It took some time, but the negative impact of the US-China trade war has started to make itself felt among US businesses.
Census data compiled by research firm The Trade Partnership and released by Tariffs Hurt the Heartland, a coalition of 80 trade associations, shows that for the month of September, US businesses paid US$4.4bn in tariffs on imports, up 50% from the prior year. Imported products subject to new tariffs by the Trump administration accounted for US$1.4bn of the total, or nearly all of the increase.
On the export front, too, tariffs have started to bite, with US exports of products subject to retaliatory tariffs declining in September by US$2.5bn, or 26%, from the previous year.
While striking, the data does not fully account for the impact of 10% tariffs on an additional US$200bn of Chinese goods or retaliatory action because those tariffs did not go into effect until September 24.
“This historic rise in costs for American businesses, farmers and consumers is only the beginning,” says former congressman Charles Boustany, a spokesman for the Tariffs Hurt the Heartland campaign. “Tariffs are taxes on Americans and every month this trade war continues these taxes will continue to grow. This data doesn’t yet include the bulk of tariffs the administration has imposed on US$200bn in products that Americans buy every day; tariffs that are set to rise to 25% at the end of this year.”
Over in trade sparring partner China, meanwhile, it’s a different story, with manufacturers still doing roaring trade. October data shows exports grew 15.6% year-on-year, higher than expectations for 11.7%. This may not be sustainable, however: according to Iris Pang, economist for Greater China at ING, this growth is due to exports being front-loaded and orders being brought forward ahead of the January tariff hike. Indeed, the IMF recently downgraded its forecast for China’s GDP growth next year to 6.2% from 6.4% previously, citing the negative impact of US tariffs on the Asian country’s exports.
The macroeconomic outlook is equally pessimistic in the US. Speaking to GTR, Lydia Boussour, senior US economist at Oxford Economics, says: “We think that net trade will continue to pose a drag on growth in the coming quarter due to the escalating trade tensions with China, as well as slower global growth and the strong dollar. We are definitely starting to see the impact of the trade war and it will continue moving forward.”
In the main, however, US businesses seem to be shrugging off the impact of the ongoing trade tit-for-tat. The National Federation of Independent Businesses (NFIB) Small Business Optimism Index jumped to an all-time high of 108.8 in August, topping the previous record of 108 set during the second year of Ronald Reagan’s presidency. The index has since waned a little to 107.4 in October, although this figure is still among its highest-ever readings.
“We had expected a stronger hit to confidence, especially to business confidence, but it hasn’t happened,” says Boussour. “Businesses are really very confident, and I think it has to do with the resilience of the US economy, and the fact that you have strong domestic demand and they are enjoying a favourable backdrop. So far, this confidence effect is offsetting the impact of the trade war.”