Wittbecker on Aluminum: When do the tariffs reach Main Street?

Close to home, the International Emergency Economic Powers Act (IEEPA) duties on Canadian and Mexican products should be among the first to hit home. Both countries supply a great deal of fresh produce and prepared foods, which have short lead times. We should all be on guard for avocados, Canadian maple syrup and our favorite adult beverages to reflect the 25% duty.

China is the elephant in the room. The American consumer (I am guilty as charged) has become addicted to cheap commodity goods from China for the past 20 years. I have told people for years that China imported our inflation and exported our deflation. Our standard of living went up and the trade deficit ballooned.

Now, the Trump administration wants that deficit to go away. The real question is whether the administration is committed to lowering the US middle class standard of living as a price for reducing the trade deficit and attempting to bring manufacturing back to the US.

Cabinet officials have perhaps rightfully said that “owning a flat screen LED TV” is not a proper measure of economic well-being. They may be right. People ought to earn more, saving more, and building economic security for themselves with good paying domestic manufacturing, high-tech and services jobs right here in the USA. However, I would ask the question “are YOU going to be the one to take that LED TV away.”

This week, we heard from some of the mega-retailers (Walmart, Costco, Amazon, Home Depot, Target, CVS) that their store shelves could be empty in two months if Chinese goods don’t arrive.

Containers sailing from China in April are down 15%-20% and Hapag Lloyd says their future bookings transpacific are down 30%. That gap in the supply chain will come home to roost, and these mega-retailers are not being alarmists.

I have spoken to ex-colleagues in China who are in the consumer goods markets and they say there are ZERO orders for the US, and it is “all hands on deck” to find alternative domestic markets for their production. President Xi has been touring South Asia pumping up trade relations there to help.

However, China can’t replace the US with any other markets, so this complete halt to shipments to the US is a disaster. However, Beijing has enormous financial resources to prop up its economy for a while in this high stakes poker game.

So, who blinks first?

I think it is the US. The US consumer is simply too addicted to the vast array of cheap Chinese goods to so easily give them up. When they are not on the shelves by summer, people will get restless. We are also six months away from Christmas and those goods should already be getting into the pipeline.

I don’t know about you, but I don’t want to be the grandparent telling Number One Grandchild that Santa bailed out on Christmas and there won’t be any toys coming (from China).

Trade by definition is a mutually beneficial economic transaction. The question is who needs who the most. I think the US consumer will have a more difficult time breaking that addiction to China.

June and July could be very interesting months for the US consumer.

Editor’s note

This is an opinion column. The views in this article do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.