Category: Blog Posts

Tariffs Are Driving Uncertainty, And U.S. Businesses Need Clarity to Compete

Posted on by Veronica Berkshire

By Melissa Alvisi, Fellow, International Supply Chain Policy  and John Pickel, Vice President, International Supply Chain Policy

Rather than encouraging investment, current and proposed tariffs are delaying growth, disrupting operations, and raising legal concerns among companies, according to a recent survey of industry-leading companies conducted this spring by the National Foreign Trade Council. 

While the Trump Administration contemplates various additional tariff actions as a potential tool to drive U.S. trade and manufacturing policies, economists and industry experts warn of broad potential impacts on supply chains. If carried out, these actions could limit availability of base inputs like active pharmaceutical ingredients (APIs), crucial for producing everyday medications, including baby medications, specific rare earth elements needed for electronics like smartphones and electric vehicles, and advanced semiconductors and memory chips that power everything from home appliances to medical devices. In response, businesses are being forced to adapt to a largely unpredictable landscape defined by announcements followed by temporary pauses that may or may not be extended based on trade negotiations that may or may not be durable. 

Initial Effects: Increased Costs and Uncertainty 

Across all industry sectors, 94% of respondents reported that procurement of raw materials is the most affected part of their supply chain, a particularly concerning finding given that many key components are not readily available in the United States and building domestic capacity is a long-term effort. Almost 90% have seen impacts to manufacturing and production capacity, while 76% pointed to warehousing and aftermarket services, such as repairs. 

Tariffs are also consuming available capital that would otherwise be used to invest in employees and strategic growth. Almost half reported that tariffs impact workforce policies, including hiring, promotion, or training. 

In sectors like advanced manufacturing, the stakes are particularly high. Four in five companies said tariffs threaten their ability to innovate in areas critical to competitiveness, from fuel efficiency to safety and sustainability. “Service providers [like customs brokers] are overwhelmed and can’t keep up,” one says, adding that, “goods do not get cleared [to cross the border and enter the U.S. economy] in a timely manner and freight must stay on ships or at the ports.” Delays then contribute to port congestion and competition for limited warehouse space, ultimately leading to product shortages.

Information and communications technology firms have also felt the pressure. Three-quarters warned that tariffs are driving up prices and reducing consumer access to affordable products. “Many customers have anchored their decision timing to key dates in the administration’s timeline, such as after the 90-day pause on reciprocal tariffs,” said one respondent. But with trade talks not progressing uniformly, there are growing concerns that major trading partners may not finalize deals within the expected window, deepening uncertainty for both businesses and consumers.

In the food and beverage sector, companies face tradeoffs between absorbing costs and compromising standards. They anticipate tariffs will impact companies’ ability to maintain food safety and quality standards, invest in sustainability, and keep prices stable. 

Across sectors, the uncertainty is constraining capital that could be directed towards productivity-enhancing investments such as advanced manufacturing and R&D. Bolstering domestic competitiveness should focus on encouraging such investments rather than mitigating tariff exposure.  

Reducing Offerings, Delaying Projects

Another concern related to current tariffs highlights a lack of availability of natural resources in the United States, which greatly impacts the U.S. operations of the food and beverage industry. This is just one example of why NFTC supports flexibility on tariffs for essential imports which ultimately feed into U.S. manufacturing. 

Tariffs on selected sectors jeopardize the Administration’s stated goals in sectors such as lowering energy costs and AI dominance, and its desire to create a production economy in the United States. While businesses want to bolster U.S. manufacturing in support of the Administration’s objectives, tariffs on key components ultimately create bottlenecks to new construction. Without timely access to affordable inputs, prices inflate and projects are delayed. 

This uncertainty is prompting tough decisions, hindering production capacity and product choice. More than half of respondents have indicated that they are reducing current product and service offerings, or delaying new product rollouts or services into the U.S. market. Others are pausing or stalling expansion projects altogether, waiting for more consistency in tariff exposure, in hopes of a more favorable climate or an exclusion process for inputs or products that can’t be obtained domestically. 

Responses also showed that close to half of our companies have scaled back, or anticipate to scale back, their U.S. operations, and 30% stated their supply chain partners plan to do the same. As a reaction to the current and proposed tariffs, companies are making difficult decisions that risk challenging innovation and weakening U.S. competitiveness, and many are reevaluating their long-term strategies. 

