Newly imposed tariffs on foreign products imported into the U.S. are creating certainty for some companies and countries, and uncertainty for others. Having had the Supreme Court rule that President Trump’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs on countries across the globe based on national emergencies were illegal, Trump almost immediately invoked Section 122 of the Tariff Code, which is intended to address severe balance-of-payments issues, to reinstate tariffs. These can only be imposed for 150 days, and they expired on July 24, the day that Trump made the announcement that he would be using Section 301 of the Tariff Code, which is intended to penalize nations for unfair trade practices, inadequate enforcement against forced-labor imports, and intellectual property theft, to again reimpose tariffs on sixty of the U.S.’s trading partners.
On this same day, he announced that he would be utilizing Section 338 of the Tariff Code to impose 50-percent tariffs on imports from Canada. These rarely used tariffs are intended to address trade discrimination by foreign countries that put U.S. commerce at a disadvantage.
These new tariffs create an interesting dichotomy. Since Trump retook the presidency last year, his tariff policies have created instability in global markets. At times, he has announced an escalation in his tariff war with other countries and eventually backed down. At other times, he has escalated tariffs from one day to the next, or decreased them on countries that show him deference and praise.
The Section 301 Tariffs imposed on the sixty countries range from 10-percent to 12.5- percent, depending on what a particular country has done to deal with the issues that this particular tariff category attempts to address, or a formula based on Most Favored Nation status. At face value, these tariffs would appear to be damaging to trade and ultimately raise the cost of products for consumers. However, they might be a blessing in disguise.
What global companies crave is stability in order to manufacture their products and to manage a supply chain. Having no tariffs today and then suddenly facing a new slew of tariffs tomorrow causes havoc. It can cause disruptions in the supply chain. It can also cause companies to postpone expansion of their current operations, and/or postpone the establishment of new production plants or distribution centers. This drives supply chain managers crazy and slows commerce.
Having to deal with 10- to 12.5-percent tariffs certainly is not a positive thing. However, if these are the levels of tariffs that will be set for the foreseeable future, it could be a welcome development. During the tariff chaos of the last year-and-a-half, countless production and distribution managers told me that they were anti-tariff, but they could deal with them and build them into their business model, if at least they knew what level they would be and that they would stay there. Trump could have exhausted his arsenal of different tariffs with the use of this latest round. If so, new tariffs could be looked at with certainty by businesspeople, and they can now build more certainty into their production and distribution of products.
The latest round of Section 338 tariffs on Canada offers less stability and will cause an even deeper rift in U.S.-Canadian trade and diplomatic relations. The pain will not only be felt by Canadian exporters to the U.S., but by Americans themselves. For more than 30 years, the automotive production industry has utilized Canada, the U.S., and Mexico as a North American production base to produce automotive components and fully assembled autos. A 50-percent tariff on components that go into a Ford F150 truck, of which certain components are made in Canada, will make this product more expensive for U.S. consumers.
Fans of Canadian Crown Royal whisky will either have to bite the bullet and pay more for this spirit or find a new favorite drink. Fans of Canadian beers will have to make the same decision. Hockey players will see Canadian hockey sticks and protection gear become more expensive. Campers will see the prices of ultralight Canadian camping gear increase. Canada produces a lot of kayaks and canoes that are exported to the U.S. Americans also will be paying more for these products.
So, while the rest of the world may enjoy stronger trade stability with the U.S., even if their exports to the U.S. will cost between 10- to 12.5-percent more, Canada, our second largest trade partner, sees its trade and diplomatic rift with the U.S. widen even more. We can expect Canada to attempt to strengthen its trade ties to Europe and Asia, namely China. This will likely occur even if Trump decides to suspend or partially impose the tariffs on Canada. Thus, the strong trade and diplomatic relations that the U.S. has enjoyed with Canada, since this former British territory became its own nation, are at their worst.
Jerry Pacheco is the president of the Border Industrial Association.
Jerry Pacheco's opinions are his own and do not necessarily reflect the views of KRWG Public Media or NMSU.