As world leaders gather this week to discuss the future of international trade, you may be wondering what, if anything, this has to do with you. In a nutshell, a lot--that is, of course, if you sell goods internationally or manufacture outside the U.S.
As the G20 Summit gets under way--gathering heads of state in Hamburg, Germany, from more than 20 major economies--analysts warn that mounting tensions may lead to an all-out trade war, particularly between the U.S. and China. Although the two nations recently reached a new trade agreement, sources suggest that President Trump could raise tariffs on imports of steel and aluminum as early as this month.
The worst-case scenario? If the new tariffs come to pass, U.S. trading partners could well retaliate: China may move to institute its own tariffs, or limit dealings with U.S. companies, for example. Some are even suggesting the measures could lead to worse.
"We are gearing up for some tariffs against China, with the possibility of a trade war," noted Ian Bremmer, the president of the political consulting firm Eurasia Group, in a recent interview with CNBC.
The downside of higher tariffs
Should Trump move to increase tariffs on select imports, in the short term, it could become costlier for some U.S. businesses that use Chinese steel. Should matters escalate, other inputs could see price surges.
That's got Cody DeLong nervous. The co-founder of the Portland, Maine-based concert ticket seller Sound Rink is concerned that some of his costs could spike. In addition to ticket sales, the business, which generated $5 million in 2016 revenue, sells items such as lanyards and flags, which are assembled in China. "We would have to reevaluate some of our prices, and then the hassle of going overseas may not be worth it," he told Inc.
The move could similarly impact companies that do business in China. Fred Crosetto, the founder and CEO of Ammex--a disposable glove distributor based in Kent, Washington--says that China accounts for roughly a quarter of his company's $110 million in sales. He's worried that higher tariffs could lead China to target individual companies like his, or elect to work with competitors from other countries.
Still, others suggest that there could be benefits to increasing tariffs. "The cost will be passed through in the economy in the form of higher prices," says Robert Scott, a senior economist with the left-leaning Economic Policy Institute. "You'll put people back to work, which will create jobs." He notes that in his view, the long-term solution to solving the U.S. trade deficit would be to reduce the value of the dollar against foreign currencies. He adds that instituting tariffs may be a more symbolic move on the part of the administration, which could fail to recoup a significant amount of money in the long term.
Indeed, many expect that the effects of new tariffs would be minimal. "Undoubtedly, prices would rise somewhat, but they have recently fallen, so maybe part
of this recent decline will be reversed," notes Dean Baker, the co-director of the nonpartisan Center for Economic and Policy Research. "That is hardly a crisis."