President Donald Trump’s ever-changing, on-again, off-again tariff war with America’s three biggest trading partners – Mexico, Canada and China — is baffling businesses and causing them to delay or cancel the investments that help drive economic growth
WASHINGTON (AP) — Marc Rosenberg, founder and CEO of The Edge Desk in Deerfield, Illinois is getting ready to introduce a fancy ergonomic chair designed to reduce customers’ back pain and boost their productivity. He figures the most expensive one will sell for more than $1,000. But he can’t settle on a price, and he is reluctantly reducing the shipment he’s bringing to the United States from China.
There’s a reason for his caution: President Donald Trump’s ever-changing, on-again, off-again tariff war with America’s three biggest trading partners – Mexico, Canada and China.
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Rosenberg and his ergonomic furniture, meanwhile, are contending with a 20% tariff on imports from China – which Trump on Tuesday raised from 10% -- but he’s not sure where the tariff will actually land.
“The misdirection is making it very tough to plan for the year,’’ he said.
Tariffs cause economic pain in part because they’re a tax paid by importers that often gets passed along to consumers, adding to inflationary pressure. They also draw retaliation from trading partners, which can hurt all economies involved.
But import taxes can cause economic damage in another way, too: by complicating the decisions businesses have to make, including which suppliers to use, where to locate factories, what prices to charge. And that uncertainty can cause them to delay or cancel investments that help drive economic growth.
“It creates an enormous amount of uncertainty for multinational companies that sell products worldwide, that import from the rest of the world, that run these complex supply chains through multiple countries,” said Eswar Prasad, an economist at Cornell University. “The uncertainty is going to be very unsettling for businesses and ... it will hurt business investment on net.”
During Trump’s first-term trade battles, U.S. business investment weakened late in 2019, convincing the Federal Reserve to cut its benchmark interest rate three times in second half of the year to provide some offsetting economic stimulus.
Trump 2.0 is even more unnerving to business. The first Trump administration imposed tariffs on specific targets — steel and aluminum and most goods from China — after lengthy investigations.
This time, Trump has invoked his power to declare a national emergency — ostensibly over the flow of illegal drugs and immigrants across U.S. borders — to impose tariffs on Canada, Mexico and China with the stroke of a pen. And he’s expanded his targets. Next month, for example, is intends to impose “reciprocal tariffs’’ on countries that charge higher import taxes than America does.
“Just the threat of those tariff increases and potential retaliations are putting a brake on — on investment, on consumption decisions, on employment, hiring, all the rest of it,’’ European Central Bank chief Christine Lagarde said after the ECB cut interest rates Thursday to support Europe’s struggling economy.
His tariffs on Canada and Mexico effectively blow up a 2020 North American trade deal he negotiated himself five years ago.
“Past trade agreements simply don’t mean much if the president can unilaterally violate them and impose tariffs with no checks at all,” said Douglas Irwin, an economist at Dartmouth College.
Adding to the uncertainty: It’s unclear what Trump is trying to achieve by plastering tariffs on American trading partners. Sometimes he cites border security. Sometimes he emphasizes the revenue that tariffs can generate for the Treasury — money that can help finance his proposed tax cuts. Sometimes he points to America’s big trade deficits with most other countries. And he’s falsely accused Canada of banning U.S. banks when in fact 16 American banks operate north of the border, according to the Canadian Bankers Association.
Since the goals are cloudy, it’s hard to see what it will take to make Trump’s tariffs go away.
Not only that, but he’s imposed the tariffs erratically, creating even more confusion. For instance, his administration had to reverse itself last month after ending a customs loophole – the “de minimis” exemption -- allowing duty-free entry into the United States of packages from China and Hong Kong worth less than $800. Turned out, the U.S. postal service needed more time to figure out how to collect the duties.
Businesses are baffled. “I’ve talked to multiple companies that are saying, ‘We’re not moving forward with any investment. We need this to be settled,’” said trade lawyer Gregory Husisian at the law firm Foley & Lardner. At least in Trump’s first term “they knew what the ground rules were. Now they don’t know if we’re playing Monopoly or tic-tac-toe.’’
Respondents to the Institute for Supply Management’s manufacturing survey, out Monday, voiced complaints about the tariff uncertainty. “Customers are pausing on new orders as a result of uncertainty regarding tariffs,” said a transportation equipment company. “There is no clear direction from the administration on how they will be implemented, so it’s harder to project how they will affect business.” A chemicals company griped: “The tariff environment regarding products from Mexico and Canada has created uncertainty and volatility among our customers.’’
“Right now, the tariffs are putting everybody off balance because of their unpredictability and uncertainty,” said John Gulliver, president of the New England-Canada Business Council.
Taylor Samuels, the owner of Las Almas Rotas, a bar and restaurant in Dallas, depends on Mexico for much of the alcohol he offers.
The uncertainty surrounding the tariffs, including the potential impact on the price of raw materials like steel and lumber, are forcing him to review his plans to build a new restaurant.
“That construction budget is now under review and may likely be delayed ... as I recalculate costs that have already been budgeted,” he said.
Similarly, Sandya Dandamudi of GI Stone, a stone supplier in Chicago for projects ranging from the Obama Presidential Center to private homes and affordable housing developments, said developers are having to rethink their plans.
“Developers of commercial projects like high-rises and hotels budget two years in advance, so they don’t account for new tariffs,” she said. “Those budgets will be blown.’’
Dandamudi said that companies will either succeed in passing the tariffs along to their customers or they will be forced to cancel projects.
“The tariffs will be devastating for small businesses like ours,” she said. “Going forward, we won’t be able to sign any new contracts unless clients address the tariffs.”
Holly Seidewand, owner of First Fill Spirits, a specialty spirits shop in Saratoga Springs, New York, that sells Canadian whisky and other specialty spirits, said her plans for the future have been put on hold due to the tariffs. Her original plan for 2025 was to almost double her inventory and the selection she offered.
“For now, we have no plans of adding more shelving or space for new items, we will stick to the footprint we have,” she said. “This will delay the growth of our business, making us a bit stagnant.’’
D’Innocenzio and Anderson reported from New York. Associated Press Staff Writers Rodrique Ngowi in Billerica, Massachusetts and Christopher Rugaber in Washington contributed to this report.
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