Tariffs Trigger Trade War
How new tariffs on Chinese goods and foreign metals are affecting U.S. businesses
American businesses have begun bracing themselves against the winds of a trade war and making plans on how to survive the aftermath of what could be a destructive storm.
If you’ve paid any attention to the news over the past year, you’ve heard about the tariffs the United States imposed on $250 billion worth of Chinese imports.1 A 10% tariff went into effect at the end of September and is scheduled to increase to 25% in January. But that’s not all—the United States also imposed a 25% tax on foreign steel and a 10% tax on foreign aluminum.
The tax on Chinese goods was imposed after an investigation into China’s controversial trade practices. The steel and aluminum tariffs were implemented to incentivize American businesses to source their metals from domestic providers, theoretically boosting the metal industry.2, 3
Regardless of their purpose, this tax trifecta has American businesses reeling. And understandably so—in September, they were forced to pay $545 million more because of the steel and aluminum taxes and $800 million more because of the China tariffs.4
However, it’s not just the additional U.S. tariffs that are problematic. Several countries—including China, Canada, Mexico and the European Union (EU)—have imposed retaliatory taxes on U.S. goods. China, for example, has threatened tariffs on $110 billion of U.S. exports. In turn, U.S. organizations experienced a 26% decrease in sales of products subject to those taxes—a $2.5 billion hit—while sales of products not subject to those taxes remain unaffected.5
Among those that have been hit hard are retailers, soybean and whiskey producers, and auto manufacturers.
In a time when retailers are struggling to keep pace with the likes of Amazon, these new tariffs could be detrimental. Many retailers are concerned that the tariffs will force them to pass the cost along to customers and are worried what that will mean for their businesses. JCPenney and Walmart went so far as to write letters to U.S. Trade Representative Robert Lighthizer.
“No retailer will be able to simply absorb the cost of a 10% tariff, much less a 25% tariff in today’s ultracompetitive retail environment,” wrote David M. Spooner, counsel for JCPenney. “That means consumers will pay higher prices.”6
Walmart officials wrote: “Either consumers will pay more, suppliers will receive less, retail margins will be lower, or consumers will buy fewer products or forego purchases altogether.”7
In August, hundreds of retailers and industry representatives testified for more than 45 hours before trade officials, trying to convey just how damaging the tariffs could be on their businesses. Graco Children’s Products, Huffy Corp., Evenflo Co. and Jo-Ann Stores were among those that testified.8
Soybeans and whiskey
As part of China’s retaliation, it placed a 25% tax on American soybeans. Considering the United States sold about one-third of its soybean crop to China in 2017, the tax could have devastating consequences.9 According to Wally Tyner, a Purdue University agricultural economist, the United States is at risk of permanently losing 9 million of its 89.6 million acres of soybeans to other countries.
“If Brazil and other exporters that compete with us in the world market, if they’re able to expand their acreage, if this goes on long enough, Brazil could have an incentive to expand their acreage, and we will not likely get that acreage back,” Tyner said.10
The whiskey business was hit even harder. The EU, China and Mexico each levied a 25% tax on the liquor, while Canada imposed a 10% tax and Turkey a 40% tax. That’s no small chunk of change—the EU alone accounts for $667 million in whiskey exports.11
The Distilled Spirits Council wrote the following to U.S. Commerce Secretary Wilbur Ross:
“Over the past two decades, U.S. spirits exports have increased from $575 million in 1997 to $1.64 billion in 2017, a rise of 185%. The imposition of these tariffs by our major trading partners threatens to seriously impede export progress that has benefited our sector and created jobs across the country.”12
The automotive industry has been hit with a double-whammy—not only is the industry affected by the tariffs imposed on Chinese imports, but it’s also affected by the steel and aluminum tariffs.
In its third-quarter earnings letter, Tesla said that it expects to take a $50 million hit as a direct result of the tariffs placed on the parts it imports from China,13 while Ford is expecting to feel the pain of the steel and aluminum tariffs.
