Opinion: Trump's tariffs too great a gamble for U.S. economy

Matthew Shay | The Detroit News

After a long, slow climb following the Great Recession, the U.S. economy is finally thriving again.

Thanks largely to tax and regulatory reform, wages and take-home pay are higher, employment has risen and the consumers who drive the economy are confident.

Things are so good that at the National Retail Federation we have increased our economic forecast for 2018, predicting retail sales will grow at least 4.5 percent over 2017 rather than the range of 3.8 percent to 4.4 percent we predicted earlier this year.

But that revised forecast could have been even higher if not for a number of unknowns — the biggest of which is the growing trade war threatening our nation’s economy. And that war is being fought on multiple fronts.

Negotiations to modernize the North American Free Trade Agreement have been going on for a year, accompanied by repeated threats to pull out of the landmark pact between the United States, Canada and Mexico that has created U.S. jobs and lowered prices for U.S. consumers for a quarter century.

Tariffs were imposed on imported steel and aluminum earlier this year, and have already been reflected in higher prices for everything from canned beer and soda to nails and washing machines.

This summer, tariffs on $50 billion in goods from China have taken effect, with the threat of tariffs on an additional $200 billion waiting in the wings.

While the first set of tariffs have affected relatively few consumer goods, that will not be the case with the next round, and retailers have been breaking records at U.S. ports as they bring merchandise into the country before the new import taxes can take effect.

Let’s be clear: Tariffs are taxes that are paid by U.S. businesses and, ultimately, hard-working Americans. Almost any economist will say tariffs are bad.

Look at the Smoot-Hawley Tariff Act of 1930, which many historians say contributed to the Great Depression. Tariffs passed since then haven’t been quite as disastrous, but haven’t helped much either.

With tariffs on most consumer goods yet to take effect and retailers stocking up ahead of that, consumer pain may build slowly at first.

But higher prices are inevitable since retail industry profit margins averaging about 2 percent are far too narrow to absorb tariffs as high as 25 percent.

Retailers cannot quickly or easily restructure complex and sophisticated supply chains. And with many of these products in question no longer made in the United States in mass quantities, sourcing would likely go to other foreign suppliers rather than U.S. companies.

Even if prices don’t rise immediately, that doesn’t mean the effect of tariffs won’t still be felt this fall and winter. Perception can become reality, and the mere talk of tariffs can negatively impact consumer and business confidence, leading to a decline in spending and even job creation.

Tariffs don’t affect just finished consumer goods. They have already begun to drive up the cost of parts and materials needed to produce “Made in USA” products made in U.S. factories and small shops that support the jobs of millions of American workers.

Higher costs mean higher prices for American-made products, which makes them less attractive to domestic consumers and less competitive as exports in the global economy.

Furthermore, retaliatory tariffs from China and other countries are already targeting and impacting U.S. exports ranging from agricultural products to manufactured goods. Retailers in farm communities and those in small towns with manufacturing jobs tied to exports will feel the impact of retaliation acutely.

Perhaps this is all a bargaining strategy yet to reveal itself. But it’s time to stop gambling with our nation’s economy and make the deal that puts China’s abusive trade practices to an end without throwing away the benefits of tax reform and making hard-working Americans pay the price.

Matthew Shay is president and CEO of the National Retail Federation, the world’s largest retail trade organization in Washington, D.C.