Tariffs spur short-term export boom—cause for celebration or concern?

By Karen Gerwitz | Aug 05, 2018

Under normal circumstances, an 11 percent year-to-year increase in Colorado's exports would be cause for great celebration. However, these are not normal circumstances.

The Trump administration's tough stance on trade policy has incentivized manufacturers to stockpile import inputs and expedite export sales to beat the tariffs now imposed by the U.S. and reciprocated by our strongest trading partners. President Trump is already taking a bow for export increases as well as a strong U.S. economy. Some think that the numbers justify this, but many others think we should hold off to see next quarter's numbers as a truer representation of our economy. Some levers meant to boost our economy, such as tax reform, seem to now be countered by the latest tariff increases. Now we must see if the once-settled precedent that tariffs make for a weaker economy will play out like it has in trade wars past.

I, like most, thought that the tough talk on trade was going to be more rhetoric, and I had the attitude, "This too shall pass." When the tariffs were discussed early this year and came into play in March on aluminum and steel, and soon levied on our strongest allies, we still saw a 33 percent increase in aluminum imports and a 57 percent increase in aluminum exports out of the state. Disruptions to the market often have such unintended consequences. Yet other impacts can be as predictable as the tides, such as foreign and local investments starting to wither in Colorado.

For example, we recently learned of a Canadian manufacturer who invested in a plant and staff in Colorado but is no longer competitive in the U.S. due to the steel and aluminum tariffs. Additionally, with the on-again, off-again threat to pull out of the world's largest trading bloc, NAFTA, U.S. policy is no longer stable enough to entice investment. Since the aforementioned company's largest customer is PEMEX in Mexico, the operations will most certainly move south due to uncertainty about NAFTA.

Whether manufacturers stitch together a coalition of domestic producers or continue to source internationally, the tariff hike will now raise the components costs, making U.S.-made goods less competitive on the world stage and more expensive for consumers here.

Let's take a closer look at more recent tariffs impacting Colorado goods sold in China, such as whiskey, yogurt, and cheese. Colorado companies making these products are at a disadvantage to exporters from countries enjoying more favorable trade deals with China. For example, many of the Trans-Pacific Partnership countries export to China under some form of free trade agreement. Colorado manufacturers, like the agriculture industry that recently pushed back on the $12 billion subsidy offered by the administration after the Chinese tariff retaliation, would rather have access to China's 1.4 billion consumers and competitive manufacturing inputs.

It may seem like our booming economy can withstand compounding tariffs with our biggest trading partners, but the reverberations have yet to be recognized in the numbers. Trade is the foundation of prosperity for all sides. It is not a win-lose, zero-sum game. Instability that is caused by trade wars trickles down to investments, operational decisions, and even buying practices. For a country that touts innovation and products that are the envy of the world, let us truly evaluate the message we are sending by continuing to raise tariffs to protect our industries.

It would be a mistake to allow this short-term boost in our economy to translate into a license to move forward on auto tariffs on our allies, $200 billion of additional tariffs with China, and a sunset of NAFTA.

I ask, who are we protecting?

Karen Gerwitz is the president and CEO of the World Trade Center Denver, a trade association supporting Colorado manufacturers for more than 30 years in expanding their businesses globally. The World Trade Center Denver is an advocate for open market access. If you have questions about how trade policy may affect your business, contact their Help Desk at 833/ASK-WTCD.

Also read, Taxing imports is a stopgap. Where's the plan? Bart Taylor, CompanyWeek.