The Impact of Tariffs

This commentary originally appeared in The Post Journal on Jul 22, 2018  

Last week, I drove by the Cummins Engine plant located on Baker Street near Ashville. The parking lot was jammed full with the cars of the employees who work there. It made me wonder whether the President’s new tariff policies could have any affect on this company which has made such a positive impact here in Chautauqua County. (Cummins also manufactures engines and engine parts in China.)

“This is a big headache. Making changes in your supply chain is not a three-week process.”

The answer, it seems, is “Yes.” In June the President of the Cummins distribution business was quoted in the Wall Street Journal as saying: “This is a big headache. Making changes in your supply chain is not a three-week process.” He was referring to a new American 25% tariff on imports from China which was to take effect on July 6th. The gist of the article was that at least in the short-term Cummins would have to pay the 25% tariff on some of its parts (or engines) coming into the United States.

The article also cited a profit warning from Daimler AG, a German company which makes Mercedes Benz cars in the United States. The implication of the Daimler statement is that tariffs would likely raise the price of SUV’s being produced at their plant in Alabama.

Until the election of the Trump administration, the Republican Party had been known as the pro-business, free-trade party. Now, it is becoming the party of protectionism and tariffs.

There is no doubt that there have been inequities in some international trade policies which needed to be corrected. The traditional way of dealing with them was through international trade organizations. Now America is going its own way in the belief that unilateral action is the best strategy.

Will it work? The business world is now so interconnected that, at a minimum, this new policy will likely cause problems in some sectors of the economy. The usual advocates for business like the Chamber of Commerce and National Association of Manufacturers have come out against it.

When you look at the Southern Tier of New York State it is hard to put a positive “spin” on this new direction. 

When you look at the Southern Tier of New York State it is hard to put a positive “spin” on this new direction. The tariff on steel and aluminum may help those particular industries, but what about the many metal manufacturing companies in our region who purchase and then fabricate from these metals? In Jamestown we also have SKF Corporation, a Swedish-based international company that makes bearings. Will tariffs on raw materials affect them? Some of the tariffs are directed toward our European allies.

So far, the core of the Republican Party has stuck with the President, but that support could dwindle if this new protectionism doesn’t work. The stock market has held up surprisingly well. Yet, one of the axioms in the investment world is that uncertainty is not good for the markets. If corporate earnings begin to fall and unemployment numbers rise, there could be a correction.

One thing for sure is that it is certainly interesting to watch this change in the direction of American foreign and economic policy. We will just have to wait and see how it all plays out.


Rolland Kidder
Stow, NY