A Blog by Jonathan Low

 

Feb 3, 2025

How Smart Corporations Are Planning To Manage "The Dumbest Trade War"

Corporate leaders were circumspect, polite and deferential - but unmistakably united in their concern that the tariffs announced this weekend would lead to a retaliatory trade war, higher prices and potentially significant job losses. The Wall Street Journal called the tariffs "The Dumbest Trade War In History."

That an agreement with Mexico was reached within 48 hours of the announcement - and based largely on economically meaningless Mexican promises ("rushing" 10,000 troops to the border to prevent fentanyl trafficking which, like illegal immigration was already trending down) with similarly performative Canadian promises likely this afternoon. Mexico has become the largest US trade partner after tensions with China grew. So smart, well managed corporations are mostly refraining from further comment, hoping that superficial agreements will continue, even as Csuite leaders stress test their supply chain vulnerabilities, cost structure, alternative sourcing potential and product pricing. All while instructing their lobbyists to press hard for Administration attention to turn to tax cuts and regulatory relief. JL

Lindsay Wise reports in the Wall Street Journal and Kristian Burt reports in CNBC
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Tariffs were the part of Trump’s economic plan investors disliked the most. Markets cheered promises of tax cuts and reduced regulation, but he vaulted his trade plan ahead of everything else. Wall Street analysts and economists are unanimous that tariffs will, if sustained for more than a few months, hurt U.S. growth and boost inflation. (So as of this morning, he) and Mexican President Claudia Sheinbaum reached agreement to put tariffs on Mexico on hold for a month. He plans to talk to Canadian President Justin Trudeau again this afternoon. "We understand the President is working towards an agreement. We work with our suppliers, we look at our cost base, we look at other pricing opportunities and if we cannot cover it, we've got to protect the structural economics of the business. At that point, we’ll decide what should be passed on."

President Trump and Mexican President Claudia Sheinbaum said that they reached an agreement to put tariffs on Mexico on hold for a month, following a telephone call in which both leaders agreed to take joint measures to fight fentanyl trafficking across the U.S. border.

Trump said on his Truth Social platform that his conversation with the Mexican president was a “very friendly conversation,” and she agreed to immediately supply 10,000 Mexican soldiers on the border separating Mexico and the U.S. He added that Secretary of State Marco Rubio, Secretary of Treasury Scott Bessent, and Secretary of Commerce Howard Lutnick would continue negotiations “as we attempt to achieve a ‘deal’ between our two Countries.”

 

The U.S. agreed to work to prevent the trafficking of high-caliber weapons to Mexico, Sheinbaum said. “Our teams will begin working today on two fronts: security and trade,” Sheinbaum added.

Trump also said that he spoke to Justin Trudeau, Canada’s prime minister, Monday morning and plans to talk to him again at 3 p.m. On Saturday, Trump said the U.S. would impose a 25% levy on imports from Canada and Mexico, a 10% tariff on energy products from Canada, and an additional 10% tariff on China.

Trump’s aggressive move to place tariffs on hundreds of billions of dollars in imports, ranging from crude oil and auto parts from Canada to Mexican avocados and raspberries has rattled investors, economists and some lawmakers, who are all wondering: What exactly is the goal?

Larry Summers, the former U.S. Treasury secretary under President Bill Clinton, said Trump’s move amounted to “a self-inflicted supply shock.” Kentucky Republican Sen. Rand Paul said: “Taxing trade will mean less trade and higher prices.” The head of the National Association of Manufacturers, Jay Timmons, said it put American jobs at risk. “The ripple effects will be severe,” he said.

For many of those reasons, tariffs were the part of Trump’s economic plan investors disliked the most. Markets have cheered Trump’s promises of tax cuts and reduced regulation, but he has vaulted his trade plan ahead of virtually everything else.

Other countries have already moved to retaliate, and Trump acknowledged on Sunday that there could be some “pain” for U.S. consumers.

Canada is planning tariffs on $100 billion of goods, including alcohol, shoes, steel, aluminum and aerospace products. China, which also faces new U.S. tariffs, and Mexico prepared similar counterattacks.

Trump defended his tariffs, saying in an all-caps post: “Will there be some pain? Yes, maybe (and maybe not!)” He added that “it will all be worth the price that must be paid,” and repeated a call to turn Canada into America’s 51st state. Republicans over the weekend were largely supportive of Trump’s efforts. “We are just two weeks into the Trump administration and Washington does not know what hit it,” said Sen. John Barrasso (R., Wyo.), the No. 2 Senate Republican, on Fox News’s “Sunday Morning Futures.” Asked if he was concerned that the tariffs could undermine the administration’s other policy goals, Barrasso said no.