“From Ford’s perspective, the metals tariffs took about $1 billion in profit from us, the irony of which is that we source most of that in the U.S. anyway,” said Jim Hackett, Ford’s CEO. “If it goes on any longer, it will do more damage.”14
Back in April, amid declining sales, Ford announced that it was going to phase out all but two of its cars in North America—the Mustang and the Focus Active. The Focus Active is currently sold in Europe, but Ford planned to build it in China and import it to the United States. The automaker nixed those plans at the end of August, citing prohibitive cost.
“The impact to our future sales is expected to be marginal,” said Kumar Galhotra, Ford’s president of North America. “Our viewpoint is that, given the tariffs, our costs would be substantially higher. Our resources could be better deployed at this stage.”15
Harley-Davidson Motor Co. is also experiencing backlash from the steel and aluminum tariffs. In response to the United States’ taxes, the EU levied its own 25% tariff on big motorcycles in June—which is about $2,200 per bike. The tax has cost Harley about $25 million since its implementation.16
John Olin, Harley’s CFO, said the organization is figuring out how to avoid that tax by moving its supply chain outside of the United States.
“This is something we never contemplated doing. We never imagined moving production for our European customers outside of the U.S.,” Olin said.17
It’s unclear whether there will be a winner in this tit-for-tat trade war. What is clear, however, is that businesses and consumers are turning out to be the ones bearing the brunt of it—whether indirectly through manufacturing materials and intermediate goods, or directly through consumer goods.
—compiled by Lindsay Dal Porto, assistant editor
- Andy Kiersz and Bob Bryan, “Here’s Exactly How Trump’s Trade War With China Could Affect You,” Business Insider, Oct. 12, 2018, https://tinyurl.com/ybwpobg4.
- Heather Long, “3 Ways Trump’s Steel and Aluminum Tariffs Could Backfire,” Washington Post, March 1, 2018, https://tinyurl.com/ybmazuam.
- Zeeshan Aleem, “Trump’s New Attack on the Chinese Economy, Explained,” Vox, Aug. 21, 2018, https://tinyurl.com/y8o3ogoo.
- Stephanie Dhue and Ylan Mui, “American Businesses Paid 50% More in Tariffs in September Due to Trump’s Trade War, Industry Coalition Says,” CNBC, Nov. 5, 2018, https://tinyurl.com/ya9pfxr5.
- Kiersz, “Here’s Exactly How Trump’s Trade War With China Could Affect You,” see reference 1.
- Gina Heeb, “Dozens of Retailers Testified About How Trump’s Trade War With China Could Impact Them—Here’s What They Said,” Markets Insider, Sept. 13, 2018, https://tinyurl.com/yce7skes.
- Raymond Zhong, “China’s Taste for Soybeans Is a Weak Spot in the Trade War With Trump,” New York Times, July 9, 2018, https://tinyurl.com/ybeb2r5l.
- Tyne Morgan, “China Trade War Could Cost U.S. 9 Million Acres of Soybeans,” AG Web, Oct. 22, 2018, https://tinyurl.com/ycb49vdb.
- Felipe Schrieberg, “Trade War Tariffs Hit Bourbon Around the World,” Forbes, June 30, 2018, https://tinyurl.com/ycxeverp.
- Mark Matousek, “Tesla Said It Expects Tariffs on Chinese Parts to Cost Around $50 Million During Q4,” Business Insider, Oct. 24, 2018, https://tinyurl.com/ybo7q57b.
- Bob Bryan, “Trump’s Trade War Is Starting to Whack Car Companies Like Ford, Honda and BMW,” Business Insider, Oct. 15, 2015, https://tinyurl.com/y8uhgmeg.
- Michael Martinez, “Ford Scraps Plan to Import Focus Active Amid U.S.-China Trade War,” Automotive News, Aug. 31, 2018, https://tinyurl.com/y845fbqm.
- Gwynn Guilford, “Harley-Davidson Is Losing America’s Trade War—and America Is Losing Harley-Davidson,” Quartz, Oct. 23, 2018, https://tinyurl.com/y9vzdvlw.
ASQ Unveils New Online Recertification Process
Starting Jan. 1, ASQ certification holders are required to recertify using a new, secure and more efficient online recertification application.
