The burgeoning trade war between the United States and China poses an existential threat to some Massachusetts companies.
One CEO, answering a recent survey by Associated Industries of Massachusetts, said: “Tariffs are by far the most serious issue my company has faced in 40 years of business — much more important than health insurance costs, regulations, and finding workers.”
The 4,000 employers of AIM are alarmed about the effect of tariffs — on the price and availability of raw materials, on long-established supply chains, on components, and on finished goods. These employers — from industries as varied as retail, machining, consumer goods, manufacturing, plastics, and semiconductors — also fear being caught in the crossfire of retaliatory actions by China and other trading partners, covering a broad range of raw materials and products.
Which tariffs exactly are causing all this concern? The United States imposed tariffs last spring on steel (25 percent) and aluminum (10 percent) imports. In response the European Union, Mexico, Canada, Turkey, and Russia immediately instituted retaliatory tariffs on US exports to those countries.
The United States has also imposed multiple rounds of tariffs on Chinese exports coming here. The White House began the summer by announcing tariffs on $50 billion of goods from China, and then upped the ante by implementing tariffs on another $200 billion of Chinese goods in September. The 10 percent tariff rate on these China exports is scheduled to increase to 25 percent by the end of the year. China has retaliated in kind, imposing tariffs on US goods destined for China.
There’s general agreement among trade experts and business leaders that China’s trade practices are unfair and must be addressed. What is arguable is how to get China to the negotiating table. Imposing tariffs is not the best strategy.
The consequences of tariffs on Massachusetts companies are far-reaching. They include:
Higher costs of doing business. Companies are paying more for components, raw materials, and finished products (for example, packaging companies that require specialty plastic materials, or any number of raw material and components in the automotive industry). Firms often cannot pass these additional costs to their customers. The result is reduced profitability and reduced opportunity to reinvest in the business.
Supply-chain disruption. Companies spend decades developing and refining their supply chains. China is a valuable source for components and finished products in everything from circuit boards to hats. In many cases, these components and products are simply not available in the United States, at any price. Quality and quantity requirements necessitate buying from overseas providers. Finding new suppliers is difficult or impossible.
Impact on jobs in Massachusetts. When companies must pay 15-200 percent more for materials or products, the financial impact is significant. Executives have told us their options are limited. Choosing among no new hires, decreased benefits/raises, or layoffs does not bode well for the Massachusetts economy or for companies themselves.
More competition from foreign manufacturers. One manufacturer told us that his company is already losing sales to foreign competitors who can offer a similar product at a lower price point because the US product carries a tariff and the one made in Europe or Asia does not.
General economic climate. With higher expenses and less revenue, Massachusetts companies may cut back on spending and investment, leaving employees with stagnant or lower incomes.
Financial uncertainty. Companies set budgets based on costs they can predict. Local construction firms are having difficulty setting pricing for future projects (This is where steel tariffs have an especially strong impact. Think: downtown development). The possibilities of another round of China tariffs (which would cover virtually everything the United States imports from China) and increases to current tariff rates make financial planning a challenge for companies in many sectors.
It’s time to reopen the gates of free trade that have made Massachusetts, its technology, and its products the envy of the rest of the world. We think that’s the best America First policy.Kristen Rupert is executive director of the AIM International Business Council.