Creating Durable Solutions

To support U.S. manufacturing, the Administration has an opportunity to accelerate its dealmaking with America’s major trading partners while creating a more flexible and strategic framework governing the use of tariffs. 

While companies are preparing for updates related to the administration’s trade negotiations and waiting for details of discussions with China, India and the UK, they are also considering new strategies to help them navigate layered tariffs. Three quarters of respondents reported that uncertainty hinders their ability to invest in U.S. operations, provide the products and services the customers want. For some, the current environment may mean higher investment in their internal capacity to identify and mitigate risks and increased compliance costs. 

International partnerships are critical as companies diversify supply chains. As tariffs are increasingly used to rebalance bilateral trading relationships, U.S. policymakers should adopt a more structured and strategic approach. This includes (1) articulating clear objectives and defining measurable outcomes for trading partners, (2) exempting products not commercially available domestically or implementing phased measures, and (3) establishing a “review and adjustment” process to reassess tariffs based on success metrics or unintended impacts. Targeted incentives for U.S. manufacturing (such as tax incentives, workforce development opportunities, and favorable investment policies) remain essential. 

Finally, the findings above highlight the less visible and often-overlooked impacts of tariffs on large companies, their suppliers, and American consumers. It is likely that these impacts are more acutely felt by small businesses, which generally have less opportunity to shift sourcing, negotiate contracts, and spread the capital-depleting impacts of tariffs.

Businesses build compliance programs and commit to sourcing contracts in advance and for long periods. The current flurry of tariff announcements – including frequent changes, often with little notice – raises opportunity costs, which can reduce innovation and stall productivity. This volatility also undermines strategic planning and jeopardizes the competitiveness of U.S.companies operating domestically and around the world.

Tariffs Won’t “Combat Inflation” But Will Hurt Americans

Posted on by Veronica Berkshire

by Jake Colvin, President, National Foreign Trade Council (NFTC)

NFTC tariffs defined 2

While former President Trump claimed at the New York Economic Club that new tariffs would “combat inflation,” the reality is that they are blunt instruments that harm working families and imperil America’s national and economic security. Here are a couple of reasons why the Harris-Walz and Trump-Vance campaigns ought to think carefully about their approach to trade barriers:

  • Tariffs raise prices for consumers and working families. The combined effect of existing tariffs on steel, aluminum and Chinese goods cost a family of four an additional $764 per year according to Laura Baughman and Trade Partnership.
  • Tariffs from 2018-2019 raised prices for businesses and slightly shrank U.S. manufacturing. According to the U.S. International Trade Commission, higher steel and aluminum costs caused a $3.4 billion annual loss of downstream production from 2018 to 2021, while beverage industry expenses increased $2.2 billion over almost six years, and higher prices for automobile inputs led to an average hike of $700 per vehicle. (Edward Gresser of the Progressive Policy Institutehas more on the impact of tariffs on raising prices and shrinking downstream manufacturing.)
  • Tariffs didn’t “combat inflation” – the pandemic did. Because of the pandemic, “inflation fell sharply in 2020,” according to Jane Ihrig, Kevin Kliesen and Scott Wolla, moving from “a 12-month change from 2.5% in January 2020, to 0.2% in May 2020, to 1.3% at the end of the year.” Tariffs were still inflationary — but were masked by “the most abrupt economic collapsein recorded history.”
  • Foreign nations will not pay us hundreds of billions of dollars like the former president claimed. Penn Wharton suggests that President Trump’s tariff proposals could “lead to revenue losses due to potential retaliatory actions from other governments and other economic dynamics.” (Gentle reminder: Americans pay those tariffs, not foreign governments. See below for a visual explanation from Scott Lincicome and the Cato Institute.)
  • Higher tariffs would result in a net loss of 675,000 American jobs according to Moody’s Corporation. Mark Zandi, Moody’s Chief Economist, told CNN that, “if Trump increases tariffs as he has proposed, the economy would likely suffer a recession soon thereafter.” Those tariffs would also leave American businesses, farmers and ranchers open to retaliation by other countries.
  • For working families, Brendan Duke and Ryan Mulholland of the Center for American Progress estimate that his tariff proposals could translate into additional costs of between $2,500-$3,900 each year, while Mary E. Lovely of the Peterson Institute for International Economics puts those annual costs at $1,700 or more.
  • “Strategic tariffs” are still tariffs. While some have called for targeted tariffs on certain sectors, Erica York of the Tax Foundation reminds that So Called Strategic Tariffs are Still Tariffs and “it’s worth examining the goal of higher tariffs on these strategic goods, which include EVs, solar panels, and their component parts.” She asks, “Will increasing the costs for key inputs help U.S. manufacturers get off the ground?”

