COMMENTARY:
On August 9, President Donald Trump announced that he was suspending the imposition of reciprocal tariffs on most countries of the world for another 90 days. Initially, his team announced that this pause on tariffs did not apply to China, and that tariffs on goods from that country would increase to 125 percent from 104 percent, following China’s imposition of retaliatory tariffs on U.S. imports. Very quickly after this announcement, the Trump team also announced the suspension of tariffs on Chinese imports for another 90 days.
Following these announcements, I was talking to a colleague who told me that I must be relieved that Trump had suspended the tariffs, and that more time had been allocated to negotiations. I told him that yes, it was good that tariffs, which are a tax that American companies and citizens pay on imports, were not going to be implemented in the interim. However, I did tell him that in a larger sense the tariff issue continues to sow disruption in the business world. Even though reciprocal tariffs have not been imposed, high tariffs on metal imports are in effect.
One of my friends, who manages a company that uses a type of copper in its operations, has been accessing this product from foreign suppliers, as domestic suppliers only meet 30 percent of this particular market. In trying to buy more product from U.S. suppliers, he found out that they had quickly increased their prices to what the tariffed products cost. When I asked him why this was the case when domestic products didn’t involve a tariff, he told me that they did this because they could. They were matching the price of the majority of the market, and they saw an opportunity to raise their profits. Needless to say, he was not very happy about this. He will continue to bite the bullet and buy imported stock because most of the U.S. supply was already spoken for. Unfortunately, he will have to pass the cost of this increase on to his customers.
The uncertainty pertaining to tariffs also is causing firms to be creative in the way that they are classifying their products. For example, one of my friends operates a company that imports steel from Mexico. Prior to the Trump Administration’s tariff announcements and tariff suspensions, his company simply imported steel under one import classification. Now that the U.S. has implemented tariffs on steel and aluminum of up to 50 percent, he has been reclassifying his imports for tariff purposes. Importing raw steel or components can trigger a huge tariff on his Mexican imports. However, if he imports scrap steel, this is considered a waste product, and the tariffs could be negligible if any. Obviously, he is trying to import steel products from Mexico under this classification.
The tariffs on Chinese solar energy products, along with the cancellation of renewable energy credits in Trump’s “big, beautiful bill” that was recently passed in Congress, have disrupted the market of a solar company with which I am familiar. The tariffs have caused sales to drop on solar units, and products will be less attractive without the previous credits. The owner of the company has shifted the focus of his business away from new sales to focusing on maintaining existing systems, even those his company did not install.
Many supply chain managers I have talked to have stopped trying to play the game of being pre-emptive by importing products that could be subject to tariffs in the future and storing them in a public warehouse. Some of these managers have told me that paying for the extra storage can become expensive and wipe out the benefits of trying to beat the tariffs. Others have told me that this strategy has played havoc with their company’s financial accounting and disrupted their business plan.
Other firms I know were fortunate in the early discussion of tariffs to have signed set contracts for imported products for a specific amount of time, albeit for more than they would normally pay for these products. However, they made the decision that having certainty in their supply chain was worth the extra cost. One plant manager I spoke to said that a contract he has to import steel components from Asia will be expiring soon, and he will be faced with negotiating a higher price for his products because of the tariffs. He says there is little chance at this point that his foreign suppliers will again sign a contract at a set price for product to be purchased in the future. They themselves are uncertain what their raw materials and products will cost, and they do not want to be boxed in to a price that could put them in the red on deals.
So, I told my friend that I was happy that most of the industries that I work with do not have to deal with the tariffs for a few more weeks. However, I also told him that this is a short reprieve, and that we may have to deal with serious market disruptions because of tariffs in the future. In the meantime, the lack of reciprocal tariffs is still having negative effects for many businesses.
Jerry Pacheco is the president of the Border Industrial Association. Jerry Pacheco's opinions are his own and do not necessarily reflect the viewpoints of KRWG Public Media or NMSU.