Trade Wars

It’s not for nothing that George Lucas starts his epic story with a trade war that descends into the Clone Wars (Star Wars episodes I-III)

Long Island importers are already feeling the pinch from the Trump administration’s shotgun approach to trade (fire off threats in all directions, hope nothing shoots back).  This is not the same thing as taking a hardline, which is when your interests are aggressive, or taking a softer line as when your interests are less aggressive. In each case, effective negotiation involves making your interests clear, your negotiating points are communicated and consistent, and your redlines are enforced.

Trade wars are bad for business in general. Economic forecasters from the National Association for Business Economics are predicting a sharp slowdown in U.S. economic growth over the next two years, from 2.9 percent in 2018 to 2.4 percent in 2019 and just 2.0 percent in 2020. The NABE economists attributed their weaker outlook in part to a growing economic drag from President Donald Trump’s trade policies. The import taxes that Trump has imposed on China and some other nations have prompted retaliatory tariffs on U.S. exports.

The scattershot approach, on the other hand, means nothing in a negotiation is clear — either to your own side or to anyone else.  This increases political risk, and that raises prices in ways both readily visible and at first hidden.

For example, one way prices rise is through import bonds.  Importers in the U.S. are required to have bonds worth 10% of total estimated duties, fees, and taxes; those that fail to meet this requirement can have their shipments held by U.S. Customs and Border Protection (CBP) and be charged additional fees.  Since the administration has begun slapping on tariffs, the CBP has sent out thousands of “insufficient bond” notices since last fall:

Since coming into effect last year, the tariffs have pushed up manufacturing costs, upended decades-old global supply chains and inflated prices for consumers, resulting in lower sales and forcing companies to defer investments. This, in turn, has dimmed global growth outlook, roiling financial markets.

Other ripple effects are less obvious, among them the rising expense of U.S. customs bonds. But for small companies that can ill afford the added cost, the impact can be crippling.

Given the extra duties associated with Trump’s tariffs, importers have been forced to post bonds that are worth much more to guarantee they can cover the added cost of bringing Chinese imports, and foreign steel and aluminum, into the United States.

The story notes one extreme case where an importer’s normal bond requirement of $50,000 increased to $26 million!

This hurts importers all over the country, and especially here on Long Island where we depend on imports from off the island for almost everything we consume. The Long Island Import Export Association has even posted a resource sheet for importers from Avalon Risk Management that addresses how increased duties will impact import bonds.

Import prices also have a knock-on effect on other industries here on Long Island.  In an opinion piece for Long Island Business News, David G. Schieren, the CEO of EmPower Solar and NYSEIA board member writes about the impact on jobs in the solar industry:

Jobs in New York are increasing despite a nationwide solar workforce decline to President Trump’s tariffs on solar panels. However, if the state truly wants to be a national leader on the issue, there is much more to do. While New York currently has over 1,500 MW of solar energy installed, we have a long way to go to reach our goals. Our neighbors in New Jersey and Massachusetts have produced more solar energy and created more industry jobs than New York.

But that’s obviously not the only industry to be impacted on Long Island, given how little is actually manufactured or grown here.  Some of the largest employers here are supermarket chains like Stop & Shop, and if prices go up too much as a result of import tariffs, one option for retailers is to cut jobs rather than pass prices on to consumers. Another option is to just go ahead and pass the price on, which would hurt those who could least afford it.

And it would seem that we in fact have a little of both going on — employment in Nassau and Suffolk counties appears to have gone down over the past several months:


And according to the Bureau of Labor Statistics, the price of food has gone up in the region, with price increases in five of the six grocery categories.

Someone shopping for groceries at Wild By Nature might not even notice that the price of wild-caught salmon steak has gone up 30¢ per pound (for example — I’m just making this up).  But someone shopping at Dollar Tree is sure to notice that canned tuna is now a nickel more per can. Pushing people at the edge under the water means that those people who were self-sufficient will be no longer and must be helped — either through the state or through charities, or both.  Which also impacts us all. As IMF managing director Christine Lagarde recently noted, “Nobody wins a trade war.”

(Originally published April 17, 2019)