Why Trump's potential tariffs are making business owners anxious

Summary

Summary of "Why Trump's Potential Tariffs Are Making Business Owners Anxious"

The Indicator from Planet Money episode titled "Why Trump's Potential Tariffs Are Making Business Owners Anxious," released on January 23, 2025, delves into the economic ramifications of newly proposed tariffs by President Trump and their profound impact on various U.S. businesses. Hosted by Wayland Wong and Adrienne Ma, the episode provides an in-depth analysis of how these tariffs create uncertainty that ripples through the economy, affecting everything from farmers to specialized art dealers.

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Trump's Proposed Tariffs: An Overview

The episode opens with host Adrienne Ma outlining President Trump's latest tariff proposals. Trump has hinted at imposing a 10% tariff on Chinese goods and a 25% tariff on goods from Canada and Mexico, potentially taking effect as early as the following week (00:14). These proposed tariffs are part of Trump's broader strategy to address trade imbalances and protect American industries. However, the hosts clarify that U.S. businesses, not the foreign governments, bear the brunt of these tariffs. As Wayland Wong explains, "If the US slaps tariffs on foreign products, those countries are not the ones who pay it. It's US companies that import those products who pay, usually passing that extra cost onto US customers in the form of higher prices" (00:53).

Impact on U.S. Businesses: Real-World Implications

The discussion transitions to the tangible and intangible costs businesses face amidst these impending tariffs. Adrienne Ma emphasizes that beyond the direct financial burden, the uncertainty surrounding these tariffs poses significant challenges for businesses trying to navigate the volatile economic landscape.

Brad Smith: A Farmer's Struggle with Trade Wars

Brad Smith, a corn and soybean farmer from Milledgeville, Illinois, shares his firsthand experience with the previous U.S.-China trade war. He recounts how, in 2018, China's retaliatory tariffs on U.S. soybeans severely impacted his farming operations. "Soybeans were one of the very few products that China was actually buying from us. I think at that time, maybe they were buying 30 to 40% of the US soybeans, which is a big deal" (03:16). This reliance on Chinese demand was precarious, leading to a sharp decline in U.S. soybean prices as China diverted its purchases to Brazil following the tariffs. Brad explains, "One thing led to another, and essentially Brazil stole a big chunk of our market share at that time, and they still do" (03:44).

In response to these challenges, Brad adjusted his farming practices by increasing corn production, a crop less dependent on Chinese demand. However, with the new administration's potential tariffs on Mexican goods, Brad faces another dilemma. His corn exports largely go to Mexico, and with the proposed 25% tariffs on Mexican goods, he worries about retaliatory measures that could severely impact his sales. "What if Mexico retaliates against those tariffs with tariffs of its own on things like US corn? All this makes it really tough for him to run his farm" (04:41).

The Ripple Effect of Economic Uncertainty

Luis Baldometo Quintana, an economist and professor at the College of William and Mary, provides a broader perspective on how uncertainty from tariffs affects various businesses. Using the example of a hypothetical Ohio-based medical device company, Quintana outlines three primary ways uncertainty can manifest:

1. Uncertain Costs: "If the US imposes a tariff on Mexican goods, those Mexican-made parts you buy might become more expensive. Now, you could pass that cost onto the customer by raising the price of your equipment, but that could also hurt sales. So it's really hard for a company in this situation to know what to do" (05:42).

2. Tariff Retaliation: This involves foreign governments responding to U.S. tariffs with their own, potentially harming U.S. exports. Quintana explains, "If the US follows through with tariffs on Canadian imports, Canada might decide to hit back with tariffs on U.S. goods. And that could hurt your sales in Canada" (06:04).

3. Operational Changes: Businesses might need to adjust their operations to mitigate the impact of tariffs. Quintana suggests preemptive measures like stocking up on inputs before tariffs take effect, although this comes with its own costs: "You go and make a gigantic purchase of inputs for say, one or two years of production. The issue is it costs money" (07:00).

These layers of uncertainty make strategic planning exceedingly difficult for businesses, as they grapple with fluctuating costs and potential market access issues.

Eric Zeterquist: The Art Dealer's Predicament

The episode also features Eric Zeterquist, an Asian art dealer based in New York, who specializes in Chinese ceramics. Eric reflects on his experience during Trump's first term, when the U.S. imposed tariffs on Chinese antiques. "They have to pay higher prices for everything. And to what end? I don't know. I mean, it's, again, it's not helping the American laborer, it's not helping the American farmer. It just doesn't make sense" (07:21).

