As the trade war between the U.S. and China escalates, importers and consumers across the U.S. have found themselves in the crossfire of tariffs exchange. The tariffs tiff started out in March this year when President Trump formally ordered a 25% additional tariff on steel imports and a further 10% on aluminum imports from across the world - while shielding Canada and Mexico from the tariffs. However, it was not long before the neighbors felt the heat, as the tariffs hit them two months later in May, when the U.S. announced that they would no longer be insulated.
The number of products with additional tariffs are now in the hundreds, ranging from wooden furniture, dry bulk commodities, to even food produce. Importers across the U.S. are facing blowback as they witness their bottom line margins crash due to the weight of the tariffs.
The home-building industry, for instance, has suffered spectacularly as raw materials like steel, aluminum, and lumber have now been hit with tariffs as high as 25%. Most of the lumber comes into the country from Canada, which accounts for 30% of all American lumber imports. Canada also is the leading supplier of steel and aluminum to the U.S., making up 16% and 41% of imports respectively.
It is estimated that the increased tariffs would add nearly $9,000 to the cost of building a single-family house, which would make housing an expensive affair to the low and middle-income class of Americans. The National Association of Home Builders (NAHB) estimates that for every $1,000 increase in the price of building a house, 150,000 people would be forced to part with thoughts of getting into the housing market.
And it is the importers who would be dipping their feet into muddied waters, before the consumers feel the impact. FreightWaves caught up with Lori Fox, VP of customer brokerage at American Global Logistics (AGL) to discuss the impact that tariffs have had on importers across the country. “The biggest complaint I’ve heard from our customers is that it has come to them as a surprise and that they weren’t prepared to handle it financially or logistically in such a short period of time,” she said.
The frustration at the tariffs is not an isolated occurrence with AGL, as Fox noticed the sentiment spread across the importers’ community while she attended the recently concluded CBP 2018 trade symposium for the East Coast. “Importers are feverishly trying to import items as quickly as they can, before the Phase III of tariffs comes through, if it does,” said Fox.
Though the tariffs seem to be wrecking the fortunes of importers, the idea behind it is to force China to bend to the U.S. will, as the tariffs would also mean lesser imports from China, affecting its economic growth - a line of reasoning that Jeffrey Gerrish, the deputy ambassador of the USTR and Kevin McAleenan, the commissioner of CBP, seem to hold.
However, there might be more to this than what meets the eye. The Chinese yuan has been plunging in value against the U.S. dollar over the last few months, shedding enough to trade at a 14-month low against the dollar now, partly due to the Turkish crisis this month. This fall in value would mean that China would have the cushion to take the blow of tariffs, as Chinese goods will become cheaper globally.
If trade war thickens in the following months, China could even think of voluntarily devaluing yuan, which could send shockwaves across South-East Asia, and possibly the U.S. as well. It is estimated that to absorb the potential 25% tariffs, the yuan would have to depreciate by around 12% and trade at around 7.2 per dollar.
AGL on its part has been helping its clients by advising them with the right strategy to approach the tariffs. “We have been running analytics on nearly every customer, to help them determine which of their products would be affected. We are keeping a close eye on decisions that are made, and assist them with the right tariffs, because it is important to be compliant,” said Fox.
As of now, the trade war has merely scraped the surface, as more extensive tariffs though in the pipeline, are probably never going to be implemented. A full-blown trade war would not just sink the economies of the U.S. and China, but would end up wreaking havoc on global trade.
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