U.S. trade war with China, other countries: Layoffs, reduced hours, slimmer profits

Paul Davidson | USA TODAY

Show Caption Hide Caption What does a trade war look like? We explain The last time a trade war happened in the U.S., things didn't go well for the economy. Will history repeat itself as Trump puts a tariff on steel and aluminum? Here are the facts.

The bullets are flying in the intensifying U.S. trade war with other global powers, and the casualties are starting to mount – in layoffs, reduced worker hours and thinner company profits.

While the damage has been limited so far, it would spread quickly if the Trump administration follows through on all its threatened tariffs, economists say. President Donald Trump significantly ramped up the fight Friday with fresh tariffs on $34 billion of Chinese imports.

“This is hurting the economy but so far it’s manageable,” says Mark Zandi, chief economist of Moody’s Analytics. “If the war continues to escalate, it will do more damage and at some point it will undercut the good economy” and trigger a recession.

Trans-Matic, of Holland, Michigan, shapes metal, mostly into auto parts, as well as components for door locks. It has paid higher steel costs for several months as U.S. steelmakers raised prices in anticipation of higher American tariffs on metal imports, company Chief Financial Officer Steve Patterson says.

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Trans-Matic has passed along the price hikes to its auto-supplier customers, but some have scaled back orders, reducing Trans-Matic’s revenue in that key sector by 5 to 10 percent, Patterson says. As a result, the company is giving its 300 U.S. employees about five hours a week in overtime instead of their usual 10.

“When you cut them back ... they get grumpy,” he says. And with a low unemployment rate creating a tight labor market that’s giving workers more leverage, Patterson worries Trans-Matic employees could bolt for competitors. “This is all causing a bit of chaos,” he says.

The U.S. last month slapped a 25 percent tariff on steel and 10 percent on aluminum imported from Canada, Mexico and the European Union in an effort to combat what President Trump has called the dumping of those products in the U.S. below market prices. Those countries responded in kind. The EU imposed tariffs on $3.2 billion of U.S. goods, including bourbon, motorcycles and steel products. Canada has levied tariffs on billions of dollars of American metals, agricultural products and other goods. And Mexico is targeting U.S. products such as cheese, apples, blueberries, pork bellies and steel.

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Those duties followed U.S. tariffs in the spring on Chinese steel and aluminum imports and Chinese counter-tariffs on $3 billion in U.S. goods, including pork, fruit, ethanol and scrap aluminum.

After the EU slapped a 31 percent tariff on motorcycles, iconic Harley-Davidson said it would move some production overseas, sparking a war of words with Trump.

In Poplar Bluff, Missouri, Mid-Continent Nail, the nation’s largest nail maker, laid off 60 workers last month. Sales plunged 70 percent after Trump placed a 25 percent tariff on steel from Mexico and Canada. When the company boosted its prices, customers defected. Now, Mid-Continent is strongly considering a second round of 200 layoffs, company spokeswoman Elizabeth Heaton says, and all 500 employees could be axed by Labor Day.

Trump: 'The era of global freeloading' is over President Trump says the era of "global freeloading" is over. He told rallygoers in Fargo, North Dakota, that his tariff standoff with China, the European Union and Canada is aimed at fixing his predecessors' "disastrous trade deals." (June 28)

The company's woes are rippling through the region. SEMO Box, a packaging company in Cape Girardeau, has said it will lay off four temporary workers because of the slowdown at Mid-Continent, according to Mid-Continent and The Associated Press. SEMO wouldn’t comment.

In Phoenix, Greg Hankerson, co-owner of Vintage Industrial, which makes custom steel furniture, says the 25-percent tariff on imported steel has boosted raw-material costs, which forced him to raise prices 5 to 10 percent earlier this year for various items, with more price hikes possible.

In Wisconsin, Regal Ware, which makes cookware and small kitchen appliances, is getting dinged at both ends of the trade shootout. The West Bend company, with 200 U.S. employees, has paid $150,000 to $175,000 more for steel and aluminum as a result of the U.S. tariffs, says Doug Reigle, vice president of supply chain management. It’s absorbing part of that and passing along part in a 2.5 to 5 percent surcharge.

Meanwhile, 65 percent of its revenue comes from overseas. Its products in Europe were hit with a 25 percent tariff last month, costing the company up to $2.5 million in sales, Reigle says. He says the company easily could have moved abroad but instead decided to stay in the U.S., investing $7 million in plant improvements the past five years.

“We kept jobs here, and I almost feel we’re being punished for that,” he says.

Elsewhere in Wisconsin, the dairy industry is reeling from $387 million in Mexican tariffs of 15 to 25 percent on U.S. cheese. Wholesale cheese and butter prices have slumped recently as buyers and sellers worry about the effects of the duties, says Pete Hardin, publisher of Milkweed, an industry publication.

“We are looking at a washout of 20 percent of Wisconsin dairy farm milk income on a monthly basis,” he says. “That’s how dangerous this mess is.”

That’s because dairy farmers have started cutting their prices to wholesalers to offset the higher tariffs, reducing their profits. The state’s farmers already were in trouble because of a milk surplus.

Another round of 25 percent U.S. tariffs on $34 billion of Chinese imports took effect Friday and includes items such as medical devices, auto parts and industrial machinery.

Those measures are aimed at fighting what administration officials say is China’s theft of U.S. intellectual property and its insistence that companies divulge valuable technology to enter China’s market. Beijing is lashing back with duties on American meat, seafood and SUVs, among other products. An additional $16 billion in tariffs, by both sides, are expected later this summer.

Over the next year, all these tariffs are expected to translate into the loss of about 170,000 jobs and a tenth of a percentage point in economic growth, Zandi estimates. But Trump has threatened an additional $400 billion in tariffs on Chinese shipments to the U.S. and $275 billion in auto imports. Those would push total job losses to 700,000 and lop a half-percentage point of economic growth, likely nudging the country into recession, he says.

Contributing: Rick Barrett of the Milwaukee Journal Sentinel, Russ Wiles of the Arizona Republic