CSCMP's Supply Chain Quarterly
Global
February 20, 2019
Forward Thinking

Tariff increase will cost jobs, slow GDP growth, study says

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Industry leaders say potential March 1 tariff increase remains a top supply chain concern.

The U.S.-China trade war remains a top supply chain concern, as industry leaders worry about the trickle-down effects of a looming March 1 tariff increase on Chinese imports.

Data from a report released this week underscores the problem, pointing to a potential loss of nearly 1 million jobs and a drag on GDP growth if tariffs on $200 billion worth of Chinese goods increase from 10 percent to 25 percent in three weeks.

Tariffs Hurt the Heartland, an industry campaign that opposes tariffs, released the report in Washington, D.C., February 6 as part of a two-day "fly-in" of business leaders from across the country who met with Congressional leaders on Capitol Hill to discuss the effects of tariffs on the U.S. economy. Tariffs Hurt the Heartland is sponsored by more than 150 trade associations from a range of industries, including the National Retail Federation.

The report—which was compiled by research group Trade Partnership Worldwide LLC—includes analysis from all 50 states and lists the negative effects of increasing tariffs March 1, as the Trump administration has said it will do if no trade agreement is reached with China.

The study authors say the increase to 25 percent, coupled with tariffs already in place and retaliation, will reduce employment by more than 934,000 jobs, cost the average family of four $767 and reduce GDP by 0.37 percent.

"The trade war is already creating enormous economic loss, and this report shows how much worse it could get," Tariffs Hurt the Heartland spokesman and former Congressman Dr. Charles Boustany said. "Given that the administration has continually followed through on escalating the trade war, the lost jobs, income and GDP in this report can't be taken lightly. Our hope is that the administration understands they are playing with fire."

The National Retail Federation echoed those concerns in an economic outlook released this week. The outlook points to underlying strength in the U.S. economy and forecasts retail sales growth of between 3.8 percent and 4.4 percent this year, despite global economic threats. But it cautions that a March tariff increase may be more than the retail economy can stand.

"Retailers so far have been able to largely mitigate the impact of new tariffs on steel, aluminum and goods from China imposed in the past year," NRF Chief Economist Jack Kleinhenz said. "But tariffs could drive up the cost of consumer products and affect business direction and profits this year, particularly if tariffs on $200 billion in Chinese products rise from 10 percent to 25 percent as currently scheduled for March 1."

Logistics industry professionals agree. Jeff Leppert, senior vice president of third-party logistics provider Redwood Logistics, said tariff-avoidance tactics have already caused ripple effects through the supply chain that industry leaders continue to watch carefully. He pointed to surges in imports last year as many companies shifted or pulled forward inventory to avoid a January 1 tariff increase. West Coast imports hit record levels around July, he said, followed by an atypical surge in October, factors that contributed to growth in truckload demand and pricing volatility.

"We don't usually see that," Leppert says of the surges. "Usually, we see a decline in freight in October. And now that the freight is here, it puts a strain on our demand. The inventory pull-forward is a very real thing and it's a trend we're all anxious [about] in 2019."

The March 1 tariff deadline exacerbates the situation, making professionals like Leppert anxious for a U.S.-China deal.

"Demand is going to stay strong, supply is getting better ... [we] will have a stable year and show some growth for transportation and supply chains," Leppert says. "But I would like to have some stability ... knowing is better than not knowing. That's why we want a [trade] deal [with China]."

Some industry economists have already expressed optimism that a deal will be reached this year. At a January transportation industry conference in Atlanta, Donald Ratajczak, a consulting economist at Georgia State University, said that China's slowing economy and other domestic concerns put the country in a good position to negotiate, adding that he is "60 percent" optimistics the United States and China will reach a deal and that the tariff increase will not take effect.

Walter Kemmsies, managing director, economist and chief strategist at Jones Lang LaSalle, said during the same conference that he expects the United States and China to reach an agreement this year as well.

"I expect good news before the end of March," he told attendees at the SMC3 Jump Start conference, held January 28-30.

Victoria Kickham, an editor at large for Supply Chain Quarterly, started her career as a newspaper reporter in the Boston area before moving into B2B journalism. She has covered manufacturing, distribution and supply chain issues for a variety of publications in the industrial and electronics sectors, and now writes about everything from forklift batteries to omnichannel business trends for Supply Chain Quarterly's sister publication, DC Velocity.

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