President Trump declared that “trade wars are easy to win” (Swanson, 2018), but many affected by his tariffs are less than convinced. While Mr. Trump has focused on particular countries in his complaints about the unfairness of the current global trade balance, with particular attention to Canada’s tariffs on some American goods, every country that trades with America is preparing for a heated struggle (Swanson, 2018).
First, there are the counter-tariffs that European and Asian countries are placing American goods in retaliation: the EU is placing significant duties on cranberries and whiskey, for example, and China has increased its tariff on lobsters by 25 percent (Rappeport, 2018). Second, the attitude of the American government has strengthened the ties between European trading partners, who have signed a number of deals among themselves to support one another against American trade maneuvers (Swanson, 2018).
These tariff battles have affected American companies more indirectly, as well. Any companies that use steel, for example, must rethink their supply line to keep things affordable. One nail manufacturer, Mid Continent Nail Corporation, has found that it must raise the prices of its nails 20 percent due to the 25 percent tariff on steel. As an easily comparable tool made in many countries, the demand for the MCNC’s nails is highly elastic with regard to price, and has led to their sales dropping by 50 percent (Rappeport, 2018).
A number of major American companies are fighting for tariff waivers, but the White House is not granting them very freely. As of June 22nd, 7 companies have received tariff waivers, but 56 were rejected, and there are still 20,000 applications to be sorted through. Wilbur Ross, the commerce secretary, has declared that the fact that a product would be more expensive after tariffs is not a sufficient reason for an exemption (Swanson and Hsu, 2018). The extent to which the high tariffs, matched with the Trump administration’s resistance to exemptions, will affect the price of these products will depend ultimately on the products’ price elasticity of demand—that is, the degree to which an increase in price caused by an increase in production cost will affect demand for the product.
- Rappeport, A. (2018). Lobsters, Small-Batch Whiskey and Trump’s Trade War. The New York Times. Retrieved from https://www.nytimes.com/2018/06/22/us/politics/donald-trump-tariffs-trade-war.html
- Swanson, A. (2018). Trump Upends Global Trade Order Built by U.S. The New York Times. Retrieved from https://www.nytimes.com/2018/06/10/business/trump-trade-tariffs.html
- Swanson, A. & Hsu, T. (2018). Companies Get First Tariff Waivers, but Many More Are Left in Limbo. The New York Times. Retrieved from https://www.nytimes.com/2018/06/22/us/politics/trump-tariff-waivers.html