Escalation of trade war with China further impacting agriculture and manufacturing

Aug 8, 2019

Container ship
Credit flickr

The Trump administration has placed a 25% tax on $250 billion worth of Chinese imports. The plan is to institute another 10% on $300 billion on September 1st. More recently, the threat to levy another 10% tariff on Chinese goods not yet affected. As the trade war escalates how is it impacting farmers and manufacturers in West Michigan and across the country?

“We’ve said consistently the short-run effects of a trade war are always negative. There’s no such thing as a short-run gain in a trade war.”

Paul Isely is associate dean in the Seidman College of Business at Grand Valley State University.

“What you’re banking on is you’re going to be able to negotiate a deal in the future that is worth the pain you’re feeling now.”

When President Donald Trump recently threatened an addition 10% tariff on Chinese imports not already slapped with a tax, China allowed its currency, the yuan, to devalue. That was Monday. Tuesday, the currency was back to its previous level. Isely considers this a shot across the bow. China also suspended all U.S. agriculture purchases.

“A lot of those ag contracts are long-term. So, if you start giving up those markets, even if it was just a short-term change, you’ve given those Chinese suppliers the ability to start working with other countries, with other farmers, with other organizations, and they start to say, ‘Hey, it’s not so hard to switch.’ You know, it gets rid of that momentum of buying the goods from us. And that’s going to be a problem for us.”

Manufacturing supply chains are also being disrupted in southeast Asia.

“Yes, we’ve seen reports over and over again of the fact that Vietnam is now full. You’ve seen a lot of U.S. firms trying to move into Vietnam or other parts of southeast Asia to try to move to other low labor cost areas out of China. And so, what has started to happen is we’re actually moving to areas that are higher cost and we’re leaving open those lower cost suppliers in China to work with companies in Europe and other parts of Asia. So, we’re helping to reduce the cost structure for a lot of the places we’re competing with and we’re increasing the cost structure for our own companies and that will lead to a harder business solution a year or two down the road.”

Isely explains the trade war uncertainty has caused many American firms to back away from equipment investment. He points out a pull-back in those investments are identified within Federal Reserve Economic Data now. The same data identified leading up to the last two recessions. Patrick Center, WGVU News.