Global Trade & Tariffs

How are they impacting you?

There has been a lot of talk in the news lately about the recent tariffs on steel and aluminum and the potential effects those duties will have on US companies, the US economy, and consumers.  After reading some industry expert opinions, most agree that product pricing will increase, which will lead to a decrease in consumer spending, and the long-term impact will be an overall slowing of the US economy. Others argue that the overall costs increases to consumers will be insignificant and should not have any measurable effect on buying habits except for products made primarily of steel and aluminum.  Automobiles, for instance. One article I read quoted a GM executive who said they expect the tariffs to increase the average automobile costs by about $300. Based on the average price of a car in the US for 2017, which was between 31,500 & 33,500, depending on which report you read, it doesn’t seem to be too impactful.

The challenge for companies significantly impacted by these tariffs is to decide whether to absorb the increase and reduce their margins or pass it along and risk decreasing sales volume. It is a difficult decision for businesses in intensely competitive industries, but maybe the bright side is that at least all US manufacturers are facing the same challenge, so the playing field for US competitors should remain somewhat level.

I hope that there is a long-term trade strategy, and we are merely in early negotiations, but in my recent exploration of trade history, I read several articles about NAFTA. If you consider the original purpose for the agreement and what leaders hoped to accomplish, you will see that after two decades, it has not had the effect the leaders had expected, and the unintended consequences are quite disturbing. 

If you are like me, trade agreements are not part of my day-to-day, so I have to rely on and sift through a lot of sources to get the information I need. The video link below, from the Council on Foreign Relations, gives a simple and yet straightforward look at global trade and the potential pros and cons. It is worth the 3 minutes if you are interested in a quick overview. 

 https://www.cfr.org/backgrounder/naftas-economic-impact?utm_medium=socia...

After all my research, my biggest concern is the unintended consequences that seem to follow these decisions. It is essential in business to understand how policy changes will impact our business so we can make adjustments and manage the fallout. Unfortunately, it can take months or years to realize the full impact. I would love to hear from others and learn more about how these tariffs are affecting your company or industry.