The U.S. Supreme Court issued a major ruling on Feb. 20, so now business leaders can stop worrying about President Trump’s tariffs. Right?
Wrong. Consider:
- First, he immediately took another route and imposed a 10 percent tariff upon goods from every country in the world. Which is a much better deal than some countries had. “Some who were burned might be happy for now,” says William R. Hauk, an associate economics professor at the Darla Moore School of Business.
- “But because these are temporary, we don’t know.” These new tariffs can only last for six months.
- We don’t know what happens after that. The president could come up with yet another strategy. Or Congress could decide to do its job and decide the nation’s tariff policy for the foreseeable future.
- Some countries are clearly better off with the new 10 percent arrangement, but their industries – especially in the countries who are not better off – could decide to cool the economy by holding back on business moves until the six months are up.
- Note that Trump initially said on Friday that his new tariffs would be 10 percent. Then he said 15 percent. Then on Monday they went into effect at 10 percent. But Trump has indicated they might still go up to 15. “I think it simply adds to the chaos and mess,” Carsten Brzeski, an analyst with investment bank ING, said to the BBC.
In other words, we’re still faced with the one factor that does the most to make tariffs worrisome: Uncertainty. Which was addressed in a previous post in this space, last year.
Whatever you may think of the advisability of tariffs in international trade, inability to see what’s coming isn’t good news in the boardroom.
Tariffs in general aren’t necessarily bad for business. “If you took an ECON 101 class, you’d see tariffs are not great for domestic consumers, but can benefit domestic producers,” says Hauk.
“But more than 50 percent of what businesses import to the United States are intermediate goods,” he said. In other words, things we need to make other things. Not just raw materials, but components that are essential to assembling a final product in this country.
For that reason and others, “For a business planner, uncertainty is generally a bad thing.”
“Boeing, car manufacturers and other companies here in South Carolina depend on things like that,” says Hauk. “Fluctuating policy keeps businesses from understanding what their costs are going to be.” As a result, the business environment has been “very chaotic” since last January, and therefore “very hard for firms to plan around.”
It remains to be seen how much better the Court’s decision will make the situation. But there’s reason for hope, and has been since this started.
“The sky is not falling,” says Hauk. And before the tariff chaos started last year, “A lot of firms front-loaded their inventories,” putting themselves somewhat ahead of the game for a time.
As for the big picture, it’s a fact of life that while the U.S. is more globalized than it was 50 years ago, there are still a lot of goods made here. “We are capable of making things on our own, even if it’s not very efficient to do so.”
But there is one effect of erecting trade barriers unseen in the past century that will be with us for quite some time. It has to do with imposing punitive tariffs on some of our best trading partners. That is the “Political/economic effect of dismantling the postwar economic arrangement,” as Hauk describes it. Since 1945, our international trade and financial setup has led to growth and stability around the globe.
“We no longer live in that world,” Hauk said before the Supreme Court decision. “We are suffering long-term reputational damage between trading partners.” And whatever the tariff is on this or that country today, “It will take a generation-long process to rebuild that trust and get to where we were 10 years ago.”
The court decision may have been a promising step on that road simply because other nations might perceive that America is still a nation of laws, and that we follow them.
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