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How proposed tariffs would impact American businesses and consumers

MICHEL MARTIN, HOST:

You might remember that news of Donald Trump's White House win sent stock markets soaring. Businesses, though, are less enthused about this.

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DONALD TRUMP: To me, the most beautiful word in the dictionary is tariff. And it's my favorite word.

A MARTÍNEZ, HOST:

The president-elect campaigned on this issue a lot, like here on Bloomberg News last month. Tariffs are taxes on imported goods. Trump falsely claims they'll be paid by foreign countries. In fact, they'll be paid by the American businesses buying the foreign goods.

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TRUMP: When I do the 10% - first of all, 10%, when you collect it, is hundreds of billions of dollars. The numbers that you're talking - all reducing our deficit.

MARTIN: Now, Trump is correct when he says that tariffs can bring in revenue for the government. That's what taxes do, but not that much. Economic experts say hundreds of billions is a huge overestimate, but businesses who buy foreign goods have to prepare for this. So how are they doing that? Joseph Ferrara is the CEO of Ferrara Manufacturing, based in New York City. His company makes high-end clothes for brands like Ralph Lauren and Calvin Klein. He says tariffs will help his company by countering one country in particular.

JOSEPH FERRARA: China will find a way to get its product into the United States through whichever country it is most efficient. And so you'll have products coming in from parts of Europe, where it's 70% made in China. So we are very excited about across-the-board, worldwide tariffs across every country for the products that we make, because then China can't find a way into the United States without going through tariffs.

MARTÍNEZ: Ferrara says if imported clothing is more expensive, his made-in-America garments will be more competitive. So he's hoping for an increase in demand.

FERRARA: We're ready and able to hire an additional 200 employees. And we have the building for it. We have the real estate for it. We just need the business to do it.

MARTIN: So that's one view. Our co-host Steve Inskeep heard another view during a reporting trip in Pennsylvania before the election. Alaina Webber and Matt Katase own a brewery and a bar in Braddock.

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ALAINA WEBBER: Everything we make is based on international commodity pricing - grain, wheat, hops.

MATT KATASE: Aluminum.

STEVE INSKEEP: Tariffs would affect you.

WEBBER: Yeah.

KATASE: Significantly.

WEBBER: Hundred percent. Significantly.

MARTIN: We called them back to see how they're preparing now that Trump is president-elect.

KATASE: The first consideration that we had was, you know, we're writing and working on annual business planning, kind of those things, and looking at price adjustment because we want to be proactive rather than reactive. You know, if the cost of a can goes up 2 to 3 cents, for a case of beer, that's 50 cents to 75 cents, and on already tight margins, if we're not proactive about price adjustments, we could find ourselves a little bit behind.

MARTÍNEZ: All right. For a broader perspective on what tariffs could mean for U.S. businesses, we're joined now by Mary Lovely. She's a senior fellow at the Peterson Institute for International Economics, a nonpartisan research organization. So, Mary, we heard from two different perspectives. Both are valid from where business owners sit, you think? Or which ones are most valid to you?

MARY LOVELY: Well, I think both are valid. And just as you said, they're sitting in different places. So the apparel manufacturer wants to be import competing. He wants to successfully compete against imports. Tariffs will help him do that. Brewery owners are in a very different spot because most of - a lot of what they use to make the beer is imported, and they're going to face higher costs. They're going to have to pass that on to consumers, lower sales, less employment. So we have to ask, what does this all add up to for the sort of macro economy, for the greater economy? On net, are we going to gain jobs, or are we going to lose jobs?

MARTÍNEZ: Yeah, 'cause it sounds like depending on the kind of business you have, Mary, it could be great, or if you have a different kind of business, it could be bad. But, I mean, overall, though, good or bad for American businesses?

LOVELY: Overall, it's bad. And we've known this for years, and we have new evidence coming from the trade war that we had starting in 2018. So what happens is that we do create some jobs, perhaps in places like the apparel company that you spoke with, but we lose jobs in lots of other places. So we heard from the brewery owner who will have to raise prices, will have less sales, higher import costs. When people have to pay more for clothing, let's say I want to buy a suit for business; I buy it from the man you interviewed; I have to pay more. There's less that I can spend. It can be on anything. It could be that I buy less food for my table, or I don't get a service, like, getting my nails done or my hair done. It can show up in lots of different places in the economy.

A place where we know job losses really occur is companies that use imported intermediates, which are things that companies use to build other things. So a good example might be an imported electric motor that's used in a fishing boat that's made in the U.S. That manufacturer is going to have to pay higher prices. Is he going to be able to pass that on to consumers? Maybe, to some extent, but don't forget that American manufacturers are going to have to compete with lots of other countries that aren't going to face these tariffs, both here and abroad.

MARTÍNEZ: But, Mary, how wouldn't that cost go to consumers? It just seems like, isn't that the way business is done? If a business has to pay to get a product or make a product, the consumer is the one that's going to have to foot the bill.

LOVELY: Well, for a certain amount of time, we believe that importers and the companies that they serve actually reduced their profits when we saw tariffs hit in 2018. Many thought the tariffs might be temporary. I think we all remember that President Trump was trying to cut a deal with the Chinese. He did in January 2020. So companies may have thought, I don't want to upset my customers, potentially lose customers by passing on those prices - those price increases. Eventually, those prices do work their way through to the consumer.

MARTÍNEZ: So speaking of China, the big target of Trump's campaign promises around tariffs is China. How would that in particular - tariffs on Chinese goods on Chinese products - affect U.S. businesses?

LOVELY: Well, I'm sure there's businesses who will benefit because they will be able to build or create domestically. But for many other manufacturers, it's going to be a big negative, because, again, they're going to see the prices of the things that they import to build here in the United States increase. And although all of us think about Chinese products as what we see on the shelf at Walmart or at Target, in fact, most of what we import from China are things that manufacturers use. I think one perhaps unappreciated note is that many consumer electronics were not taxed in the first rounds of the trade war under the first Trump administration. So we're talking your cellphone, laptops, games, and those would be subject to very high tariffs. That's an enormous amount of spending that comes in.

MARTÍNEZ: Mary, we're going to have to leave it right there. Mary Lovely, senior fellow at the Peterson Institute, a nonpartisan economic think tank. Mary, thank you.

LOVELY: Thank you.

(SOUNDBITE OF ARCHIVED RECORDING) Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

A Martínez is one of the hosts of Morning Edition and Up First. He came to NPR in 2021 and is based out of NPR West.