Trade War echoes from Texas ~ Dallas Morning News opinion

Dallas Morning News opinion echo ~ Donald Trump's trade tariffs will harm Texas 

Editor's note: This opinion published in the Dallas Morning News was originally printed on May 1, 2018. Editors report they are re-publishing it in light of industry warnings about how tariffs could affect U.S. jobs.

The U.S. economy has been expanding for over 100 months, unemployment is near a historical low and Dallas-Fort Worth has been creating an average of over 100,000 jobs a year. 

So what’s the worry?

For businesses in the region and beyond, a labor shortage is the major concern. During an economic expansion, that’s always top of mind.

Next up, it’s Donald Trump — or at least his policies and rhetoric, and the uncertainty they’re creating.

His approach to trade, his tariffs on steel and aluminum, and his anti-immigrant push were among the chief concerns cited by regional businesses in the latest Beige Book. Released in mid-April, the Dallas Fed report features anecdotal information about the economy in the eleventh district, which includes all of Texas and parts of New Mexico and Louisiana.

The summary on the latest sentiment: “Outlooks, while still optimistic, have become more uncertain due to new tariffs and trade concerns,” the report said.

Digging deeper into various industries, the same theme emerged. Retailers’ “expectations were clouded by the potential negative impacts of trade and immigration policies.” Staffing companies had high demand but “uncertainty surrounding trade policy and the new tariffs.”

“Several manufacturers said that talk of steel tariffs immediately resulted in higher steel prices,” the report said. One architecture firm said a client might not go ahead with a project.

Indeed, construction costs have increased for 18 months, according to IHS Markit, an information company. Steel prices were higher in April, and pumps, compressors and turbines had double-digit increases.

“Steel buyers seem paralyzed by uncertainty,” IHS’ John Anton said last week.

Many were hoping for more clarity by Tuesday, when Trump was scheduled to say which U.S. allies would be exempted from tariffs on imported steel and aluminum. Some countries were confident about getting exemptions while others were bracing for the worst and preparing to retaliate. Late Monday, Trump said that decision would be delayed another month, prolonging the uncertainty.

“Businesses tell everybody they can work with any set of rules as long as they know what the rules are,” said Harvey Rosenblum, a former research director for the Dallas Fed. “Well, the rules just changed — and they’re not clear.”

Uncertainty raises costs and the natural response is to pump the brakes while things get sorted out, he said. But companies want to capitalize on the corporate tax cuts, so delaying isn't ideal.

“This has thrown everybody into a tizzy — as it should,” said Rosenblum, a professor of business economics at SMU's Cox School of Business. “Nobody wins a trade war.”

So far, it’s still a trade skirmish, but the clash with China is heating up. The U.S. imposed tariffs on solar panels and washing machines, and then steel and aluminum. China countered with tariffs on 128 U.S. products, including wine and pork.

Trump responded by threatening tariffs on $50 billion in Chinese goods, which led to another threat from China. Trump said he might double the tariffs on Chinese goods.

China has listed 106 additional products for potential retaliation, including cars, soybeans and chemicals. If those products are added to current tariffs, some 2.1 million U.S. jobs in 40 industries could be disrupted, according to a report by the Brookings Institution.

Not all those jobs would be lost, Brookings' Mark Muro said, but that’s the number that face potential dislocation. And the targets appear to be carefully selected by the Chinese.

Just over half the at-risk jobs are in red counties that voted for Trump, which means members of Congress from both parties stand to face pushback.

“The count encompasses a diverse and shrewdly chosen ‘hit list’ of hallmark American industries — one that appears well-calculated to scare both red and blue America,” the report said.

A county-by-county map shows a wide swath of at-risk jobs, including heavy concentrations in Texas.

Over 156,000 Texas jobs would be vulnerable to disruption, second to California, according to the report. Two Texas counties, Tarrant and Harris, are among the five counties nationwide with the greatest exposure.

Tarrant is a major manufacturing hub, including General Motors’ SUV plant in Arlington, and Harris has many refineries that make oil and gas products. Together, the two counties have over 58,000 workers who could be affected by Chinese tariffs, Brookings said.

“President Trump’s actions on trade are no longer just talk,” the report concludes. “They could soon have real implications for real jobs in real local economies.”

Another Brookings expert is skeptical. In a report last week, Geoffrey Gertz explained why Trump’s trade policies keep coming up empty. He reeled off a list of announcements that never materialized, including tariffs on Mexico to pay for a border wall, a reciprocal tax on imports and a new free trade agreement with an unnamed African country.

“There is one fundamental rule for making sense of trade policy over Trump’s first 16 months in office: Do not overreact to new announcements,” Gertz wrote.

Trade policy analysts and journalists should dramatically discount the importance of Trump’s trade statements, he said. But companies may have to react, perhaps by hedging against price changes and delaying investments.

“Business leaders can’t afford to ignore Trump’s trade talk altogether,” Gertz wrote in an email. “But they should bring a healthy skepticism to any new trade policy announced by this administration, whether that’s imposing new tariffs or launching new free trade talks.”

The uncertainty won't end anytime soon.