Rep. Jason Smith (R., Mo.), who chairs the tax-writing House Ways and Means Committee, said the tariffs would bring in billions of dollars in new revenue to the U.S. government.

During his presidential campaign, Trump telegraphed that tariffs would be a key part of his governing strategy, saying repeatedly that “tariff” is his favorite word. Many investors believed that this was part of a negotiating ploy with other countries and that he would try to extract concessions before following through.

 

So far, Trump hasn’t spent much time negotiating with any other country. His top trade adviser, Howard Lutnick, his nominee for commerce secretary, hasn’t yet been confirmed by the Senate. The confirmation hearing for his pick for trade ambassador, Jamieson Greer, hasn’t occurred yet.

Wall Street analysts and economists are virtually unanimous that tariffs of the sort Trump unveiled this weekend will, if sustained for more than a few months, hurt U.S. growth and boost inflation. After the White House on Friday announced the forthcoming tariffs, stock indexes reversed daily gains to close solidly lower. Monday morning, stocks fell further.

“The market needs to structurally and significantly reprice the trade-war risk premium,” said George Saravelos, head of foreign-exchange research at Deutsche Bank

 

A national home-building group said the tariffs threaten to slow residential construction. American fuel producers said it could mean higher gas prices. The generic-drug industry trade association said it could increase drug shortages. Zippy Duvall, president of the American Farm Bureau Federation advocacy group, said U.S. farmers and rural communities would “bear the brunt of retaliation.”

“It was Donald Trump who campaigned on lowering costs, and now it is Donald Trump who will raise them,” said Senate Minority Leader Chuck Schumer (D., N.Y.).

The border crossing between Ontario and Michigan.
The border crossing between Ontario and Michigan. PHOTO: GEOFF ROBINS/AGENCE FRANCE-PRESSE/GETTY IMAGES

The precise impact will depend on how long the tariffs stay in place and if other countries retaliate. The Tax Policy Center, a think tank, estimates the average household’s after-tax income will fall 1%, or $930, in 2026 because of the tariffs. Goldman Sachs economists estimate the tariffs on Canada and Mexico, if sustained, would raise consumer prices by up to 0.7%, and knock 0.4% off the level of economic output.

In theory, the direct cost to consumers of tariffs could be offset by further tax cuts. But tariffs will have other, less tangible costs such as forcing consumers to alter what they buy because of cost or availability. The Peterson Institute for International Economics estimates tariffs will leave the U.S. economy about 0.25% smaller next year and 0.1% in the long run.

Tax-cut talks could begin soon in Congress, though that process is likely to play out over months. Trump wants to extend his expiring tax cuts from 2017 and add new measures such as tax-free tips and tax-free overtime pay. Republicans generally agree on his broader goals. But they are hamstrung by their narrow House majority and mired in internal disputes over how deeply to cut federal spending alongside the tax cuts. They might take the first formal step forward this week, bringing a blueprint to the House budget panel.

Trump’s push to cut government spending has already run into legal challenges and internal missteps. The White House believes high levels of government spending fuel inflation, and last week the Office of Management and Budget tried to put a temporary freeze on a range of government programs.

That initiative sparked confusion and was initially blocked by a federal judge. White House officials will have another opportunity to pursue spending cuts when they negotiate a budget bill with Congress before a March 14 shutdown deadline. However, they will likely need cooperation from Democrats if they want to pass any package in a way that could avoid a government shutdown.

A national home-building group says the tariffs threaten to slow residential construction.
A national home-building group says the tariffs threaten to slow residential construction. PHOTO: MIKE BLAKE/REUTERS

Another key part of Trump’s economic agenda is boosting energy production, which he believes will bring down prices on a range of products and even lower interest rates. So far, there doesn’t appear to be much appetite by other oil-producing countries or energy companies for a dramatic expansion of drilling, however. It is unclear what Trump might try to do to force compliance with this goal.

In 2018, when he launched tariffs aggressively, he said his goal was to bring back American jobs. This time, he seems more focused on the hefty import duties that tariffs could bring in, creating more money for his agenda.

