Americans Are 'Friendly Fire' Victims of Trump's Trade War
In President Trump’s trade war, Americans are becoming victims of friendly fire. U.S consumers are taking hits from both directions: Retaliatory tariffs by other countries are hurting U.S exports. But the even bigger cost comes from the United States' own tariffs. Americans are paying the price – when they buy a car, fill up the tank, buy a house – or virtually anything else.
U.S tariffs are of course not paid by foreign countries or companies, but by American consumers and domestic companies. U.S. producers are hiking prices, or eating costs, because of U.S tariffs that were intended to give them a boost. Many U.S producers have no choice but to buy specialized inputs from abroad. The tariffs are the equivalent of an own goal – and the score is getting steep for a number of U.S industries.
One of the hardest hit is oil and gas, which had become newfound drivers of U.S economic growth. But the 25 percent tariff on steel, in particular, has undermined oil and gas’s ability to give the economy an additional lift, with the impact on the price of tubulars, pipes, valve fittings and other essential inputs up 20-25 percent over last year’s cost for the same products. Many of the steel products that oil and gas companies utilize are scarce or simply not available in the United States, leaving producers with no choice but to import – and pay the cost of tariffs. ConocoPhillips, for example, reports that "prices for steel used in pipes, valve fittings and other equipment have risen 26 percent in the U.S. since the start of the year." The company spends $300 million a year on equipment affected by the tariffs, and the tariffs will add about $40 million to the cost of the new pipeline it's building in the Permian basin in West Texas.
Tariffs especially hit industries that are unable to quickly change the sourcing of their inputs and still meet the industry's specifications and standards. The additional costs added by tariffs don’t just eat potential profits but also dangerously drive up energy costs. With oil and gas accounting for almost two-thirds of U.S energy supply, the impact on the hit to U.S oil and gas producers will be felt by American consumers.
In autos, the Detroit 3 are already facing higher costs for steel and aluminum. Threatened tariffs on auto imports would put them and auto owners even further in a competitive hole. A 25 percent tariff on all imported cars and auto parts could drive up prices for the most popular cars in the United States, according to a study by the Peterson Institute for International Economics That is based on the prospect of a 20-25 percent auto tariff, on top of the tariffs on steel and aluminum, the cost of which is estimated conservatively at just 1 percent. The most affected will be luxury cars, because they use the highest percentage of foreign parts. With a highly globalized supply chain, even American-made cars typically contain 25 percent to 35 percent of parts from abroad. Every single car sold in the United States has some foreign components. In truth, there is almost no such thing anymore as a domestic or foreign car – virtually every model includes components from inside and outside the country. That means there is no such thing as a tariff on autos that doesn’t boomerang on Americans.
The cost of protectionism is already being felt not just by Americans who buy a new car, but also by people needing a spare part for one. Steep levies have boosted costs of some products made with steel and aluminum; other duties could affect hundreds of other items these companies develop, make and sell — including tires and rear-view mirrors, windshields and windshield wipers. One of the country’s largest auto parts suppliers, AutoZone with 5,500 outlets, expects prices will have to rise on any component made with steel, such as rotors and other brake parts.
It is hard to think of a product that won’t see price increases or decline in profit contribution as a result of the tariffs. The increased cost of aluminum is hurting every industry that sources it, from soup to beer. The increase in those two products may be hardly noticeable because the cost of metals in their containers is small – but they add up. The cost of TVs imported from China — which make up nearly half of all TVs sold in the United States — is expected to go up almost 25 percent. A TV made in China that costs $250 will instead cost $308, according to a report from the National Retail Federation and the Consumer Technology Association. With more than 80 percent of personal computer monitors sold in the United States made in China, their cost can be expected to go up about 23 percent, according to the same study.
The U.S tariffs are hitting Americans where it already hurts most – in hospitals and doctors’ offices, driving up the cost of health care equipment such as CT scanners, EKGs and X-ray tubes. They could cost domestic companies and consumers, already hit by rising health insurance costs, as much as $1.5 billion per year.
Ronald Reagan once summarized the War on Poverty by saying: “Poverty won, we lost.” The trade war is having the same kind of perverse effect. Only in this instance, all countries and their residents are losing big time – especially American industries and consumers.