American companies are grilled front and back by Trump's trade gambling

Despite all the feints and jabs, it’s essentially a global trade gambling Trump is playing. But the Achilles Heel is that the president is so outdated in his mindset that he is losing the game from the very beginning.

President Donald Trump Photo: AP

Barely 2 years ago, President was busy with championing Harley-Davidson as a great American company which he thanked for building things in America. The rapport soured after the iconic company recently decided to move its manufacturing operation overseas in order to avoid EU tariff. The decision has made the company the latest target of Trump’s twitter ire, in which the President threatened to tax the company like never before.

As Trump insisted on piling up chips in a global trade gambling, more countries will have to reciprocate with retaliatory tariffs and this won’t augur well for American companies who may have to make a dismal choice on lesser of the evils between losing overseas market and being taxed at home like never before.  

When Trump was campaigning for the White House, he promised to put America first by bringing manufacturing jobs back home. It’s a promise Trump tries to materialize at whatever cost. In fact, bringing back manufacturing may appeal to populism but is never a viable or realistic option for a developed economy like the US and might be especially detrimental to Corporate America.

To make it all the worse, Trump added up the bargaining chips by resorting to tariffs and protectionism. While in an intertwined global economy, no one will emerge triumphant from a trade war by imposing tariffs. Trump’s effort to skirt the multilateral trade mechanism will end up unraveling the free trade architecture the US itself shaped in the wake of the WWII. Unilaterally imposing tariff may be the tactic used by Trump but it won’t help and even backfire and gum up his ultimate goal of bringing jobs back as shown by the exodus of Harley.

Corporate America stands to suffer

Trump’s tariff will have a direct and specific impact on the US auto industry. With the 25 per cent tariff, American companies will stand to suffer most, A Petersen Institute for International Economics report estimates that 195,000 U.S. workers would lose their jobs if the tariffs are imposed. The figure would jump to 624,000 jobs if other countries retaliate with their own tariffs. Even though they want to manufacture cars in the US, it may take at least 2 to 3 years to build a new plant and another year to be operating efficiently. So there won’t be any new jobs for at least 3 years. And cut off from overseas market, those new plants will be on a much smaller scale and won’t provide enough jobs to jibe with those who have lost their jobs due to the trade war. 

Although the US maintains significant trade ties with many major economies, its trade with China is definitely an unparalleled one. So far, Trump’s trade war has mostly focused its ammunition on China. And this has made companies having business interest in China feels jittery.

Apple, Boeing, Intel and other multinational companies have all invested heavily in China where a fast expanding middle class market pays them off with very handsome revenues. Apple generated $18 billion in revenue — 20% of its total sales — from China in just the most recent quarter. Boeing’s China sales last year were nearly $12 billion, almost 13% of its overall revenue. Nike sold $1.2 billion of sneakers and athletic apparel in China in its latest quarter, 15% of its total revenue. 3M generated 10% of its sales from China last year too. GM sold more than 4 million vehicles in China in 2017. And the list goes on.

So even though Trump is acting to try to bring back manufacturing jobs from Chinese competitors that are selling more of their goods and services in the US, many American companies stand to lose big if China fights back with restrictions or even a boycott on these American companies.

American brands used to enjoy a vaunted status in China. Such congeniality is fragile when the two countries are deadlocked in a war of attrition. South Korea’s Lotte Group may serve as a warning tale as the conglomerate has to abandon its supermarkets and hypermarkets in the country as Chinese consumers refrain from the stores to show their resentment at Seoul’s decision to host a U.S.-operated missile defense system, which Beijing considered a threat to national security as its radar can reach far into Chinese territory.

For those companies who haven’t penetrated Chinese market yet but use intermediate goods - bits and pieces of a final product - from China to assemble and produce final products will also fall victim to Trump’s tariff. It may be a product made by an American company in America with the logo of that American company on it, but if it uses electricity, there’s a good chance at least part of that product — if not the whole thing — was made in China. If such companies were to see their profits decline as a result of the higher cost of Chinese imports, there's a risk they could lay off some of their workers.

Tariff is not a solution but a spoiler

To be sure, Trump has said that the tariffs on Chinese goods are intended to curtail shady trade practices on the part of China. Yet it seems tariffs of this magnitude are likely to do more harm to the US than China. According to statistics from The Conference Board, Foreign Invested Enterprises (FIEs) in China are responsible for 979 billion, or 43%, of exports from China in 2017. In the Information and Communications sector, which the proposed 25% tariff targets, 79% of China’s exports are from FIEs, many of which are American-owned. In this sense, it’s really counter-effective and self-contradictory to impose tariff which shall be the last resort when Trump has a big arsenal of trade tools to choose from.

If this is a trade gambling Trump is playing, it is the market share and revenues of American companies that is put at stake, while ironically undermining his own political agenda of creating more jobs. Trump has to be clear on his goals -- more jobs, lower trade deficit, and in China’s case, no IPR theft and no state support for “Made in China 2025”, all of which have been complicated or made even harder to achieve by his tariff policy. He lifted a stone, but it falls on his own foot.

Any actions must be well crafted. The way out of this quandary is through a multilateral approach and building up effective communication and cooperation mechanism among all stakeholders. The era of zero sum game is gone, the President still has some work to do to catch up with today’s world.

Related Stories
Share this page
Touched Sympathetic Bored Angry Amused Sad Happy No comment

American companies are grilled front and back by Trump's trade gamblingChinese military sounds first warning to Taiping Island leasingTechnology diplomats gather in BeijingChinese court orders enforcement of smoking ban on ordinary trainsChina sends Donald Trump a message about free trade and the WTOFinding showbiz whistleblower Cui Yongyuan‘Shared nurses’ to meet growing demand of elderly carePeking University installs facial recognition system for students and staff on campus gateDonald Trump softens threat of new curbs on Chinese investment in US firmsBeijing unveils sub-center blueprint with focus on coordinated development
< Prev Next >