Whether the tariffs could also force changes that Trump has sought remains unclear. Summers, who had correctly warned then-President Joe Biden in 2021 that his stimulus policies would lead to higher inflation, said Sunday on CNN’s “Inside Politics Sunday” that he didn’t think the tariffs would succeed in forcing other countries into accepting meaningful changes in policy.

“Think about what giving in to a bully does. It invites more bullying,” Summers said. 

 

CNBC Industry and corporate leaders are weighing in after U.S. President Donald Trump followed through with his threat to impose tariffs on Canada, Mexico and China.

On Saturday, the Trump administration’s senior trade and manufacturing adviser Peter Navarro confirmed the president will follow through on 25% tariffs on imports from Mexico and Canada, as well as a 10% duty on China. Energy resources from Canada will have a lower 10% tariff.

A range of industries, from homebuilders to alcohol producers, detailed the impact tariffs would have on their businesses and consumers. Other company leaders voiced their concerns about the threat of tariffs ahead of Saturday’s order. Here are some of their statements.

John Murphy, U.S. Chamber of Commerce senior vice president, head of international

“The President is right to focus on major problems like our broken border and the scourge of fentanyl, but the imposition of tariffs under IEEPA is unprecedented, won’t solve these problems, and will only raise prices for American families and upend supply chains. The Chamber will consult with our members, including main street businesses across the country impacted by this move, to determine next steps to prevent economic harm to Americans. We will continue to work with Congress and the administration on solutions to address the fentanyl and border crisis.”

Shawn Fain, president of the United Auto Workers Union

“The UAW supports aggressive tariff action to protect American manufacturing jobs as a good first step to undoing decades of anti-worker trade policy. We do not support using factory workers as pawns in a fight over immigration or drug policy. We are willing to support the Trump Administration’s use of tariffs to stop plant closures and curb the power of corporations that pit US workers against workers in other countries. But so far, Trump’s anti-worker policy at home, including dissolving collective bargaining agreements and gutting the National Labor Relations Board, leaves American workers facing worsening wages and working conditions even while the administration takes aggressive tariff action.

“If Trump is serious about bringing back good blue collar jobs destroyed by NAFTA, the USMCA, and the WTO, he should go a step further and immediately seek to renegotiate our broken trade deals. The national emergency we face is not about drugs or immigration, but about a working class that has fallen behind for generations while corporate America exploits workers abroad and consumers at home for massive Wall Street paydays. We need to stop plant closures, bring back American jobs, and stop the global race to the bottom immediately. Any tariff action must be followed with a renegotiation of the USMCA, and a full review of the corporate trade regime that has devastated the American and global working class.”

John Bozzella, president and CEO of Alliance for Automotive Innovation

“Seamless automotive trade in North America accounts for $300 billion in economic value. It not only keeps us globally competitive, it supports auto industry jobs, vehicle choice and vehicle affordability in America. We look forward to working with the administration on solutions that achieve the president’s goals and preserve a healthy, competitive auto industry in America.”

Gov. Matt Blunt, president of the American Automotive Policy Council

“We continue to believe that vehicles and parts that meet the USMCA’s stringent domestic and regional content requirements should be exempt from the tariff increase. Our American automakers, who invested billions in the U.S. to meet these requirements, should not have their competitiveness undermined by tariffs that will raise the cost of building vehicles in the United States and stymie investment in the American workforce.”

Jay Timmons, president and CEO of the National Association of Manufacturers

″[W]ith essential tax reforms left on the cutting room floor by the last Congress and the Biden administration, manufacturers are already facing mounting cost pressures. A 25% tariff on Canada and Mexico threatens to upend the very supply chains that have made U.S. manufacturing more competitive globally.

“The ripple effects will be severe, particularly for small and medium-sized manufacturers that lack the flexibility and capital to rapidly find alternative suppliers or absorb skyrocketing energy costs. These businesses — employing millions of American workers — will face significant disruptions. Ultimately, manufacturers will bear the brunt of these tariffs, undermining our ability to sell our products at a competitive price and putting American jobs at risk.”

Carl Harris, chairman of the National Association of Home Builders

“On President Trump’s first day in office, he issued an executive order directing departments and agencies to deliver emergency price relief by pursuing actions to lower the cost of housing and increase housing supply. This move to raise tariffs by 25% on Canadian and Mexican goods will have the opposite effect. More than 70% of the imports of two essential materials that home builders rely on — softwood lumber and gypsum (used for drywall) — come from Canada and Mexico, respectively.

