Trump's trade talk breeds worry among U.S. firms

For Dave Shogren, Donald Trump’s campaign-trail threats to impose massive tariffs on imports from China and Mexico were more than just vote-rousing bluster.

They were a loaded gun pointed at the heart of his St. Louis-based food-export business. Shogren knew those countries almost certainly would respond in kind, pummeling his sales to China, which account for half his business.

“Every time Trump threw China under the bus, I cringed,” says Shogren, CEO of U.S. International Foods, which exports products such as snack foods, nuts and soft drinks. So he has taken a flurry of trips to his secondary Asian markets in recent months to develop sales leads in case the U.S. finds itself in a trade war with China.

Since Trump won the presidential race, many U.S. importers and exporters fear his bare-knuckled ultimatums could significantly dent their revenue if he follows through.

“People are concerned and are just starting to take a look at where they’re vulnerable,” says Marianne Rowden, head of the American Association of Exporters and Importers.

Trump's transition team couldn't be reached for comment.

Taxes, trade, more: Here's the economy according to President-elect Trump

Few may be more worried than Boeing. A recent editorial in China’s state-run Global Times asserts China “will take a tit-for-tat approach” if Trump gets tough on trade. “A batch of Boeing orders will be replaced by Airbus, U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted.”

Boeing spokeswoman Kate Bernard says, “Anything that undermines our competitive position is concerning.” Boeing is the largest U.S. exporter with about 70% of its revenue derived from abroad, and China is its biggest customer.

Bernard says Boeing executives “are looking forward to working with the (Trump) administration to protect our markets and interests overseas,” adding that “the losers (in a trade skirmish) are American workers.” Boeing employs 140,000 in the U.S.

All told, “We have 11.5 million jobs today that depend solely on exports,” Commerce Secretary Penny Pritzker said in an interview. “If we start a trade war, don’t underestimate. … There will be consequences.”

For his part, Trump has dialed back his harshest rhetoric since he won the presidential race. One of his economic advisers, private equity investor Wilbur Ross, told Yahoo Finance, “There aren’t going to be trade wars.” Rather, he said, administration officials will coax trading partners like China and Mexico to buy more goods from the U.S.

Still, even “an aborted trade war” — in which Trump uses threats as a cudgel and then backs off — could set off financial market turmoil and a shift in supply chains that leads to higher import prices or product shortages, according to a September report by the Peterson Institute for International Economics.

Can Trump make 'trickle-down' economics work?

Besides slapping 35% tariffs on Mexico and 45% on China, Trump has threatened to withdraw from the World Trade Organization and rip up existing deals, such as the North American Free Trade Agreement with Mexico and Canada. In the end, any restraints on imports are likely to be more modest.

But with the U.S. trade deficit in goods and services totaling $531.5 billion in 2015, “We are now moving into a different area,” says Edward Alden, senior fellow at the Council of Foreign Relations. “Trump sees it as far more of a zero-sum game. And he sees the U.S. as a loser.”

Trump’s goal: prevent U.S. manufacturers from offshoring their production and convince those that already have to move back to the U.S. Some of them will, but most are likely to relocate to other low-cost countries to skirt any new duties, says Peterson senior fellow Gary Hufbauer. That, he says, could force Trump to hit those countries with tariffs as well, spawning new trade battles.

Meanwhile, new tariffs would cause U.S. import prices to rise, increasing costs for U.S. consumers. And limiting imports would hurt U.S. companies, such as auto manufacturers that source parts from Mexico. Exporters, particularly in agriculture, would suffer as affected countries retaliate. A full trade war would mean the loss of 4.8 million U.S. jobs, while an aborted conflict would cost 1.3 million jobs, Peterson estimates.

“Big companies don’t like uncertainties,” and are likely already considering early contingency plans, says Peterson senior fellow Sherman Robinson.

So are smaller firms. U.S. International Foods has done well because Chinese groceries trust the quality of food made in America, Shogren says. But cashews, for example, are already cheaper from Vietnamese suppliers and supermarkets would readily switch if tariffs drove up his prices further. Since August, he has been on multiple trade missions to Singapore, Malaysia, Hong Kong, the Philippines and Cambodia to expand his customer base.

WIN-911, of Austin, which sells software for factory automation, relies on exports for about 15% of its revenue, and that’s expected to grow to about 50% in three years, leading to a pickup in hiring, says company Chairman Robert Brooker. But noting that China and Mexico make up 20% of his exports, he worries about “retaliatory tariffs or other trade restraints from these and other countries that would impede our future growth.”

U.S. pork producers, which export about a quarter of their products, are already hurting from a glut that has depressed prices. If there were new tariffs from China or Mexico, “They’ll just cut production,” says David Warner, spokesman for the National Pork Producers Council. That would push up prices for U.S. consumers.

Your groceries may be cheaper, but farmers and supermarkets feel the pain

Importers are also nervous, especially small firms that rely on cheaper overseas products to compete with larger companies, says Todd McCracken, president of the National Small Business Association.

For example, there are U.S. suppliers of the molds that Progressive Molding Technologies needs to make the medical devices and other plastic products it churns out for its business customers. But the cost from Chinese suppliers is about 55% less, saving his customers tens of thousands of dollars per mold and driving the Medina, Ohio company’s growth the past eight years, says President Laird Daubenspeck.

Even if 45% tariffs were added to the Chinese molds, he would stick with them because they’d still be 10% cheaper than the U.S. versions, he says. But his sales would be hurt substantially because customers would drop products too costly to roll out, jeopardizing his plan to add six workers to his staff of 10 by next year to handle a projected 250% increase in growth.

For some U.S. firms, China is the only option.

Only Chinese suppliers make certain hydraulic parts in large quantities for the construction equipment produced by Cincinnati-based Mesa industries, says CEO Terry Segerberg. Without it, “We would pretty much be up a creek,” she says.

Despite the jitters, business leaders are approaching the new administration with a wait-and-see attitude. “Trade is very much going to be at a pause now,” says John Engler, president of the Business Roundtable. “We think the overarching priority is to make growth. And I think (business CEOs) are very hopeful that economic growth will be a top priority. No one’s pressing the panic button and saying the world is ending.”