A significant number of small and midsize businesses across America rely on trade with China to grow and succeed. The Trump administration’s latest decision to impose 10 percent tariffs on $300 billion worth of Chinese goods along with China’s retaliatory tariffs only serve to pile new costs on small businesses and consumers, and squeeze what market access small businesses currently have.
President Trump remains optimistic that a deal will be reached, but the most recent talks with Chinese negotiators have not provided much, if any, assurance for American businesses impacted by the ongoing trade war. Even with this week’s announcement delaying tariffs on some products, including mobile phones, laptops and game consoles until Dec. 15, businesses are planning and bracing for Mr. Trump’s new round of tariffs, most of which are still set to come into effect on Sept. 1.
More than 75 percent of American firms doing business with China have less than 20 employees, while those with less than 50 employees make up 86.7 percent. Since 2001, U.S. exports to China have grown by 600 percent. Imports grew by nearly 400 percent. The dramatic growth in trade with China — and the jobs and economic growth directly tied to trade — are now at risk. Small businesses are hurt in many ways, including the opportunity to grow their firms.
In testimony submitted to the U.S. Trade Representative’s office, I detail why the United States needs to adopt more effective alternatives to the use of tariffs. The new round of tariffs will cost an average of $200 per household, nearly doubling the cost from the first round of tariffs. Of course, fixing key trade issues with China — especially those related to intellectual property theft and market access — is critical, but inflicting pain and damage on our own economy and its small businesses through tariffs is shortsighted and will not work. Policies must continue to foster growth and an environment where entrepreneurs take risks. A go-to strategy of tariffs undermines risk-taking activity, especially for entrepreneurs who see opportunity in global markets. This pursuit takes a tremendous amount of time, resources and capital. The continual threat of tariffs, along with those currently imposed, serve as a huge risk to global market expansion.
Again, the impact on small-to-midsize businesses is real. Polaris Industries in Minnesota relies on Chinese-made components to build their vehicles, but the new round of tariffs will potentially raise the company’s costs by $200 million a year. E-Blox in Buffalo, New York, imports toys from China, which the new set of tariffs will directly impact, but the company cannot pass on these higher costs to consumers as it will lead to a loss in sales. The company also cannot absorb the difference as its profit margins simply do not allow it.
Farmers have been hit hard by the trade war. The first round of tariffs led China to stop importing U.S. soybeans. In the first quarter of 2019, farm income fell by $11.8 billion. The agriculture sector is already facing lower incomes and global demand. With lower income for farms, small businesses that sell them equipment and services are also feeling the impact.
On the energy front, American oil companies are also experiencing a decline in sales to Chinese clients. Two years ago, China accounted for 19 percent of total U.S. oil exports, but the trade battle has resulted in a sizable drop just as oil production reaches all-time highs.
China is expected to overtake Japan as the No. 1 importer of liquefied natural gas (LNG) by next year, but tariffs have led to a steep decline in American-made LNG to China. For the latter half of 2018, just six LNG cargo ships traveled from the United States to China, down from 25 ships during the same period the previous year. Just this year, three U.S. LNG export projects were delayed due to the trade dispute between the United States and China. The longer this dispute goes on, the more potential investments will be lost. As in most industries — manufacturing, retail, farming, technology, etc. — America’s energy industry is dominated by small businesses. The drop-in investment and exports hurt tens of thousands of small businesses, and their employees.
There is no denying that China regularly attempts to defy the rules of international trade. A bilateral agreement reducing tariffs is in order, along with market access and an enforceable framework for protecting IP. President Trump will earn plaudits for negotiating a smart trade deal that protects and strengthens U.S. small businesses and the economy. The ongoing trade war is undermining America’s economic strength and capacity to grow, and there’s a way to “punish” and push the Chinese to play fair without breaking the backs of many of our small businesses through tariffs.
• Karen Kerrigan is president and CEO of the Small Business & Entrepreneurship Council.