The positive signs of U.S. economic growth continued on Friday with a jobs report showing the economy added 157,000 jobs in July, pushing the unemployment rate down to 3.9 percent. and manufacturers, among the most exposed to the new tariffs, hiring 37,000 workers, the most in seven months.

Among U.S. manufacturers there is broad support for the administration's efforts to end China's anti-competitive trade practices, explained Scott Paul, president of the Alliance for American Manufacturing, as well as a sense that the tariff policy is starting to produce results.

"There are some tailwinds in this trade war, if you want to call it that," Paul said. "The U.S. economy is particularly strong right now, we're not as trade-exposed as China and I think many businesses feel they see a path forward— that the tariffs have perhaps begun a process that will lead to a freer and fairer global economy."

In recent weeks there have been signs of progress in the U.S. trade relationship with Europe, Canada and Mexico. The U.S. President and E.U. Commission President reached a tentative agreement on how to proceed to a policy of "zero tariffs" and zero non-tariff barriers to trade. NAFTA renegotiations also appear to be wrapping up, with the three parties setting a self-imposed August deadline to complete the deal.

According to Crook, many of the businesses surveyed support the administration renegotiating and modernizing trade deals, like NAFTA, and are "optimistic that those negotiations will be successful."

China has been more difficult to bring to the table, particularly after trade negotiations broke down in June, prompting the current tit-for-tat tariffs. However, there are some signals that Beijing may soon come around.

Friday marked the eighth-straight week the Chinese yuan has lost value against the U.S. dollar. Investors have continued to pull out of China's stock market, resulting in losses that allowed Japan to overtake China as the second largest market after the United States.

"Investors are losing confidence in China and very much viewing the United States as having the upper hand in this trade dispute," Paul said, noting the mounting pressures on China's economy could prove advantageous for the United States resolving long-standing trade disputes. "China will have to make a decision soon about which direction it wants to go because there are only a couple of possibilities remaining."

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Even if the tariffs are working to bring China back to a position where it is more willing to address unfair trade practices, they are also having a measurable impact on certain industries around the country. Farmers, anticipating tens of billions in losses as a result of retaliatory tariffs on U.S. goods, may receive a $12 billion bailout from the federal government.

Many supporters of the tariffs have argued that the U.S. economy is particularly resilient to these effects, that they are mostly isolated to a few industries and unlikely to affect the overall health of the economy.

President Trump suggested as much at a recent rally in Tampa, telling supporters, "Now that we have the best economy in the history of our country, this is the time to straighten out the worst trade deals ever made by any country on earth," Trump recently told supporters at a rally in Tampa.

Tori Whiting, a trade economist at the Heritage Foundation, warned that the argument was tantamount to "taking a gamble" on the future of the U.S. economy.

"I personally don't think it should be the policy of any administration to gamble on the strength of the American economy," she said.

There's a lot of optimism in the U.S. economy, particularly in terms of how businesses are benefitting from tax cuts and regulatory reform, Whiting continued. "But what we're afraid will happen is that these tariffs will take away from the benefits we've seen from those policies."

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