At enginemaker Cummins Inc., the costs of President Trump’s trade war have already topped savings from sweeping corporate tax cuts enacted by a Republican Congress at the end of 2017.
And the Columbus, Ind.-based manufacturer isn’t alone, says CEO Tom Linebarger, who has heard similar reports from the heads of other companies in his role as chairman of the Business Roundtable’s trade committee.
“Our taxes are essentially higher now than they were before tax reform, because of the Chinese tariffs,” Linebarger told reporters this week, confirming warnings from economists and businesses as long as a year ago that the White House risked negating one of Trump’s signature accomplishments by waging a trade war with shipping duties.
The 25% levies on Chinese imports, which Trump imposed to force Beijing into giving U.S. companies broader access to its markets while halting appropriation of American technology, now cover $250 billion worth of goods. The White House has threatened to tack them onto the remaining $325 billion in merchandise the U.S. imports from China, too, compounding the economic fallout of duties on steel, aluminum, solar panels, and washing machines.
Despite pleas from farmers, retailers, and small businesses who said the trade tactics were eating into and sometimes wiping out profits, Trump maintains tariffs are an invaluable tool in forcing both trading partners and competitors to treat the U.S. fairly.
“We’re taking in, right now, billions and billions of dollars in tariffs,” the president told reporters on Tuesday. “And by the way, I haven’t seen any inflation.”
Businesses have a different perception. Not only have they chafed at Trump’s repeated implications that China is footing the tariff bills, which are actually paid by American buyers when their goods arrive in port, many say they have no choice but to pass the pain on to consumers through higher prices.
For middle- and lower-income households, that can devour the tax cut’s benefits.
The initial Chinese tariffs imposed in 2018, which included 25% duties on $50 billion of goods and 10% levies on another $200 billion in imports, cost the typical U.S. household $419 a year, according to an analysis by the Federal Reserve Bank of New York.
Applying the 25% rate across the board, as the U.S. did this year, raises the cost to $831, the analysis showed. The 2017 tax bill, on the other hand, saved taxpayers with an annual income of $50,000 to $85,000 about $930 a year, according to the Tax Policy Center.
The benefits for lower-income households were even less, and critics say those households stand to suffer the most pain from tariff-related price hikes. At the end of May, Trump threatened duties of up to 25% on all imports from Mexico unless the country agreed to help curb illegal immigration through the southern U.S. border.
When Mexico capitulated, Trump said he was “indefinitely” suspending the tariffs but would bring them back if President Andrés Manuel López Obrador doesn’t live up to the White House’s expectations. He has also raised the prospect of new duties on cars, car parts, and French wines.
The Tax Foundation, among the most vocal supporters of the tax cuts, “has concluded that these tariffs will essentially wipe out the reform’s benefits,” Sen. Cory Gardner, a Colorado Republican seeking reelection in a state Trump lost to Democrat Hillary Clinton in 2016, said in a letter to Senate colleagues obtained by Politico.
“Hardworking Americans are unlikely to overlook the hit to their pocketbooks,” he added, noting that the duties will make it harder for Republicans to convince voters they’re reducing middle-class taxes. “I am all for fair trade. I am all for securing our border. But I am not for turning our backs on American workers and consumers.”
Gardner’s office didn’t respond to a Washington Examiner inquiry about the letter.
The economic risks from the escalating trade war prompted Federal Reserve Chairman Jerome Powell to hint earlier this month that the central bank stands ready to lower interest rates if needed.
“The tariffs, which are in place now and may be in place for some time, are a significant burden on U.S. companies and farms,” said Linebarger, the Cummins CEO. “They will be for some time. I’m really concerned about the impact that has on our economy.”
The effects are already evident in the labor market. While manufacturers added 264,000 new jobs in 2018, the most since 1997, the the industry hired only 13,000 workers from February through May.
“For those numbers to pick back up, our leaders in Washington must recommit to tackling the issues currently creating uncertainty for businesses and focus,” said Chad Moutray, chief economist for the National Association of Manufacturers.
Ratifying the U.S.-Mexico-Canada Agreement, Trump’s replacement for the Clinton-era North American Free Trade Agreement, and striking a trade deal with China are among the steps Washington can take “that would greatly benefit the industry long into the future,” he said.