Far from being “smart,” tariffs would exacerbate inflation, kill jobs and harm U.S. economic growth.

 

Source: Cato

 

A Good Week for Digital Trade – Almost

Posted on by Marshall Lane

Momentum around the benefits of thoughtful digital trade policies continues to mount, with one notable exception.

Last week, 50 House Republicans led by House Energy, Climate, and Grid Security Subcommittee Chair Jeff Duncan (R-S.C.) and Rep. John Joyce (R-Pa.) released a letter to U.S. Trade Representative Katherine Tai and Federal Trade Commission Chair Lina Khan and Assistant Attorney General Jonathan Kanter expressing concern and disappointment with USTR’s decision to abandon support at the World Trade Organization (WTO) for certain core digital trade principles. 

This makes almost 120 Senators and Representatives who have weighed in on a bipartisan basis since USTR announced last fall that it would no longer pursue core digital trade provisions to constrain foreign governments from discriminating against  cross-border data flows or demanding data localization or disclosure of source code as a condition of doing business.

Separately, proponents of renewing the WTO’s long-standing customs moratorium on electronic transmissions released a Global Joint Statement signed by 178 associations from some 130 countries around the world, including associations in India, Indonesia, and South Africa, whose governments are skeptical of its renewal. Organizers are still receiving signatures from new associations and expect to reach 200 prior to the launch of the 13th WTO Ministerial Conference (MC13) on Feb. 26, 2024. If the moratorium is not affirmatively renewed at the Ministerial, it will expire, opening the door for countries around the world to introduce new taxes and burdensome paperwork requirements for the delivery of digital goods and services. The breadth of support for renewing the moratorium reflects the view across multiple sectors and businesses of all sizes that governments should focus on policies that enable the growth of the digital economy and not impose new costs and barriers to digital trade. 

The same day, the US-EU Trade and Technology Council Transatlantic Initiative for Sustainable Trade (TIST) hosted a stakeholder day focused on “Crafting the Transatlantic Green Marketplace,” which featured compelling discussions on how digital tools contribute to achieving sustainability goals. For example, using digital labels on apparel would cut approximately 5.7 million miles of label tape – enough to stretch from the earth to the moon, and back, twelve times each year – resulting in the elimination of at least 343,000 MT of CO2 while also providing more information to consumers. Digital trade facilitation measures such as trusted trade initiatives, digital passports, digital single window for customs transactions, and the use of e-invoicing, e-signature, and e-payments help to reduce greenhouse gas emissions in addition to making the customs clearance process more efficient. 

Frustratingly, this positive momentum was dimmed by comments from Ambassador Tai, who skipped the TIST stakeholder discussions to join U.S. and EU competition regulators at the Antitrust, Regulation and the Next World Order conference for a fireside chat on connecting trade, competition and industrial policy. 

Rather than celebrating the innovation of American industry, Amb. Tai bizarrely portrayed the growth and success of leading U.S. technology companies as a “massive problem” that trade policy and competition regulators need to work together to rein in. 

This view aligns with a handful of anti-trade activists and progressive politicians, but fails to account for the broad authority trade agreements with strong digital trade protections also provide to regulators for legitimate public policy objectives, consumer protection, data security, and other public interest priorities. Indeed, many of our trade partners who are the strongest champions of digital trade provisions also have some of the most robust regulations on consumer protection and data security. Even the European Union, which is in the midst of implementing some of the most aggressive (and discriminatory) digital markets regulations, still supports the same trade rules on cross-border data flows, data localization, and source code, that USTR now insists interfere with the U.S. Government’s ability to regulate competition policy. 

