We are all trying hard to rationalise or explain what the Trump administration is trying to do, writes Rick Helfenbein, president and CEO of the American Apparel & Footwear Association (AAFA). Apparently, we are attempting to stop unfair trade practices – promoted by China – by taxing ourselves and taking money out of our own pockets. Makes sense, right?
Tariff week for the 301 discussion is now over. The doors are closed, and the official jury has disbanded (although written comments are still acceptable).
The United States Trade Representative (USTR) will soon decide what consumer products will be subject to tariffs (with rates as high as 25% – in addition to what we are already paying).
As all this was unfolding in Washington, D.C., we were visited by esteemed business leaders who expressed concern that tariffs would be placed on products that they import from China, and that this action would bring disastrous consequences. The excitement happened during hearings at the International Trade Commission Offices where several branches of government gathered to hear testimony from 46 panels covering more than 350 different companies and trade associations.
Having spent some time in the peanut gallery during the hearings, I can only add that, overall, it was a sad experience.
Just as company models have entered growth mode, representatives of the US government sat on the other side of the testimony table, nodding to the stories, but fully prepared to take away the comfort of their supply chain environment by adding tariffs to products they import. Most of the executives explained that they would face extreme difficulty to suddenly relocate China-centric supply chains that have been developed over many years, and stated that additional tariffs would disrupt and destroy their businesses. Essentially, the executives expressed that this is an unwelcome intrusion into their world, irrespective of the stated goal of the project – which is to tame some inappropriate Chinese business practices.
This drastic action is so hard to explain, that President Trump has taken to making Apprentice-like excuses to demonstrate his decision.
One potential strategy was revealed by tweet on Sunday 5 August, when he wrote:
“..Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt that has been accumulated, much by the Obama Administration, while at the same time reducing taxes for our people. At minimum, we will make much better Trade Deals for our country!”
Now, let’s examine that statement more closely.
First, it’s simply not true that trade war tariffs will suffice to pay down the debt. Tariffs alone won’t even put a dent in our mammoth national debt.
Second, tariffs are taxes paid by the American people on items that we consume. More individuals will pay these tariff taxes then could possibly benefit from the administration’s recent tax cuts.
We are all trying hard to rationalise or explain what the Trump administration is trying to do. Apparently, we are attempting to stop unfair trade practices (promoted by China) by taxing ourselves and taking money out of our own pockets. That’s like driving a nail through your foot to give you better traction when walking.
Bottom line: this whole tariff idea is ludicrous and the result will be terrible. Let’s see if we clearly understand this. We will add taxes to everyday things that we buy, so that China will be upset. Makes sense, right?
Dialogue and cooperation
There is little question that China participates in some unfair trade practices and that we should work harder to achieve better parity on the rules of trade and on the trade deficit with China. This requires dialogue and cooperation, and if there are penalties to be assessed, they should be placed on China and not on the US consumer.
Observing the Trump administration’s trade supporters as they cheer the basket of trade mis-truths, is a sight to behold. Those who understand the realities of trade wars know that the faithful will see the light when they are forced to shell out more money for their own consumer purchases. As prices go up, sales will go down, and jobs will be lost.
Clearly, the President is not an economist and his trade tactics, if prolonged, will be getting us into a whole lot of trouble. Trade wars simply don’t end well, and this new one is no exception.
This next round of proposed tariffs threatens the apparel and footwear industry with increased taxes on hats, handbags, textiles for domestic production, machinery, and select apparel. We know that this is bad for our supply chains, bad for our businesses, and bad for the consumer. In addition, retaliatory tariffs from the EU and from China will add more salt to the wound.
As an industry, we do applaud the President’s concept of trying to rein in problems with intellectual property and creating a better system for international trade. However, the tariff war is a sink hole that keeps getting deeper. A wise man said that when you find yourself in a hole – it’s best to stop digging.
It’s time to stop this trade war.
It’s time to stop saying silly things like tariffs will resolve our national debt.
It’s time to stop Trump-taxing Americans by pretending that we are actually Trump-taxing the Chinese.
Let’s not fire the American retail consumer, especially at a time when our economy is good.
Stop the tariffs now!