Despite his efforts to adapt, Eric expresses ongoing frustration and uncertainty about the future. When asked about his preparations for potential new tariffs, he candidly responds, "What can I do but wait and see? Right now, my biggest concern is just I have no idea what's happening" (08:11). His predicament underscores the pervasive anxiety among business owners who feel powerless in the face of unpredictable trade policies.

Conclusion: Navigating Through Uncertainty

The episode concludes by highlighting the central theme of uncertainty and its detrimental effects on the U.S. economy. From farmers like Brad Smith to specialized dealers like Eric Zeterquist, businesses across the spectrum are left grappling with the unpredictability of trade policies. As the hosts aptly summarize, uncertainty from tariffs complicates risk management and strategic planning, ultimately hindering economic stability and growth.

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Notable Quotes:

• Wayland Wong (00:53): "If the US slaps tariffs on foreign products, those countries are not the ones who pay it. It's US companies that import those products who pay, usually passing that extra cost onto US customers in the form of higher prices."

• Brad Smith (03:16): "Soybeans were one of the very few products that China was actually buying from us. I think at that time, maybe they were buying 30 to 40% of the US soybeans, which is a big deal."

• Brad Smith (03:44): "One thing led to another, and essentially Brazil stole a big chunk of our market share at that time, and they still do."

• Luis Baldometo Quintana (05:42): "If the US imposes a tariff on Mexican goods, those Mexican-made parts you buy might become more expensive. Now, you could pass that cost onto the customer by raising the price of your equipment, but that could also hurt sales. So it's really hard for a company in this situation to know what to do."

• Eric Zeterquist (07:21): "They have to pay higher prices for everything. And to what end? I don't know. I mean, it's, again, it's not helping the American laborer, it's not helping the American farmer. It just doesn't make sense."

• Eric Zeterquist (08:11): "What can I do but wait and see? Right now, my biggest concern is just I have no idea what's happening."

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This episode of The Indicator from Planet Money offers a comprehensive look into how Trump’s potential tariffs are not just abstract economic policies but real factors inducing anxiety and forcing difficult decisions among U.S. business owners. By weaving together personal stories with expert analysis, the hosts effectively illustrate the pervasive impact of trade policy uncertainty on the American economy.

Transcript

[NPR]

Npr.

[Wayland Wong]

This is the indicator from Planet Money. I'm Wayland Wong.

[Adrienne Ma]

And I'm Adrienne Ma. A freshly re inaugurated President Trump is making his first moves on tariffs, or pledging to anyway. He's reportedly considering a 10% tariff on Chinese goods and a 25% tariff on goods from Canada and Mexico. And he says both of these could start as early as next week.

[Wayland Wong]

Now, nothing has been finalized yet, but contrary to what President Trump has said, if the US Slaps tariffs on foreign products, those countries are not the ones who pay it. It's US Companies that import those products who pay. And usually they pass that extra cost onto US Customers in the form of higher prices.

[Adrienne Ma]

Yeah, but even before any of this happens, businesses can also face a less tangible cost, the cost of, of uncertainty. So today on the show, we're going to hear from a couple business owners who experienced Trump's first trade war.

[Wayland Wong]

And we'll learn how uncertainty from tariffs, or even just the threat of them, can ripple throughout an economy.

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[Adrienne Ma]

Combatants and there are bystanders. And a trade war is kind of like that, but instead of soldiers fighting with weapons, it's governments fighting each other with tariffs.

[Wayland Wong]

And the bystanders, the ones who become economic collateral damage. They're US Businesses, businesses that import foreign goods or export US Made products abroad. Brad Smith knows this from experience. He's a corn and soybean farmer in Milledgeville, Illinois.

[Brad Smith]

So I started farming full time in 1994 and trying to navigate the ebbs and flows of the business ever since.

[Adrienne Ma]

Back in 2018, Brad found his family farming operation caught in the middle of a trade war between the US and China. Trump had levied tariffs on Chinese steel and aluminum and other products. And in response, Trump China levied tariffs on US products. And one of those was soybeans.

[Brad Smith]

Soybeans were one of the very few products that China was actually buying from us. I think at that time, maybe they were buying 30 to 40% of the US soybeans, which is a big deal.

[Adrienne Ma]

And in fact, it was even higher than that. The year before the trade war, China made up about 60% of the US soybean export.

[Wayland Wong]

China didn't stop at slapping tariffs on soybeans. It also shifted more of its soybean buying to one of the US's competitors, Brazil.

