How will US manufacturing be affected by the trade war with China?
Wednesday, May 15, 2019
The U.S. trade war with China has heated up, and now there is much speculation about daily life for American manufacturers and their employees. What obstacles do manufacturers face and what happens to jobs in such an unstable climate?
While many trade war theories circulate, an overvalued American dollar is said to be the root cause of the problem — and thus is not likely to be addressed anytime soon.
Meanwhile, the U.S. agricultural sector is taking a special hit as state exports are down almost 50%. In 2017, the U.S. exported $19.6 billion in agricultural products to China.
How tariffs impact domestic manufacturing is another significant issue, as one of President Trump’s key election promises lingers: more manufacturing jobs.
The logic is that higher tariffs on Chinese goods will increase trading with non-tariffed countries, and even better is Trump’s “best idea” of higher tariffs resulting in a logical move to buy American.
We are quickly reminded that it’s not so simple to do that. Why not?
For one, it’s difficult to find products made with solely U.S. parts: "…products made in America can contain parts sourced from all over the world," writes Alana Semuels for Time. Because of this fact, an abrupt change in parts availability, produced by increased tariffs on Chinese imports, "plays havoc" with supply chains that U.S.-owned companies depend on. This comes at a time when supply chains are altered by Brexit talks, leaving the European Union and the U.S. in an anxiety-ridden state.
Then we have nuts-and-bolts production issues to consider like raw material costs. Since 2015, U.S. steel prices doubled amidst increased domestic supply demands.
Because of these increasing prices, some want the U.S. to lift steel and aluminum tariffs on Canada and Mexico while the new NAFTA — the United States-Mexico-Canada Agreement (USMCA) — inches toward a congressional vote. In fact, as of May 15, the U.S. appears closer to lifting these tariffs, which would be a move toward more local stabilized relations.
But stabilized relations remain elusive under a bipolar trading strategy that pays lip service to broadening cooperation while enforcing culturally chauvinistic trade restrictions that undermine this purported cooperation.
Restricted trade effects a range of markets, from bikes to beer, and no greater impact is felt than in the U.S. automotive industry. Already we have seen the U.S. auto sector downsize, with General Motors closing traditional plants in favor of cleaner energy electric vehicle production.
For some politicians, the trade war provides a legislative context for increased domestic sourcing of minerals, like lithium and graphite, used to make electric vehicles.
Last year, 50 percent of 48 different minerals used in auto manufacturing were imported. This increasing dependency on imported minerals has led the Energy and Natural Resources Committee, led by U.S. Sen. Lisa Murkowski, R-Alaska, to begin crafting bipartisan legislation language that will rebuild "the mineral supply chain."
This focus on critical mineral extraction will be some people’s answer to the inevitable job loss accompanying the trade war climate. Mineral extraction after a careful national study of reserves will produce jobs, but manufacturing employment losses are estimated to be far greater than that offered by any new domestic mineral extraction plan, or electric vehicle production strategy.
Alienating China, Mexico, Canada and other trading partners can prove detrimental to the U.S., which cannot extricate itself from its dependency on global trading partners. Not just markets, but entire national economies are intertwined in production and distribution chains. Simply digging for more domestic minerals, or buying American, are not strategies viable enough to prop up entire employment sectors.
Manufacturing jobs remain unstable, and the cleaner energy transition to new markets, like electric vehicles, remains mired in the same old dead end extraction game.
Besides, China leads in electric vehicle production anyway, serving as a reminder of the fundamental economic interdependence of nations — even as trade battles continue.
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