Could Trump’s Tariff ‘Threat’ Hurt American Manufacturing?

GOP presidential hopeful Donald Trump proposed a 45 percent tariff on imports from China and 35 percent on many goods from Mexico.

In recent years, many economists and policy advisers have trumpeted the idea that the U.S. needs to take more aggressive measures to reduce its trade deficit with China — which reached a record high of $365.7 billion in 2015.

Yet, GOP presidential hopeful Donald Trump’s proposed idea to impose a 45 percent tariff on imports from China and 35 percent on many goods from Mexico have many analysts worried about the implications for U.S. manufacturers.

A recent Reuters report highlighted the damaging impact it could have specifically on the auto industry.

The U.S. Commerce Department estimates that about $118 billion worth of cars and parts traveled tariff-free between the U.S. and Mexico last year. Imposing a high tariff would raise costs for auto companies that use Mexican-made parts in their vehicles.

For example, Reuters estimates that, “Buyers of Fiat Chrysler Automobiles NV's popular Ram 1500 pickup trucks assembled in Saltillo, Mexico, could see their $26,000 base price pushed up by $9,000 if the tariff is fully passed on to consumers.”

In a recent interview with Business Insider, Ford Motor Co. CEO Mark Fields commented on the idea of higher tariffs and specifically on a shot Trump took at Ford early in his campaign when he said it was unpatriotic of the company to open a new plant in Mexico.

“We are a multinational company going back to our founder,” Fields said. “Our approach is to ‘build where we sell.’”

Fields pointed to the income and jobs Ford has created as evidence that the current trade situation was still creating value for the American economy.

“Since 2011, we've invested over $10 billion in our facilities, we've hired more than 25,000 people — 80 percent of our capital expenditures in North America are done right here in the United States, and 97 percent of engineering is done here,” he said.

Although Trump’s plan would initially raise prices on goods for American consumers, the idea is that it would help level the playing field with American manufacturers so that they would relocate operations to the U.S.

However, a professor who has studied the effects of the Trans Pacific Partnership trade deal said it would take years for the U.S. industry to rebuild supply chains and make that kind of transition. Meanwhile, China and Mexico are likely to retaliate and impose high tariffs on goods that would be most damaging to the U.S. economy.

Reuters pointed to 2009 when Mexico imposed duties up to 25 percent on more than 90 U.S. farm goods, while American lawmakers deliberated allowing Mexican truckers on U.S. roads. Ultimately, the row cost U.S. growers $70 million in revenue — a 50 percent cut — over 31 months, according to the National Potato Council.

Trade tensions with China would expose a host of other industries to potential losses. Trade between China and the U.S. was $591 billion in 2014. Other industries that rely on trade with China include aircraft, corn and soybean and electronics.

But recently, Trump clarified that his call for a tariff with China isn’t a concrete plan.

"The 45 percent is a threat that if they don't behave, if they don't follow the rules and regulations so that we can have it equal on both sides, we will tax you,” he said in a debate.

Gordon Chang, the author of “The Coming Collapse of China,” has said that despite cries that Trump could ignite a “trade war” with China that’s not possible because we’re already in a trade war.

"China is stealing intellectual property from the United States," Chang said, pointing to the 2013 IP Commission Report. "The dimension of that is somewhere maybe $200 billion to $300 billion a year. That is a war in a sense."

Whether or not you agree with Trump, his focus on trade deals has sparked a conversation many say is crucial to improving trade relations with other countries — even if there continues to be disagreement about the best way to achieve that goal.

"The question is how do we end [the trade war with China] on terms not only advantageous to the United States but also to the international community," Chang said.

Scott Paul, the president of the Alliance for American Manufacturing, a group allied with domestic steelworkers and the United Steelworkers union, told Reuters that Trump’s “bombastic” proposal wouldn’t do America any favors — but echoed the sentiment that it is time for change.

"I believe there’s widespread agreement ... that there is something amiss with our economic relationship with China and it’s past time that our government pushes back a little more forcefully," Paul said.

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