My View: No real winners when it comes to tariffs, trade war
With my front-row seat viewing the progress of Arizona’s technology ecosystem, I know we’re in a fortunate position. After all, there were plenty of years spent waiting for the rest of the world to discover what our state has to offer.
What made the difference? Foremost is Arizona has been about innovation when it comes to technology. That has brought investments from companies and venture capitalists who know a good thing when they see it. And that led to our international connection to an extended community wanting to buy what we offer — as long as it’s competitively priced.
So, when the news came out that the White House was about to launch tariffs on products from key Arizona trade partners — 25% for Mexico and Canada, 10% for China — I could see our winning combination quickly coming unraveled.
Then came the follow-up that the Mexico and Canada tariffs were on hold to give the two countries time to talk with our powers that be. Any sigh of relief was short-lived when China chimed in Monday with its own list of tariffs on goods headed our way.
The move by the Asian superpower should come as no surprise. After all, who would expect them to accept a tariff, even one at a level lower than our neighbors to the south and north. It’s a natural response since few would say it’s OK to pay more when the other side won’t.
If a trade war comes to fruition, what’s next? After last week’s meeting of the Federal Reserve, Fed Chair Jerome Powell said, “We need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be.”
Arizona ships aerospace products to China
Still, it might be easy to guess by taking a look at what’s at stake if current trends continue. In 2023, Arizona shipped $1.1 billion worth of semiconductors and other electronic components to Mexico while that country sent $1 billion in electrical equipment and components to us, according to data from the Arizona Commerce Authority.
Looking north, Arizona shipped $227 million in aircraft parts to Canada in the first 11 months of last year while that country sent $562 million in mechanical and electrical parts here, according to the U.S. Census Bureau. If you do the math, you get a sense of what kind of damage 25% more could do to bottom lines and ultimately consumers in the three countries.
As for China, the top five list Arizona exports to China in 2023 included $381 million in aerospace products and parts and $328 million in semiconductors and components, according to data from The US-China Business Council. For imports, China recently imposed a ban on rare earth materials to the United States. Since they are used in production of batteries and semiconductors, the impact on manufacturing likely will be big here.
I’ve obviously scratched the surface with my focus on technology sectors and leaving out the many others. But across the board, companies and households could expect to feel the pinch of an all-out trade war.
In a commentary published Monday by Brookings Institution, the impact of fallout on the United States from the Mexico and Canada scenarios was weighed. Exports to Canada and Mexico would drop by about 6% with a 25% U.S. tariff, and 9% in the case of retaliation by the two countries. For employment, more than 177,000 U.S. jobs could be lost under the 25% tariff and increase to more than 400,000 jobs if Canada and Mexico retaliate.
Who would ultimately win? According to Brookings, “Many of the sectors affected produce manufacturing and other business inputs, such as metals, computers, and machinery equipment. Raising the costs of these exports will therefore increase costs for businesses in all countries, reducing their competitiveness, and lead many businesses to instead source inputs from other countries, including those in Asia.”
We’ve been down this road before. The Smoot-Hawley Tariff Act of 1930 was passed to increase import duties to protect American businesses and farmers but instead was blamed for making effects of the Great Depression worse for the entire world. And in President Donald Trump’s first term, imposition of tariffs on a range of imports resulted in the costs being passed on to consumers.
My hope is that representatives of our nation keep all of us in mind during their conversations with counterparts in Mexico, Canada and China. It’s hard to find a winner in a trade war as our history lessons have proven to us. I wouldn’t want a front-row seat for what’s to come in that scenario.
Steve Zylstra is president and CEO of the Arizona Technology Council.