Ambassador Tai seems incapable of seeing beyond her disdain for a handful of leading U.S. companies (so-called Big Tech) to the opportunities that a global digital economy based on U.S. innovation and values can offer. As the business community, Congressional leaders and transatlantic policy makers highlighted, thoughtful digital trade policies can contribute to Biden Administration priorities like enhancing supply chain resilience, driving the green transition, and providing greater economic opportunity to women and in underserved communities. 

I wish that she could hear the voices of the entrepreneurs like Olivia Walch, whose Virginia-based small business Arcascape relies on global data flows, trusted app stores and intellectual property protections to develop best-in-class circadian algorithms to help shift workers sleep more and feel better. Thousands of startups and small businesses rely on the scale, reliability, and predictability of our world-class global platforms to sustain and grow their businesses. 

The most important task for the next three weeks is getting the WTO e-commerce moratorium renewed at the WTO’s upcoming Ministerial Conference. This is never an easy task, but failing to renew it would be a tremendous blow to digital trade worldwide and a significant step backward for the WTO as a trade institution. There is now ample evidence that imposing customs duties on digitally delivered goods and services will not generate significant new revenue for governments and losing the moratorium could actually undermine economic growth and harm small businesses. That message is starting to be reflected in the growing support for renewal from developing countries and on this point, thankfully, the United States. 

Afterwards, it will be up to the Biden Administration and Congress to decide whether to join like-minded trade partners such as Australia, New Zealand, Singapore, Japan to advance a thoughtful and ambitious global digital trade agenda, or to continue to sit on the sidelines while the world moves on without us. 

– NFTC Vice President for Global Trade Policy, Tiffany Smith 

NFTC President Jake Colvin: Will the Biden Administration Stand Up for American Companies and Workers on Trade?

Posted on by Veronica Berkshire

In advance of next week’s U.S.-EU Summit, U.S. Trade Representative Katherine Tai hinted at a troubling deviation from USTR’s mission and philosophy behind standing up for American businesses and workers during a recent conversation at the Center for American Progress.

Responding to a question about the European Union’s digital sovereignty agenda, Ambassador Tai suggested that the U.S. Government has “to really be cognizant that measures that may look like they have a discriminatory effect may or may not be advanced with a discriminatory intent.”

Adhering to such an approach would signal a fundamental change to U.S. trade policy and send a damaging message to the rest of the world that the U.S. Government doesn’t have industry or workers’ backs.

Evaluating the EU Digital Sovereignty Agenda’s “Discriminatory Intent”

On the specific issue of the EU’s digital sovereignty agenda, it’s hard to argue with a straight face that it wasn’t conceived with the intent to discriminate against American companies and protect EU domestic firms. European officials have repeatedly said the quiet part out loud:

  • “We must have mastery and ownership of key technologies in Europe,” European Commission President Ursula von der Leyen
  • “Let’s go down the line — one, two, three, four, five [American companies] — and maybe six with [China’s] Alibaba. But let’s not start with number seven to include a European gatekeeper just to please Biden.” German MEP Andreas Schwab
  • “The battle we’re fighting is one of sovereignty…If we don’t build our own champions in all areas—digital, artificial intelligence—our choices will be dictated by others.” French President Emmanuel Macron
  • In 2019, then-French Secretary of State for Digital Affairs Mounir Mahjoubi assured publicly that Paris’ Digital Services Tax would “not sanction European players.”

These remarks, combined with the design and effect of the EU’s various digital sovereignty measures currently in place and under consideration, would seem to meet Ambassador Tai’s standard of “discriminatory intent” to trigger U.S. concern and advocacy. In confronting these measures, the Biden Administration will find support from the bipartisan leaders of the Senate Finance Committee, dozens of Members of Congress, and former Democratic and Republican U.S. Trade Representatives.

A Narrow Threshold for U.S. Advocacy

Stepping back, Ambassador Tai appears to be suggesting a new and distressingly narrow threshold for the U.S. Government to stand up on behalf of American businesses and workers against barriers or unfair treatment abroad.

As she acknowledged in her remarks at CAP, an approach focused on discerning “discriminatory intent” is inconsistent with the traditional “guiding discipline” of nondiscrimination that the United States has promoted for generations in domestic law, at the World Trade Organization and through its trade agreements.

It’s also inconsistent with the overall approach to trade advocacy advanced by Congress and multiple Administrations over many years, in which addressing discrimination is only one of the guiding principles for U.S. commercial diplomacy. For example, Congress provides other advice and authorities to USTR to address foreign policies and practices that are unjustifiable and burden or restrict U.S. commerce or are inconsistent with our trade agreements, whether or not they overly discriminate against U.S. interests.

