Tariffs on Mexico will hurt American business

President Donald Trump said the United States will impose a 5% tariff on all Mexican imports, effective June 10. Trump warned that the tariff will increase until "the illegal immigration problem is remedied."

Posted: May 31, 2019 7:20 PM
Updated: May 31, 2019 7:20 PM

Tariffs on Mexico will be bad for American business. Period. How do we know that? Because other tariffs are already hurting American companies.

Business in the 21st century is complicated. Protectionist trade policy can backfire. Just look at two sets of tariffs imposed earlier by President Donald Trump.

In January 2018, Trump imposed a 20% tariff on imported washing machines. Whirlpool was ecstatic. "This is, without any doubt, a positive catalyst for Whirlpool," CEO Marc Bitzer said at the time. The company added 200 jobs in its Ohio factory in anticipation of a sales surge.

Whirlpool bet wrong. Separate tariffs on steel and aluminum caused Whirlpool's production costs to soar. Americans scoffed at higher washing machine prices. People who didn't urgently need new washing machines stuck with their old ones or went to the laundromat. Whirlpool sales fell last year and the company reported its first annual loss in 17 years. The company's stock is down 37% since the tariffs were announced.

Then there are the steel tariffs announced in March 2018. They were designed to help US Steel and Nucor, which had been losing business to Chinese steel companies for decades. The 15% import tariff led the American steelmakers to ramp up production and add 9,000 jobs.

US Steel and Nucor started making more steel — way too much. Demand for steel didn't budge, so all that new metal flooded the market and sent prices plummeting 25%. The stock of US Steel has fallen 70% since the Trump administration announced the tariffs. Nucor, the largest steelmaker in the country, is down 25% over the same period.

The Trump administration may have intended the tariffs to protect American businesses, but in reality they're hurting them. The market is global, and manufacturing is cheaper overseas. America's economy has been predominantly made up of services for decades. Tariffs can't bring back the old days when America exclusively made stuff. In the 21st century, America's companies need to buy stuff from overseas.

That's why tariffs raise costs for American companies, which in turn hike prices for American consumers. That is taking a toll on businesses and the economy at a delicate time for both.

The US economy remains strong, but signs are it's in the late stages of what has been a very long growth cycle. Consumer spending is slowing down and the trade war isn't helping: Americans spent 2.5% less on imported goods in the first quarter. Corporate profits fell for the second straight quarter, the US Commerce Department announced Thursday. Businesses are investing less as a result.

Yet Trump recently raised tariffs to 25% on $250 billion of imported Chinese goods. And, on Thursday, he threatened tariffs of up to 25% on Mexican goods.

America's businesses are not pleased. The US Chamber of Commerce and Business Roundtable — which represent businesses that employ a vast number of people — are ringing alarms.

A year and a half's worth of evidence shows tariffs are hurting, not helping, their intended targets.

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