What’s the latest on trade?
We have certainly discussed trade regularly on Money Monday in recent months, but in the last few weeks are beginning to see the effects of trade tensions resulting from some of President Trump’s protectionist policies. On Friday, General Motors warned that the next round of tariffs the White House is contemplating – on foreign cars and car parts, among other things – would kill jobs, lower wages and cause the company to investment less in new factories and other items. GM is not alone among companies that would get hurt, and consumers will be impacted as well. Today, I want to talk about what that looks like, and what we can expect from here based on what we have seen thus far.
Remind us what policies you are talking about?
You may recall that during the 2016 campaign, the President regularly brought up the trade deficit and what he called unfair trade. Once elected, he withdrew from a large free trade agreement with Latin American and Asian countries, and in August of 2017, he launched investigations to determine whether imports from China and other countries could be a threat to national security. Following this, President Trump announced tariffs on imported solar panels and washing machines in January, import tariffs of 25% on steel imports and 10% on aluminum imports in March, and other more specific measures since then. China, the European Union, Canada, Mexico and others have retaliated with their own targeted tariffs on US goods. All of these moves have been rippling through the global economy and affecting consumers and businesses alike.
What effects are we seeing for businesses?
I mentioned General Motors. Another great example of a business being impacted by trade tensions is Harley Davidson. In response the President’s steel and aluminum tariffs, the European Union raised tariffs on a number of American products. One of those products was American motorcycles, which saw import duties rise from 6% to 31% of their value. That comes out to about $2,200 in fees for each motorcycle the company sells in Europe. The company has said it will eat those costs to protect their sales volume and brand, costing them up to $100 million a year, and it will start building more of its bikes oversea, rather than expanding in the US, and it could see job losses in the long term. These challenges are not unique to Harley Davidson. From nail companies to pork farmers, these trade battles are hurting many American businesses. In addition to tariffs, higher prices on goods like steel means that companies that use these goods have higher production costs.
Are they helping any American businesses?
Some businesses are benefiting, including steel and aluminum producers. Prices for different types of steel and aluminum began to climb almost immediately after President Trump imposed tariffs on the metals, posting the biggest three-month price increase that has been recorded in years. However, it is worth keeping in mind that more lose than gain. As of mid-2017, there were 29,288 steel-consuming firms, employing over 900,000 workers who face higher prices versus just 916 steel-producing firms with 80,000 employees who benefit from those higher prices and reduced competition.
How are consumers being affected?
Americans are starting to see the ripple effects of the trade battles in the form of price increases. Take washing machines; President Trump raised tariffs on imported washing machines to 20% in January. In the months that have followed, prices shot up. The Labor Department’s consumer-price Index, which gauges inflation, found the price of washing machines rose by about 17% over the past three months. Due to higher steel and aluminum prices, we have seen prices rise for everything that requires these materials, from cans of soup to automobiles. General Motors noted new tariffs could drive vehicle prices up by thousands of dollars, and that the models that would see the biggest price increase would be the ones bought by consumers who can least afford one. At the end of the day, tariffs cost all Americans money.
What can we expect going forward?
If trade relations continue to deteriorate, businesses and consumers are likely to suffer, and economic growth is likely to slow. Free flow of goods and capital is important for businesses to grow, and for American consumers to have access to low cost goods. In the extreme, we could see a recession. Let’s hope that cooler heads prevail on the trade front.
Mellody is President of Ariel Investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News and CBS.com.
READ MORE STORIES ON BLACKAMERICAWEB.COM:
- Exclusive: Usher Returns Home To ATL For Our 3-Year Anniversary Of ‘POTC’
- Megan Thee Stallion Sued By Former Cameraman For Harassment
- Mister Cee’s Funeral Details Revealed After Hip-Hop DJ’s Unexpected Death
SIGN UP FOR OUR NEWSLETTER:
