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How The Tariff War Is Impacting Small Businesses In New Jersey

December 14, 2018

As we are still waiting for the results of the 90-day suspension, we look at how impacts of the tariffs on small businesses in New Jersey. With recent headlines about potential tariffs on Apple products and foreign-made cars, this holiday shopping season may have a looming shadow mixed among the traditional buzz. However, in spite of any fear surrounding foreign trade deals, U.S.-bound imports have been coming in at higher-than-normal levels as retailers stock merchandise ahead of the New Year. While many agree this trend indicates trepidation about potential future tariffs rather than healthy trade interactions, consumers shouldn’t notice any widespread impacts as they head out to the stores this month.

That said, with the ink of the recent trilateral trade agreement between the U.S., Canada, and Mexico still drying, policymakers, business advocates, and academics all agree that 2019 will host more than a few unknowns for international trade relations and the bottom-lines for small business right here in New Jersey will certainly be affected.

History of U.S. Tariffs on Chinese Products

Take for example former President Barack Obama’s tariffs on tires back in 2011.

Over three years Chinese tires were subjected to gradually decreasing tariffs with hopes of improving the domestic tire market; preserving an industrial workforce in key areas of the country. At most the tariffs rescued 1,200 jobs in the manufacturing industry but cost the retail sector more than 4,000.

In response, China imposed their own tariffs on U.S. chicken exports, which is estimated to have erased close to $1 billion in sales for that industry.

In the case of Obama’s tariffs on Chinese tires, little impact was felt by consumers and rather than increase domestic product sales, frugal U.S. consumers opted to purchase other low-cost tires from Thailand, South Korea, and Mexico rather than the affected Chinese versions.

Tariffs and New Jersey’s Economy

The U.S. is the world’s largest importer of steel, importing roughly 27 million metric tons in 2017 for use in a plethora of industrial, construction, transportation, and energy applications. In addition, the U.S. imports close to 7 million metric tons of aluminum, which represents about 90% of the domestic aluminum consumption. Internationally, China is the leading producer for both steel and aluminum.

While President Trump’s tariffs have impacted the West Coast the most in recent months, the implications for New Jersey are starting to materialize. According to the National Retail Federation (NRF) and maritime consultancy Hackett Associates, imports traditionally begin to drop off this time of year, but historically strong numbers are being seen in the New York/New Jersey ports as they outperform their West Coast counterparts. While consumer demand is responsible for driving some of this, perhaps the largest implication is due to fears of future tariffs on the supply chain for large industrial consumers. If their shipments can be moved ahead of schedule to avoid any newer tariffs and stockpiled, they stand to benefit considerably.

The problem with tariffs on steel and aluminum is that the U.S. and Canadian markets are very intricately linked. Once imported from China, a piece of aluminum may cross the U.S.-Canadian border five times during production phases, and tariffs can be imposed at multiple steps, quickly adding up. While it is possible some processes could be streamlined to prevent such instances, creating jobs in the process, the more likely scenario is that the additional costs will be passed on to any intermediate consumers like small business owners.

For companies reliant on aluminum, like the automotive, canned goods, and construction industries, these additional costs could drastically impact their ability to purchase supplies and conduct their business. When facing the choice of buying supplies to build their product, or streamlining expenses on things like payroll and benefits, the choice may not fall in favor of the working class. Take for example GM’s recent announcement to cut their U.S. workforce by 15%.

For New Jersey, the implications could mean not only higher costs at the market, but a widely-felt constriction of local jobs as industries react to the higher cost of doing business.

The New Jersey Auto Industry

New Jersey’s retail automotive industry is a major economic force in the state’s economy. The state’s network of over 500 auto retailers generates tens of thousands of jobs, billions of dollars in employment earnings, and critical revenue through state and local taxes.

Auto industry officials were cautiously optimistic after Trump’s Administration previously noted they may delay, or scrap proposed new tariffs specifically aimed at imported vehicles and car parts, however, this effect may be fading. The major fears moving forward are not only new tariffs on top of those already enacted on Chinese-made vehicles and imported aluminum and steel but the impact on the American new car market.

If the predicted impacts of the current tariffs come true, consumers would be hit with higher prices that could halt the already declining car sales not only in New Jersey but the across the whole country. This would lower industry profits and likely lead to major decreases in New Jersey sales forces state-wide.

For other New Jersey businesses relying on aluminum, like brewing and canning companies, the theme continues. Cape May Brewing Co.’s CEO, Ryan Krill, was quoted in the Washington Post recently saying that the increase in aluminum prices will cost their company an estimated $30,000 extra in 2018 alone. For any small New Jersey business, it goes without saying that those funds are going to be noticeably absent

2019 Outlook

While tariffs may save jobs in some industries and encourage better, future trade relations abroad, in the meantime industries will take a disproportionate hit for each other.

With the threat of even higher tariffs in 2019, conditions have created a “mini-boom” in imports as businesses rush to stock critical supplies. That said, small businesses that don’t have the buying power of larger organizations will always be left out and suffer.

Perhaps the biggest growing concern for 2019 is a “rebound effect” because of the tariffs. For industries operating at near-capacity, like those utilizing the largest amounts of steel and aluminum, a sudden increase in demand for their product will do nothing more than create a supply shock, sending prices even higher as the market tries to ration what is left of any stockpiles created in 2018.

The New Jersey economy hasn’t been hit very hard in recent months, but as the dust settles around the new U.S. agreement with Mexico and Canada and prices for supplies reach a critical point, the effects could be swift and wide-reaching. Small businesses will be put in the position of choosing between their employees and suppliers, and consumers will see higher prices for their go-to products. That said, consumer purchasing history tells us that these scenarios mean large purchases such as cars, appliances, home remodeling, etc. get pushed to later dates and smaller end products see third- or fourth-ranked competitors from non-sanctioned countries perform better.

In conclusion, New Jersey consumers and business will begin to feel the side effects of the various tariffs enacted in the last year. The New York/New Jersey ports have been keeping supplies coming in, but as prices for supplies soar the number of imports should dwindle. In turn, these results could spawn more efficient U.S. manufacturing processes in an effort to reduce expenses, and more favorable trade deals could be reached with countries like China. However, until those happen, 2019 could prove difficult for small businesses in the Garden State.

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