Lobsters, Small-Batch Whiskey and Trump’s Trade War
Posted June 22, 2018 8:01 p.m. EDT
WASHINGTON — The effects of President Donald Trump’s trade war are beginning to ripple through the U.S. economy as steel tariffs disrupt domestic supply chains and global trading partners retaliate against a wide variety of U.S. products, such as peanut butter, whiskey and lobster.
The cascade of tit-for-tat tariffs has spooked corporate executives, potentially slowing investment, and the Federal Reserve suggested this week that it might have to rethink its economic forecasts if the trade wars continue.
On Friday, Trump only added fuel to the fire when he threatened in a tweet to impose a 20 percent tariff on all European cars coming into the United States if the European Union did not remove its auto tariffs. “Build them here!” the president wrote.
Trump, who campaigned on a get-tough approach to trade, has said his tariffs would make trade pacts more fair and ultimately help U.S. workers, farmers, manufacturers and others. But the situation could soon become politically perilous to Trump, whose trade policies are starting to inflict economic pain across the country, including in areas that are home to the voters who helped him win election.
Business owners across the country are fearing the worst and wondering if Trump, who calls himself a master negotiator, will get the better end of the deal. Here are the ways several U.S. products are being affected.
In the 2016 presidential election, George Skarich, the vice president of sales for the Missouri-based Mid Continent Nail Corp., voted for Trump and hoped that he would use his business acumen to supercharge the economy.
The economy is booming, but Skarich said he was not reaping the benefits. Instead, as a result of Trump’s trade policies, Skarich said his nail company may soon be out of business.
Mid Continent, the largest U.S. producer of nails, imports steel from Mexico to make its nails. That steel is now subject to the 25 percent tariffs that Trump imposed on dozens of countries, forcing Mid Continent to raise its prices by nearly 20 percent.
Orders have plummeted by 50 percent this month as the company tries to compete with cheaper foreign-made nails. Those foreign manufacturers are not facing higher steel costs, giving them an advantage over Mid Continent.
The company, which employs about 500 workers, has already cut 60 jobs. It could potentially cut 200 more in the coming weeks.
While Trump might propose that Mid Continent simply buy U.S.-made steel, it might not be so simple: Skarich notes that the cost of U.S.-made metal is much higher than what the company had been importing from Mexico, meaning it would still have to raise prices for its nails if it used domestic steel. Skarich, a Republican, has lobbied Sen. Claire McCaskill, D-Mo., for help.
“He ran on ‘Make America Great Again,’ and the point was to defend and protect jobs in the United States,” Skarich said. “Now here is an action he decides to take that has the potential to cost 500 U.S. citizens their jobs.”
To meet a global thirst for U.S. whiskey in recent years, distilleries that make bourbon and rye — and sell it around the world — have sprung up across the country. But this week the European Union applied a 25 percent duty to U.S. whiskey in response to Trump’s steel tariffs, spiking the prices of the iconic U.S. tipple on the Continent.
For small distillers like Scott Harris, a founder of Catoctin Creek Distillery in Purcellville, Virginia, this has dampened happy hour.
“We are just launching into the European market now in a big way, and this could be the worst possible timing for us,” Harris said. “We’re probably going to see all of our European sales now come to a screeching halt.”
Exports to Europe represent about a fourth of Catoctin Creek’s annual sales, and the prospect of a 50-euro bottle of whiskey costing 25 percent more is troubling. Some bigger distillers shipped extra spirits to Europe before the tariffs were in place, but for small businesses, the shipping and warehousing costs are prohibitive.
A self-described free-trade Republican, Harris is disappointed with the path that his party has taken on trade.
“I remember just two years ago we were talking about pushing hard for the Trans-Pacific Partnership so we could open markets in Asia, but all of that has just been turned upside down,” Harris said. “It really is quite puzzling.”
The European response is not the only one that has industries on edge. Next month, China is expected to impose an additional 25 percent tariff on U.S. lobster as the sparring over trade continues and Trump threatens to impose tariffs on as much as $450 billion worth of Chinese goods.
Annie Tselikis, executive director of the Maine Lobster Dealers’ Association, said that Trump’s policy was having the unintended effect of further helping Canada’s lobster market, which doesn’t face the same duties when selling to China. And Canadian sellers were already benefiting from a new trade agreement with the European Union that slashed tariffs for them.
China buys about a fifth of U.S. lobster exports, Tselikis said, and the value of those exports has nearly tripled in the past two years to $137 million.
“I’d love see these tariffs not go through for the sake of our industry and the Maine economy,” Tselikis said. “At this point it’s really about American jobs.”
Kristan Porter, the president of the Maine Lobstermen’s Association, said that he supported Trump’s efforts to renegotiate trade agreements to help U.S. industry but hoped his was not harmed in the process.
“I’m sure everybody is playing their hands and we’re caught in the middle of it,” he said. “We’re hoping cooler heads prevail.”
For several years, the cranberry industry has been struggling with an oversupply problem that has been eased somewhat by exporting juice and berries to Europe and elsewhere.
Now cranberry farmers are an unlikely victim of a trade war, in large part because Wisconsin is one of the world’s biggest cranberry producers and is the home state of Rep. Paul Ryan, R-Wis., the speaker of the House.
Like most Republican lawmakers, Ryan opposes tariffs and wanted to avoid a trade war. But other countries have targeted his and other politically important states in an effort to exert pressure on lawmakers and Trump ahead of the midterm elections.
As a result, the European Union has included cranberries among the items subject to tariffs that took effect this week, and the industry is about to feel the pain.
Tom Lochner, executive director of the Wisconsin State Cranberry Growers Association, said that the tariffs would “hinder our ability to compete in international markets.”
According to the Cranberry Institute, a trade association, exports to Europe were about $127 million last year, and the additional costs of doing business there would most likely make a dent in that figure, putting family farmers at risk. Terry Humfeld, executive director of the institute, said while it was too soon to estimate the total market impact, the reason for singling out cranberries was obvious.
“From a political perspective, it makes sense to pick on those crops that would have the most significance politically,” Humfeld said. “The speaker of the house happens to live in Wisconsin.”
European tariffs on peanut butter will be a blow for the makers of Peter Pan and Skippy spreads, but it is peanut farmers in Republican-leaning states like Georgia, Alabama, Florida and Mississippi who could struggle the most.
“If it affects the peanut butter market, it affects all of us,” said Malcolm Broome, executive director of the Mississippi Peanut Growers Association. “We definitely don’t need to get into a trade war.”
The United States and China are the biggest peanut butter exporters in the world, according to the Department of Agriculture, and European tariffs would likely give China an edge in expanding its market share.
Broome said that many of the peanut farmers in his state have been supportive of Trump’s economic agenda but that they will be watching carefully to see how he manages the trade negotiations.
“If this can give him some leverage to get a deal made, they’d be all for that,” Broome said. “If it doesn’t work and he’s miscalculated, then it could be a different story.”