As Trump threatens ever-increasing tariffs against China, the whole world is left guessing by U.S. companies. This is a problem. The same companies that Trump says he wants to help cannot plan ahead because U.S. trade policy has become unpredictable.
In the globalized economy, domestic manufactures and designers rely on materials imported from abroad. Clothing production stamped with “Made in the U.S.A.” often requires machinery imported from abroad. Domestic brewers rely on packaging made elsewhere. Other companies, like the popular sportswear brand Columbia, import their materials from around the world and are designed not only to resist bad weather but also to avoid the worst tariff penalties.
But on the drawing boards and in earnings calls, these companies aren’t quite sure how to plan for the future as Washington’s tariffs and process of granting exemptions is mired in uncertainty. How can designers, for example, pick materials for a shoe in a price range appealing to consumers if they don’t know how large a tariff might be levied on the materials?
That’s especially obvious as Trump has threatened to put tariffs on every product coming from China and boost existing tariffs should talks with Chinese President Xi Jinping fail during the G20 summit in Argentina at the end of the month. That’s a big jump with serious consequences and, pending the results of those talks, and the whim of Washington, manufactures, retailers and consumers are left in limbo.
In the end that uncertainty leaves companies and consumers without a good way to plan for the future – and that lack of predictability hurts the economy. Knowing the rules of the market, and what those rules will be in the near future best allows for the allocation of resources and setting prices. Throwing unpredictable tariffs in the mix tosses careful calculations out the window.
Trump’s tariffs, intended to pressure China, are already costing U.S. consumers more and hurting key industries like agriculture. But even beyond that, they are also setting the stage for longer-term uncertainty and instability that won’t help him as he runs for re-election.