“Tariffs on lumber and other building materials increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices. NAHB urges the administration to reconsider this action on tariffs and we will continue to work with policymakers to eliminate barriers that make housing more costly and prevent builders from boosting housing production.”

David McCall, international president of the United Steelworkers union

“The USW has long called for systemic reform of our broken trade system, but lashing out at key allies like Canada is not the way forward. Canada has proven itself time and again to be one of our strongest partners when it comes to national security, and our economies are deeply integrated.”

“Workers and their communities are counting on their elected leaders to make strategic decisions that help confront bad trade actors like China while at the same time fostering domestic manufacturing capacity. Our union calls on President Trump to reverse course on Canadian tariffs so that we can focus on trade solutions that will serve working families for the long-term.”

Tom Madrecki, Consumer Brands Association’s vice president of supply chain resiliency

“Tariffs on all imported goods from Mexico and Canada – especially on ingredients and inputs that aren’t available in the U.S. – could lead to higher consumer prices and retaliation against U.S. exporters. Despite sourcing the vast majority of ingredients and inputs from U.S. farms and domestic suppliers, CPG companies depend on global supply chains for certain imports due to unique growing conditions and other limiting factors around the world.

“We urge leaders in Mexico and Canada to work with President Trump to protect consumers’ access to affordable products and remove tariffs that could contribute to grocery inflation.”

The Distilled Spirits Council of the U.S., the Chamber of the Tequila Industry and Spirits Canada

“Our associations are committed to working collaboratively with all stakeholders to explore solutions that prevent potential tariffs on distilled spirits. We are deeply concerned that U.S. tariffs on imported spirits from Canada and Mexico will significantly harm all three countries and lead to a cycle of retaliatory tariffs that negatively impacts our shared industry.”

David French, the National Retail Federation’s executive vice president of government relations

“We urge the Trump administration and the Canadian, Mexican and Chinese governments to come to the negotiating table and resolve our outstanding border security issues as quickly as possible. Imposing steep tariffs with three of our closest trading partners is a serious step, and we strongly encourage all parties to continue negotiating with the appropriate seriousness to avoid shifting the costs of shared policy failures onto the backs of American families, workers and small businesses.

“Tariffs are just one tool at the administration’s disposal to achieve a secure border, and we urge it to explore other tools that can achieve the same goals. As long as these universal tariffs are in place, Americans will be forced to pay higher prices on everyday consumer goods.”

Michael Hanson, the Retail Industry Leaders Association’s senior executive vice president of public affairs

“We understand the president is working toward an agreement. The leaders of all four nations should come together and work to reach a deal before Feb. 4 because enacting broad-based tariffs will be disruptive to the U.S. economy. The American people are counting on President Trump to grow the U.S. economy and lower inflation, and broad-based tariffs will put that at risk,” said .

Shannon Williams, CEO of the Home Furnishings Association

“By early next week, we are anticipating that retailers will be hit with price increases from manufacturers to cover the cost of the tariffs.”

Retailers brace for price increases

Walmart CFO John David Rainey told CNBC in November: “We never want to raise prices. Our model is everyday low prices. But there probably will be cases where prices will go up for consumers.”

Lowe’s CEO Marvin Ellison told CNBC: “We’re not waiting to act. We’ve got plans in place. We’ve got scenarios in place, and we’re trying to understand the implications.”

Levi’s finance chief Harmit Singh in January: The “first objective would be to minimize the impact on the consumer. So we work internally with our suppliers, we look at our cost base, we look at other pricing opportunities and if we cannot cover it, obviously we got to protect the structural economics of the business. At that point, we’ll decide, you know, what should be passed on to the consumer or not, but we won’t start from that. That’s where we will end.”

Shein executive chairman Donald Tang told CNBC in January that the retailer’s products can remain affordable as long as proposed tariffs from President Donald Trump are “applied equally.”

Best Buy CEO Corie Barry said in November that higher costs from tariffs would be shared by the company, vendors and customers: “These are goods that people need, and higher prices are not helpful.”

Steve Madden CEO Edward Rosenfeld said in November that the brand has been “planning for a potential scenario in which we would have to move goods out of China more quickly.”

1 comments:

Anonymous said...

Down with the working class! Corporate profits are more important than mere human beings. Besides, if war starts with China, we'll just buy everything we need from... China.

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