One of the most important lessons of the past two years is the detrimental effect uncertainty has on businesses of every size. From the COVID-19 pandemic to supply chain bottlenecks and every other issue that’s presented itself, businesses have had to grapple with uncertainty on an unprecedented level, which has created serious implications for the job market.
While society has opened back up and there are signs at least some of the supply chain issues are easing, one major driver of uncertainty still remains in the form of tariffs on imports from China. The tariffs were first implemented in 2018 as part of the trade war with China but rather than having any beneficial effect on the balance of trade between the U.S. and China, they have created a heavy and unnecessary tax that is an enormous weight on U.S. businesses.
The most visible effect they’ve had is to make imports more expensive for the U.S. businesses who rely on them. Tariffs are taxes levied by the U.S. government, and to date American companies – and not China – have paid almost $150 billion to cover the costs of these tariffs. Businesses can only take on so many of those costs before needing to make some difficult decisions around where to cut costs – one that often results in domestic jobs being lost. Eventually, those costs wind up hitting American families in the form of higher prices.
The effects of tariffs go much further than just taxes on imports or higher prices for consumers. They also have much broader effects that bleed into the wider business world and damage entire industries. That’s because tariffs create distortions which cause uncertainty around the true value of a business and skew what it could be worth. That in turn has a direct impact on mergers and acquisitions, private equity deals, and much more.
This is all made worse by the fact that the tariffs were applied in an arbitrary, ineffective, and unnecessary way. Exclusions from the tariffs were offered but were almost impossible to secure, leading many businesses to avoid trying to get them in the first place. Others tried anything possible to avoid using tariff codes affected by tariffs.
These are all things I’ve seen with my own businesses. Tariffs made the materials and products I needed more expensive, forcing tough choices as to how manage these costs while minimizing job losses and price increases – something that wasn’t always possible. Even when I’ve sold a business in the past, the tariffs very quickly affected the valuation of the business and could have had a serious impact on the sale had it not gone through when it did.
Tariffs cause the lens through which businesses operate to fog up and complicate just about every aspect of their operations. It’s past time for President Joe Biden and United States Trade Representative Katherine Tai to rescind the tariffs the previous administration put into place and provide some much-needed clarity for businesses who have had to navigate an uncertain trade environment for more than four years.
Uncertainty is one of the most dangerous things for a business of any size, and tariffs only contribute to it. They’ve amplified the difficulties of the past few years, and American businesses and families need the trade war to end now more than ever as we all work to build an economy that is stronger than it was before.