New Tax Hikes on Imports Affect Various Industries
A furniture and bedding company based just outside of Cleveland had big plans to launch a luxurious upholstered headboard late this year or early next year. However, these plans were jumbled when the president announced a 30% tax on imported upholstered furniture through a social media post. The company imports its headboards from India and Vietnam.
The question now is: Should they proceed with their plans and hope for the best or do they stop production altogether because it's too expensive? If they decide to continue, should they absorb the cost or pass it on to their customers? These are questions that many executives across the United States had to tackle that Friday morning.
Impact on Various Products
Upholstered furniture was not the only product on the president's radar. He also announced plans to impose import taxes of 100% on pharmaceutical drugs, 50% on kitchen cabinets and bathroom vanities, and 25% on heavy trucks. These tariffs are expected to be implemented immediately.
The president justified these taxes, claiming they were essential for national security. However, critics argue that it's difficult to understand how the kitchen cabinet industry is crucial to winning a war.
Changes in Trade Policy
This recent activity on social media is part of the president's ongoing efforts to reshape American trade policy, which for many years has encouraged lower trade barriers globally. The president's approach is different. He has built a tariff wall around the U.S. economy, imposing high taxes on imports from nearly every country, and targeting specific products like steel, aluminum, and autos with their own set of taxes.
The president argues these tariffs will safeguard U.S. industries from overseas competition, incentivize companies to shift production to the United States, and generate revenue for the U.S. Treasury. While these tariffs have indeed become a revenue source for the federal government, they account for less than 4% of federal revenue.
The Uncertainty Remains
Businesses, lawyers, and trade analysts are still trying to understand the implications of these new tariffs. For instance, the furniture company is unsure if the 30% tax on upholstered furniture will be added to an earlier 50% tariff on goods from India.
Pharmaceutical Industry and Housing Market Hit
The president has been threatening tariffs of 200% or more on pharmaceuticals to push pharmaceutical companies to relocate jobs and construct new factories in the U.S. This is seen as an industrial policy. Over the years, drug manufacturers have moved many operations overseas to benefit from lower costs in China and India and tax breaks in Ireland and Switzerland.
However, the COVID-19 crisis highlighted the risk of relying on foreign countries for medical supplies, especially when a key supplier is a geopolitical rival like China. Despite these new tariffs, the stock prices of pharmaceutical companies rose after the president's announcement. This increase was likely because the 100% tariff was lower than expected, and the tariffs would not apply to companies that are already under construction or breaking ground in the U.S.
On the other hand, the tariffs on kitchen cabinets, bathroom vanities, and upholstered furniture could increase the costs of new homes, apartments, and DIY redecorating projects. This could potentially harm the housing market as homeowners are already cutting back due to high costs and a shaky economy. The price of furniture for living rooms, kitchens, and dining rooms has already increased nearly 10% over the past year.
Implications on the Trade Industry
Some experts believe the tariffs on pharmaceuticals are justifiable since much production has shifted away from the United States to Europe and Asia. Similarly, states in the American South have lost furniture factories to cheaper competitors in China.
However, the tariffs on heavy trucks came as a surprise to many as the U.S. already has a robust industry. Some believe this tariff is targeted at Mexico, where many heavy trucks are made, especially since a trade deal is coming up for negotiation.
Using Section 232 of the Trade Expansion Act of 1962, the president launched investigations into whether imports of pharmaceuticals, lumber, and heavy trucks posed a threat to U.S. national security. However, critics argue whether this approach is as nuanced or strategic as it could be. Only time will tell how these new tariffs will impact the U.S. economy.
