Why Trump's potential tariffs are making business owners anxious

0:14

And I'm Adrienne Ma. A freshly re inaugurated President Trump is making his first moves on tariffs, or pledging to anyway. He's reportedly considering a 10% tariff on Chinese goods and a 25% tariff on goods from Canada and Mexico. And he says both of these could start as early as next week.

0:33

Now, nothing has been finalized yet, but contrary to what President Trump has said, if the US slaps tariffs on foreign products, those countries are not the ones who pay it. It's US companies that import those products who pay. And usually they pass that extra cost onto US customers in the form of higher prices.

0:53

Yeah, but even before any of this happens, businesses can also face a less tangible cost, the cost of, of uncertainty. So today on the show, we're going to hear from a couple business owners who experienced Trump's first trade war.

1:06

And we'll learn how uncertainty from tariffs, or even just the threat of them, can ripple throughout an economy.

1:17

In war, there are combatants and there are bystanders. And a trade war is kind of like that, but instead of soldiers fighting with weapons, it's governments fighting each other with tariffs.

1:28

And the bystanders, the ones who become economic collateral damage, they're US businesses, businesses that import foreign goods or export US made products abroad. Brad Smith knows this from experience. He's a corn and soybean farmer in Milledgeville, Illinois.

1:45

So I started farming full time in 1994 and trying to navigate the ebbs and flows of the business ever since.

1:53

Back in 2018, Brad found his family farming operation caught in the middle of a trade war between the US and China. Trump had levied tariffs on Chinese steel and aluminum and other products. And in response, China levied tariffs on US products. And one of those was soybeans.

2:10

Soybeans were one of the very few products that China was actually buying from us. I think at that time maybe they were buying 30 to 40% of the US soybeans, which is a big deal.

2:23

And in fact, it was even higher than that. The year before the trade war, China made up about 60% of the US soybean export.

2:30

China didn't stop at slapping tariffs on soybeans. It also shifted more of its soybean buying to one of the US's competitors, Brazil.

2:39

One thing led to another, and essentially Brazil stole a big chunk of our market share at that time, and they still do.

2:45

They haven't given it up because of the trade war. The price of US soybeans didn't Dove Brad says for a while he was bleeding cash, but eventually he and other farmers did receive a sort of stipend from the Trump administration to try and make up for the loss in business.

3:01

In the long term, I think it all kind of worked out, but I'd rather get our income from the market and not from some federal bailout.

3:10

The US China trade war also left a lasting imprint on Brad's farm. He switched to planting more corn because the price of corn was less dependent on Chinese demand. But now, at the start of a new Trump administration, there's potentially a new problem.

3:23

Corn in my bins here on our farm. Most of it goes to a place that loads trains. And a high percentage of the corn that goes on those trains ends up in Mexico.

3:35

And Trump, as we mentioned earlier, is threatening to place a 25% tariff on Mexican goods. And this could put Brad in a bind. What if Mexico retaliates against those tariffs with tariffs of its own on things like US Corn? All this makes it really tough for him to run his farm. This uncertainty, of course, isn't just a problem for farmers like Brad. It's a problem for all sorts of US Businesses. Companies are constantly trying to manage risk, and uncertainty makes that more difficult.

4:05

Luis Baldometo Quintana is an economist and professor at the College of William and Mary. He studies international trade, and he says to understand how uncertainty affects businesses. And imagine you run a company in Ohio that makes medical devices.

4:19

The parts of the medical equipment, some of the inputs say they are manufactured in Mexico. Maybe the plastic box, maybe the elastic bands, little light bulbs, or some little circuits. So there's going to be three ways that uncertainty is going to hit you.

4:36

The first way uncertainty could hit you is in the form of uncertain costs. If the US Imposes a tariff on Mexican goods, those Mexican made parts you buy might become more expensive. Now, you could pass that cost onto the customer by raising the price of your equipment, but that could also hurt sales. So it's really hard for a company in this situation to know what to do.

4:58

And then a second source of uncertainty could come from tariff retaliation. So let's say a lot of the customers buying your medical equipment are in Canada. Well, if the US Follows through with tariffs on Canadian imports, Canada might decide to hit back with tariffs on U.S. goods. And that could hurt your sales in Canada.

5:17

And then what happens is if you experience this retaliation, you might be less competitive against producers that manufacture the same equipment, say, either in Europe or in Japan or Korea.

5:29

In other words, your customers and other countries could decide that your goods are too pricey and, you know, forget you, I'll buy from one of your competitors. So how do you even plan for that?

5:39

And then the third way tariffs could create business uncertainty is it could force businesses to change the way they operate. In the case of our hypothetical Ohio based medical equipment maker, Louis says you could try to avoid some tariffs by planning ahead.

5:55

So what you can do is before the tariff goes into effect, you go and make a gigantic purchase of inputs for say, one or two years of production. The issue is it costs money.

6:12

However much it is, that cost will likely get passed on to the customer.

6:16

I have to pay tariffs, I pass them on to my clients. The collectors and museums who buy from me suffer.

6:24

That's Eric Zeterquist. He's an Asian art dealer in New York who mostly deals in Chinese ceramics. During Trump's first term, the US Placed a tariff on antiques imported from China.

6:35

They have to pay higher prices for everything. And to what end? I don't know. I mean, it's again, it's not helping the American laborer, it's not helping the American farmer. It just doesn't make sense.

6:47

We actually spoke to Eric before, all the way back in September 2018. At the time, he called the tax absurd and he still feels that way.

6:56

And we asked him what, if anything, he's doing to prepare for the possibility of more tariffs. And he basically told us, what can he do but wait and see?

7:06

Right now my biggest concern is just I have no idea what's happening.

7:11

Very relatable, Eric, but we are doing our best here at the Indicator to try to figure things out. So if you've got questions about the economy and what's happening. IndicatorPR.org this episode of the Indicator was

7:23

produced by Angel Carreras with engineering by Kwesi Lee and Robert Rodriguez. It was fact checked by Sierra Juarez. Paddy Hirsch edited this episode. Cait Concannon is our editor and the indicators are production of N.

Why Trump's potential tariffs are making business owners anxious

Transcript

Why Trump's potential tariffs are making business owners anxious

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