The tariffs imposed by the President targeting foreign steel and aluminum are increasing product input costs for businesses across industries in food processing, manufacturing, agriculture, and construction. Retaliatory tariffs have affected farmers, who are now selling products below their cost of production. Not only are cost increases starting to squeeze businesses and farmers, but we’re likely to see broader effects like significant consumer price increases, job losses and inflation.
On Tuesday August 7, 2018, the Chamber hosted U.S. Representative Ron Kind (D-WI) for a round table where businesses from a variety of industries discussed the negative impact that the tariffs have had on local businesses and industries. As a member of the Ways and Means Committee which has jurisdiction over international trade, Kind expressed a recent “push on the world economic agenda” to resolve the trade war quickly.
U.S. Senator Ron Johnson (R-WI) has also put the spotlight on the detrimental impact to Wisconsin businesses. In a 20 page letter to the President, he said, “I urge you and your trade representatives to understand the plight of businesses struggling during this period of extreme uncertainty, and do everything in your power to return certainty and stability to the global markets.”
Focus on tariffs and trade at Friday's Eggs & Issue
According to the U.S. Chamber of Commerce, over $1 billion of exports from Wisconsin are endangered by the tariffs and retaliatory actions from other countries. John Kirchner from the U.S. Chamber will join us for the Chamber’s August 17 Eggs & Issues to discuss federal issues of importance to the business community. Click here for more information and to register.
What is a tariff and why were they imposed?
Earlier this year, President Trump imposed a 25% tariff on steel and a 10% tariff on aluminum under sections 232 and 301 of the Trade Expansion Act of 1962, claiming the action was necessary to protect national security. A tariff is a tax on imports to discourage consumers and businesses from buying product from particular countries. The importer is the one who actually pays the tariff, but in order to make up for the extra cost, the company must absorb it, or if it can’t, pass it onto the consumer. Steel prices have gone up about 50% and aluminum up anywhere from 10% - 130% since the tariffs were announced.
The tariffs do target countries like China that have been unfairly flooding the market and stealing intellectual property, but also cover strong allies like Mexico, China, and the European Union (EU). Targeted countries responded with counter-tariffs which have further restricted trade and created a larger economic impact.
At the round table, Rep. Kind noted that although the end goal of creating a fairer trade environment and holding China accountable is beneficial, he wished the Administration would take a different approach and set an example for other countries to live up to. The Administration could have formed an international coalition with others that have been negatively impacted by unfair trade practices and brought China to the World Trade Organization (WTO) for retribution where the U.S. has had 100% win record.
Over 17 businesses and representatives from manufacturing, agriculture, and building all attended the round table to share the impact of the tariffs locally. The stories they shared testified to the fact that the negative consequences present themselves different in each industry and have ripple effects beyond increasing the cost of foreign steel and aluminum.
As a direct effect, Timm Beotcher – CEO of Realityworks – said that his company is buying steel at a price 45% greater than what it was a year ago. Unfortunately, they will most likely have to pass the cost onto the consumer unless the trade war is resolved quickly. Some industries like the auto industry or builders have more constraints in responding to input price increases as they have to honor quotes given for projects and experience difficulty giving quotes for future projects due to the uncertainty of price levels.
The ripple effect of increasing lumbar costs have businesses reexamining preexisting plans to make capital investments. Projects like building expansions and improvements are being put off, according to Laura Talley, the Market President for BMO Harris. “For every one job in steel and aluminum, 200 jobs for consumers are impacted,” emphasized Rep. Kind in regard to the wide-spread effects of an injury to these two industries.
Farmers are being hit hard, too. Dairy farmers are experiencing roughly a $1 price decrease in milk and are struggling more than non-dairy farmers as they must sell the milk at low prices before it expires. Tony Mellenthin spoke on behalf of soybean farmers and the Wisconsin Soybean Association when he said that a bushel of soybeans is selling anywhere from $1-2 less than its production cost. He did note that those farming grain or beans have a little more flexibility than those producing perishable items. Rep. Kind inquired as to how long Mellenthin thought soybean farmers could last under the current conditions, and he predicted a year at the most.