[Brad Smith]

One thing led to another, and essentially Brazil stole a big chunk of our market share at that time, and they still do.

[Wayland Wong]

They haven't given it up because of the trade war. The price of US soybeans dove. Brad says for a while he was bleeding cash, but eventually he and other farmers did receive a sort of stipend from the Trump administration to try and make up for the loss in business.

[Brad Smith]

In the long term. I think it all kind of worked out, but I'd rather. I'd rather get our income from the market and not from some federal bailout.

[Adrienne Ma]

The US China trade war also left a lasting imprint on Brad's farm. He switched to planting more corn because the price of corn was less dependent on Chinese demand. But now, at the start of a new Trump administration, there's potentially a new problem.

[Brad Smith]

Corn in my bins here on our farm. Most of it goes to a place that loads trains, and a high percentage of the corn that goes on those trains ends up in Mexico.

[Wayland Wong]

And Trump, as we mentioned earlier, is threatening to place a 25% tariff on Mexican goods. And this could put Brad in a bind. What if Mexico retaliates against those tariffs with tariffs of its own on things like US corn? All this makes it really tough for him to run his farm. This uncertainty, of course, isn't just a problem for farmers like Brad. It's a problem for all sorts of US businesses. Companies are constantly trying to manage risk, and uncertainty makes that more difficult.

[Adrienne Ma]

Luis Baldometo Quintana is an economist and professor at the College of William and Mary. He studies international trade, and he says to understand how uncertainty affects businesses, imagine you run a company in Ohio that makes medical devices, the parts of the.

[Luis Baldometo Quintana]

Medical equipment, some of the inputs say they are manufactured in Mexico, maybe the plastic box, maybe the elastic bands, little light bulbs, or some little circuit. So there's going to be three ways that uncertainty is going to hit you.

[Wayland Wong]

The first way uncertainty could hit you is in the form of uncertain costs. If the US Imposes a tariff on Mexican goods, those Mexican made parts you buy might become more expensive. Now, you could pass that cost onto the customer by raising the price of your equipment, but that could also hurt sales. So it's really hard for a company in this situation to know what to do.

[Adrienne Ma]

And then a second source of uncertainty could come from tariff retaliation. So let's say a lot of the customers buying your medical equipment are in Canada. Well, if the US Follows through with tariffs on Canadian imports, Canada might decide to hit back with tariffs on U.S. goods. And that could hurt your sales in Canada.

[Luis Baldometo Quintana]

And then what happens is if you experience this retaliation, you might be less competitive against producers that manufacture the same equipment, say either in Europe or, or in Japan or Korea.

[Adrienne Ma]

In other words, your customers in other countries could decide that your goods are too pricey and, you know, forget you, I'll buy from one of your competitors. So how do you even plan for that?

[Wayland Wong]

And then the third way tariffs could create business uncertainty is it could force businesses to change the way they operate. In the case of our hypothetical Ohio based medical equipment maker, Louis says you could try to avoid some tariffs by planning ahead.

[Luis Baldometo Quintana]

So what you can do is before the tariff goes into effect, you go and make a gigantic purchase of inputs for say, one or two years of production. The issue is it costs money.

[Adrienne Ma]

However much it is, that cost will likely get passed on to the customer.

[Eric Zeterquist]

I have to pay tariffs, I pass them on to my clients. The collectors in museums who buy from me suffer.

[Wayland Wong]

That's Eric Zeterquist. He's an Asian art dealer in New York who mostly deals in Chinese ceramics. During Trump's first term, the US Placed a tariff on antiques imported from China.

[Eric Zeterquist]

They have to pay higher prices for everything. And to what end? I don't know. I mean, it's, again, it's not helping the American laborer, it's not helping the American farmer. It just doesn't make sense.

[Wayland Wong]

We actually spoke to Eric before, all the way back in September 2018. At the time, he called the tax absurd, and he still feels that way.

[Adrienne Ma]

And we asked him what, if anything, he's doing to prepare for the possibility of more tariffs, and he basically told us, what can he do but wait and see?

[Eric Zeterquist]

Right now, my biggest concern is just I have no idea what's happening.

[Wayland Wong]

Very relatable, Eric, but we are doing our best here at the Indicator to try to figure things out. So if you've got questions about the economy and what's happening, indicatorpr.org this episode.

[Adrienne Ma]

Of the Indicator was produced by Angel Carreras with engineering by Kwesi Lee and Robert Rodriguez. It was fact checked by Sierra Juarez. Paddy Hirsch edited this episode. Cake and Cannon is our editor and the Indicators of production of npr.

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