What About an Agricultural Sovereignty Agenda?

One question is whether USTR would feel so bound to abide by this new standard of evaluating “discriminatory intent” if a major trading partner focused on developing a “steel sovereignty” or an “agriculture sovereignty” agenda rather than a digital one.

If sleuthing the “intent” behind foreign regulations is truly the new standard for triggering U.S. Government advocacy abroad, the United States will invite widespread discrimination against U.S. exporters (whose firms tend to pay higher wages to workers than non-exporters) and investment by China, India, the EU and even Canada and Mexico. Our trading partners will begin each new discriminatory effort with a long explanation of its noble and-not-at-all-discrimnatory intent to quiet U.S. objections.

If, instead, this standard only seeks to limit U.S. advocacy for digital innovators and workers, it’s a shortsighted approach that completely misses the point of U.S. leadership on digital trade, and whose effects will be felt far beyond large technology companies.

As USTR notes, the manufacturing sector generates more data than any other sector of the economy. Farmers use digital tools and customs procedures to access new markets and prevent food from spoiling. Small businesses that use digital tools intensively conduct a significantly-higher percentage of business globally. President Obama’s USTR noted that strong digital trade commitments are critical for women-owned businesses, which benefit from an export premium that is higher than for other businesses.

If the United States abandons its global leadership on digital trade, and stands down from its defense of the principles of national treatment and nondiscrimination, it will seriously disadvantage American businesses and workers and give a leg up to Chinese, European and Indian competitors whose governments are actively helping them expand their influence domestically and globally.

Jake Colvin is President of the National Foreign Trade Council

The CHIPS Act bolsters U.S. competitiveness; guardrails should do the same

Posted on by Veronica Berkshire

By Jeannette Chu, NFTC Vice President for National Security Policy

The CHIPS Act is intended to strengthen America’s technology and manufacturing leadership. By serving as a catalyst for private investment in semiconductors, the CHIPS Act seeks to spur growth in jobs and innovation. The Administration has proposed “national security guardrails” but these should support CHIPS Act objectives and legislative intent by bolstering U.S. competitiveness in global markets. 

The National Foreign Trade Council (NFTC) was pleased to provide comments on the national security guardrails for CHIPS Act funding that the National Institute of Standards and Technology (NIST) proposed in March. These guardrails would restrict the ability of CHIPS Act recipients to build new semiconductor fabs or expand legacy facilities in China and other countries of concern; the guardrails would also limit joint research and technology licensing, among other proposed curbs. On the same day, the Treasury Department also issued a proposed rule that would affect implementation of the CHIPS Act. 

As currently proposed, recipients of CHIPS funding would be prohibited from investing in the expansion of semiconductor manufacturing in foreign countries of concern, which have been identified as China, Russia, Iran and North Korea. And while an earlier rule clearly sought to curb China’s ambitions in being able to make advanced chips needed for applications including AI and quantum, these proposed guardrails would define even certain mature chips as being critical to national security and therefore subject to tighter restrictions that extend beyond existing export controls administered by the Bureau of Industry and Security (BIS). 

Close consultation and coordination between the CHIPS Program Office and BIS can address national security concerns by harmonizing the efforts of both agencies. Similar coordination between Commerce and Treasury would further enhance the effectiveness of the CHIPS Act and avoid introducing mechanisms that disincentivize either private investment or further innovation in process technologies that are key to maintaining competitiveness. 

In our comment, we noted that implementation of any new legislation “must not unfairly disadvantage companies through overly restrictive rules on selective globalization. Guardrails must be clear, consistent and avoid creating redundancies that slow the ability of companies to respond to market conditions.” To achieve this we must create constructive precedents while not going beyond original legislative intent and NFTC is pleased to add our perspective to this discussion. Guardrails need to support and strengthen national security, not undermine productivity and technological leadership.

Read more about NFTC’s National Security Policy work here.

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About the NFTC
The National Foreign Trade Council (NFTC) is the premier business association advancing trade and tax policies that support access to the global marketplace. Founded in 1914, NFTC promotes an open, rules-based global economy on behalf of a diverse membership of U.S.-based businesses.