Despite the consensus among the vast majority of economists against Trump’s tariffs, Trump insisted, “Trade wars are good and easy to win.” Well, it has not been a winner for the manufacturers across the nation in the U. S. Fed’s July issue of the Beige Book, a qualitative report by Federal Reserve of its twelve branches, which indicates mounting concerns among manufacturers about tariff increase. The purpose of the report is usually to understand the current economic trends through anecdotes from businesses and community organizations. This time, the 32-page report heavily featured Trump’s tariffs. Many businesses reported that Trump’s tariff prompted a shortage of raw materials, disruption in the supply chain, and an increase in prices.
The new tariff plan for steel and aluminum went into effect in March 2018. Since then, tension has been particularly high among industries dependent on steel and aluminum for raw material. One manufacturer from Maryland noted that he could not get the quality of steel needed domestically and anticipated losing business to foreign competitors which are not faced with these tariffs. Similar concerns were shared by companies in Philadelphia. In Chicago, the anticipation of future friction among trading partners is making the agricultural industry volatile.
Fed chairman Jeremy Powell agrees with the surging tension. He appeared before House Financial Services Committee on Wednesday and testified, “In general, countries that have remained open to a trade that hasn’t erected barriers including tariffs have grown faster, they’ve had higher incomes, higher productivity. And countries that have, you know, gone in a more protectionist direction have—have done worse.” This is a clear urge for a Republican policy shift.
While many feared a drastic international outcome of the retaliation from trading partners resulting from Trump’s trade policies, these responses at home are clearly also results of the current administration’s very own policy. Trump wanted to be the mighty establisher of fair trade and the punisher of the unfair players, but history has taught us over and over again that economy is not a game of punishments. It is a game of mutual benefits.
What is utterly unfortunate here is that the national defense rationale that the administration is using in constructing their narrative for supporting protectionist economic policies. The unprecedented nature of the argument is an assault on international trading order. As it turns out, the United States imports very little aluminum from China. Tariff is hurting the allies more than the so-called ‘enemy’.
According to Fed’s catalog in its website, which goes back to 1996, tariff was not even mentioned more than twice in a single issue before April 2018. And yet, Trump threatens Europe with a new auto tariff. “Cars is the big one”, the President says, as he signals an out and out war on trade. With everyone hurting from his trade bloodlust, one still wonders, who is President trump fighting this war against? The Global Economy?
While the stakeholders on all sides are concerned, the Trump administration’s war on trade is showing no signs of a slowdown. Amidst the growing tension prompted the tariff that’s already in effect, European Commission President Jean Claude Juncker’s visit this week is seriously alarming the officials of the auto industry.
The Fed’s report is a clear indication that Trump’s tariffs are already materializing into negative gains. Although the burden did not increase the price for consumers yet in the short run, manufacturers are already losing out on their profit margins.
The Trump administration needs to understand that the tariff imposed on other countries is translating back into a tax on American manufacturers and hurting those who it wishes to help. It must realize that the U.S., of all countries, should not initiate an imbalance in the global trading order that is so valuable to its own economy.
Author Bio: Revana Sharfuddin Ame is a student of Economics at George Mason University.