The new process will deliver consistency in processing and, among other features, will provide a dashboard, recertification unit tracker, the opportunity to drag and drop documents, and a user-friendly interface with a complete document history.
The online application also will automatically integrate recertification units with your other account activities, such as ASQ membership and certification.
Moving to a secure online platform was based on a several factors, including voice of customer research and new privacy laws that mandate how ASQ protects customer information. The decision also is related to the ASQ Certification department’s pursuit of ISO 17024 accreditation, which establishes standards for recertification quality control.
For more on recertification, visit asq.org/cert/recertification.
Healthy Options Drive Satisfaction With Food Brands
Food organizations that have taken notice of consumers’ growing interest in fresh, natural and organic products continue to reap the rewards.
Customer satisfaction with grocery food—packaged food products ranging from chocolate, baked goods and cereal to meat, cheese and frozen foods—has climbed 1.2% year over year to 82 (on a 0 to 100 scale), according to the American Customer Satisfaction Index’s (ACSI) latest nondurable products report.
Food prices have risen slower than anticipated, and food quality has improved, two big factors contributing to the rise in customer satisfaction.
“A growing demand for healthier foods has reshuffled the playing field for grocery brands,” says David VanAmburg, managing director at the ACSI. “In 2018, we saw the sales of plant-based foods grow by 20%, and one in 10 consumers have tried a gluten-free diet. These aren’t fads; customers want to adhere to a healthier lifestyle, and they’re more satisfied with brands that offer those options.”
For more on the results, visit https://tinyurl.com/acsi-food-sellers.
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Getting to Know…
Current position: Principal at J.M. Lucas and Associates, Wilmington, DE.
Education:Doctorate in Statistics from Texas A&M in College Station.
What was your introduction to quality? When I worked as a consultant in DuPont’s Applied Statistics Group (ASG), the implicit expectation was that consultants would develop expertise in some area. Because the Yale Statistics Department was very “Fisherian” and, like Ronald Fisher, felt that “the study of quality had only a modicum of interest at the lowest levels of the production process,” I felt that it would be worthwhile to study quality. This contrarian instinct has proved to be useful and fruitful.
Do you have a mentor who made a difference in your career? Don Marquardt, who headed up DuPont’s ASG and who was also a president of the American Statistical Association (ASA) was my mentor.
Is there a teacher that influenced you more than others? I have three strong academic memories from my time at Penn State. First, I remember my first physics class in which the professor described an electron out at infinity, maybe 1 cm away. Second, the instructor in strength of materials introduced the course by noting that although the course was simple, it was the basis of all the bridges and skyscrapers in the world. Third, I remember the engineering orientation in which the industrial engineering (IE) speaker described the power of factorial experiments. This introduction was the reason I enrolled in IE. I switched to engineering mechanics after my sophomore year because the IE curriculum had too many labs.
What’s the best career advice you’ve ever received? Each morning, quickly check your mail to see if there are any critical items that must be addressed. Then work on your most important item until it is completed.
Are you active in ASQ? I am an ASQ fellow and an associate editor of the Journal of Quality Technology (JQT). I am also a past chair of ASQ’s Chemical and Process Industries Division where I went through all the offices and I was the chair of the Fall Technical Conference. I also have been a team leader for the Delaware Quality Award.
Have you had anything published? I have more than 70 publications and many are cited frequently. I authored the most cited paper in two volumes of Technometrics and in two volumes of JQT.
What noteworthy activities or achievements outside of ASQ do you participate in? I am an ASA fellow, a past chair of the Delaware chapter, and a past chair of the Gordon Research Conference in Statistics in Chemistry and Chemical Engineering.
Any recent honors or awards? I have won many awards in quality and statistics including the Shewhart Medal, the Brumbaugh Award, the H.O. Hartley Award, the Ellis R. Ott Foundation Award, the Don Owen Award, the Shewell Award and the Youden Prize.
Personal: Wife, Karen, and son, Kerry.
Quality quote: Use your quality knowledge to help you live a great, high quality life.
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