The long-term effects of tariffs
The price increases and postponed capital investments are just the immediate effects. The greater long-term concern is that even though the tariffs were intended to encourage buying American-made goods, they along with the retaliatory tariffs will decrease competitiveness of the American economy. Multiple businesses expressed concern that their market share that took decades to build up is now or soon will be gone over night. Cindy Brown works for Chippewa Valley Bean: a company that has been around for over 150 years. She said, “This is the worst thing that government has done to us in that time.” If the tariffs do not end shortly, employers may be faced with losing their market shares and possibly layoffs to keep afloat.
The Wisconsin Manufacturers & Commerce (WMC) President and CEO, Kurt Bauer, acknowledged the strengthened competitiveness of the U.S. economy based on other economic policies implemented by the Trump Administration in an article from the Wisconsin Business Voice. His praise was qualified with a statement, “On the downside, I am very concerned that a trade war caused by Trump’s steel and aluminum tariffs could derail the current economic momentum, both nationally and in Wisconsin.”
Where Wisconsin Congressional Representatives Stand
Similar to Rep. Kind, U.S. Senator Ron Johnson (R-WI) has been working to share the deeply felt effects on Wisconsin industries with the Administration by holding listening sessions as well and actively communicating with the Administration.
U.S. Senator Tammy Baldwin (D-WI) has expressed support for “America first” economic policies, but not the tariffs. “I support better trade deals, not trade wars. Tariffs against our trading partners in Europe do not fix our trade problems, and President Trump’s haphazard approach on tariffs with our allies will hurt Wisconsin’s manufacturing and agriculture economy.” See her Tweet, here.
Contrastingly, U.S. Rep. Sean Duffy (R-WI) is cautiously optimistic about the tariffs. “My district has the largest production of cranberries in America…I’m concerned about the growers. I’ve made that known to the trade representative on how important this is. But also, in the end I think we can be way better off for everybody and every industry if we’re able to get other countries to reduce their barriers to trade,” said Duffy in an article from WPR.
Here’s what’s being done to advocate for your business
Rep. Kind at the round table outlined two pieces of legislation that have been introduced within the past couple months that would protect against future tariffs. The legislation has been referred to the Committee on Ways and Means.
- The Trade Authority Protection (TAP) Act would create a Congressional Review Act style process allowing Congress to evaluate and possibly reject trade agreements made by the Executive branch (H.R. 5760).
- An amendment to the Trade Expansion Act of 1963 would require Congressional approval before the President adjusts imports that are determined to threaten or impair national security (H.R. 6337).
The U.S. Chamber has strongly been taking action in opposition of the tariffs. One effort has been to release a state-by-state analysis showing the tariffs’ impact. You can view the details here, at www.thewrongapproach.com.
The illustration below depicts some of Wisconsin’s hardest hit products.
The Trump Administration has announced that an estimated $12 billion in aid will be distributed to farmers hopefully beginning September. Rep. Kind and farmers at the round table said that this is just a short-term solution to an artificial issue, and would prefer having free trade rather than the subsidies.
Strategies to alleviate the effects of tariffs on your business
Importers and manufacturers have a couple options available to them to help reduce some of the effects. Actions include applying for an exemption – although this process only has about a 1% chance of success – changing your Harmonized Tariff Schedule (HTS) codes, or applying to be considered a foreign trade zone. Contact Scott Rogers at (715) 858–0616 or firstname.lastname@example.org to be connected with resources.
You can attend the Chamber’s August 17 Eggs & Issues hosting Jon Kirchner from the U.S. Chamber of Commerce to hear a business-focused outlook on federal issues. Kirchner is the manager of Congressional and Public Affairs for the Midwest Region. Click here for more information and to register.
More information on tariffs: Tariffs' impact harming Wisconsin businesses (Leader-Telegram), As Trump talks tariffs, here's what you need to know (Forbes), Ron Johnson to Trump: Trade war doing 'permanent damage' to Wisconsin businesses (Wisconsin State Journal)
Posted by Kaylee Tracy, Legislative & Workforce Development Intern