Trade War

The ever escalating trade war including steel and aluminum tariffs, Section 301 tariffs on Chinese imports, failure to pass an update to the North American Free Trade Agreement, pulling out of the Trans-Pacific Partnership, and a number of other trade actions has spooked business executives and put a damper on this Labor Day’s celebrations. The economy expanded at a 2.1 percent annual rate from April through June, the Commerce Department said, down from the first quarter’s strong 3.1 percent pace. An increase in government spending accounted for the bulk of U.S. growth, as well as strong consumer spending. Business spending dried up, however, turning negative for the first time since early 2016. Many executives blame uncertainty surrounding the ongoing trade war for their hesitancy and in many cases an inability to spend as much as they did a year ago. More specifically, the significant amount of tariffs U.S. companies are paying is dramatically impacting their ability to reinvest in both R&D, as well as keep employees on the payroll, much less add new ones.

Newly-released data from the Commerce Department shows it is likely that growth peaked in the middle of last year before momentum cooled heading into 2019. There are also early signs that business leaders are beginning to pull back on hiring, too. The United States had 7.3 million job openings in June, down from a peak of 7.6 million in November, according to the latest Labor Department data and, while the decline is modest, many economists are concerned hiring could dry up quickly as companies being hit by the tariffs look to cut costs. The reduction in job openings is also widespread across many industries, signaling how cautiously all companies are behaving.

Research has historically demonstrated that a decrease in job openings tends to be a signal of economic trouble. Job openings in many industries have declined since November, including the information sector, financial services, transportation and warehousing, and hotels and food service, suggesting wide concern about future growth. Actual hires have also slowed this year, with average monthly job gains falling to 165,000 a month, down from 223,000 a month last year. That said, Labor Department data only shows what has happened to job openings only through June, before the latest tariffs were announced at 10% then increased to 15% last week.

Also taking a hit are the small and midsized companies that have already locked in contracts for the holiday season with the big retailers. This makes it extraordinarily difficult to raise their prices, so they are more likely to resort to cuts to the R&D budget, cuts to the marketing budget, and cuts to the head count. Without a doubt, these small and midsized company layoffs will have ripple effects across the nation’s economy.

I’ve worked extensively through the exclusion process with American companies of all sizes that have impacted by the tariffs over the past year and a half. These numbers on job losses do reflect what American companies are being forced to do to try to stay afloat. And it is true that it is impacting almost every sector of the economy from consumer appliances, to furniture, pet products, electrical equipment, as well as being devastating the agriculture community from American food processors to their growers. This Labor Day, I hope we all take a little time out of our day to think about the true costs of this seemingly never-ending trade war. Real people, real American small, medium, and large businesses, the bread and butter of the American spirit, are truly hurting.

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Denise Bode
Bio Link Denise co-leads the federal practice at Michael Best Strategies with expertise in association and coalition management as well as development of public policy strategies, at both the state and federal level. She was active, on behalf of firm clients, during the recent federal tax reform debate, much as she was during the last major tax reform in 1986. Expertise: Regulatory Law, Tax & Trade, Energy, Environmental, Food, Agriculture, and Telecommunications

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