Execs Tell House Panel Trade War Would Be Crippling

WASHINGTON (CN) – Executives for the chemical, manufacturing and agricultural industries told the House Ways and Means Committee Thursday that a U.S. trade war with China would almost certainly cripple their revenues and raise prices for consumers.

As President Donald Trump prepared Thursday to meet with leaders on trade, the House committee heard testimony from Kevin Kennedy, president of Kennedy Fabricating, a Texas-based steel fabrication plant.

The White House’s proposed tariff on Chinese goods worth $50 billion has already cut into Kennedy’s business, causing fellow domestic steel producers to increase their prices by 40 percent.

“We employ 350 people in a town of less than 2,000. We produce parts for drilling rigs, cell phone towers, commercial buildings … we are the ones who buy the steel our U.S. mills produce,” Kennedy said.

The obstacles that come with tariffs put manufacturers like him in a position, “no one should have to face,” he said, sharing concerns that the government is subsidizing foreign manufacturers.

“It eliminated steel imports overnight. Without competition, U.S. steel producers have upped prices by 40 percent. Now a company in China can buy raw steel beams at a 40 percent discount, drill holes in it, and ship it to the US as a fabricated beam without paying the tariff. China is still going to make beams, they’ll just use a loophole to get them here,” Kennedy said.

The same problem exists in Canada, he said.

“Canada went from losing projects to the U.S. to winning them at our expense. They can import the same steel from China without a tariff and buy it cheaper than we can from our own domestic shippers…. This isn’t a hypothetical. It’s happened and it’s cost us millions,” Kennedy said.

Some may argue the pinch isn’t felt on products that have a small steel component, like canned beverages or Boeing 777s but the same doesn’t apply for fabricators like Kennedy.

“The raw steel targeted for these tariffs makes up half the cost of these products,” he said. “Our lack of new orders confirms it. [Some will say] tariffs have already increased demand. It sounds nice, and everybody feels great, but that’s definitely temporary.”

That demand spike is from companies like his who wanted to scoop up steel before the prices skyrocketed, he said.

With an uncertain market, not many want to invest.

Kennedy tells customers they’re paying the cost for the hike on steel and can’t bear it. His customers, he said, tell him they can’t bear it either.

American Soybean Association president John Heisdorffer didn’t find the prospects any less bleak for soybean farmers.

In 2017, they produced 4.4 billion bushels of soybeans, exported 2.3 billion bushels at $27 billion – the single greatest agricultural contributor to the U.S. trade balance, he said.

China is the world’s largest soybean importer: consuming 93 million metric tons in 2016 and 1.4 billion bushels  – or 62 percent of total U.S. exports – in 2017.

“Our fears were confirmed when tariffs were announced on $50 billion in Chinese imports… the prospect of an escalating trade war has created uncertainty in the market,” he said.

A Purdue University study recently found that the impact of tariffs would cause soybean exports to fall 65 percent. Total exports could drop by 37 percent. Production would decline by 15 percent.

“It’s argued that trade in agricultural products is fungible; the loss of one market to a competitor, will be replaced by another competitor that will be replaced by other markets which that competitor will no longer sell to,” Heisdorffer said. “[With] soybeans, this argument fails to recognize that our largest competitor is continuing to expand production on new lands.”

Lawmakers and executives agreed China should be penalized for its abuse of loopholes in the market but if that punishment is tariffs, surgical precision and strategy is required.

Rep. Peter Roskman R-Ill., said a tariff on foreign steel is effectively a tax on U.S. manufacturers.

“[Their impact] could have this really perverse effect of creating an incentive for more imports of finished products that are created outside the U.S.,” Roskman said.

California Democrat Rep. Mike Thompson wasn’t opposed to tariffs  –  if used strategically.

“This administration is doing anything but using strategy. Their trade policies are all over the place. First they renegotiate [the North American Free Trade Agreement]  then walk away. Then trade wars are good. Then they say no trade wars. One thing for sure, this [talk] is bad for producers and consumers,” he said.

At the White House Thursday, the president echoed some of the uncertainty.

“We’re renegotiating NAFTA, I have no timeline…I keep reading from the fake news media that we’re pushing it, we’re not pushing it … There’s no timeline … In the meantime nobody is moving into Mexico, as long as NAFTA is in flux no company is going to spend a billion dollars to build an automobile plant, I told the Mexicans we can negotiate forever, as long as we have this negotiation going nobody is going to build billion dollar automobile plants,” Trump said. “”We’re getting pretty close to a deal, it could be 2 weeks it could be 3 months it could be 5 months, I don’t care.”

In California, 90 percent of the state’s top nut and fruit producers are suffering, Thompson said.

The Chinese already had a 48.2 percent tariff on wine. As a result of “Trump’s trade war,” he said, the state’s wine industry could face an “unsustainable” 67.7 percent tariff.

Chemical manufacturers, like the American Chemistry Council, will also take a wallop.

According to the Department of Commerce, in 2016 and 2017, almost half of all investment and manufacturing in the U.S. was accounted for by the U.S. chemical industry, with 850,000 new jobs created in that time period.

“Today, American chemical manufacturing accounts for 14 cents of every dollar of exports from the U.S.,” said Cal Dooley, the former California representative who now serves as president and CEO for the American Chemistry Council.

“The tariffs are intended to reduce trade deficit but when we impose tariffs in hopes of protecting domestic industries, we just invite retaliation,” Dooley said.

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