Brace for impact....

 US businesses brace for impact of all-out trade war

Countries are preparing to respond in-kind if Trump follows through on his latest threats. Domestic industries fear the worst.

By Daniel Desrochers

President Donald Trump’s flurry of tariff letters to more two dozen countries has triggered new threats of retaliation. Key U.S. industries are increasingly worried they are going to be collateral damage.

The European Union on Monday released a targeted list of $88 billion worth of U.S. goods it plans to tariff if it doesn’t make more progress in trade talks with Trump. Brazil, staring down a 50 percent duty on its exports to the U.S. over Trump’s frustration with their domestic politics, has given its president more leeway to impose unilateral tariffs on the U.S., should the Trump administration follow through on the prohibitive levies.

Other countries have also reacted to Trump’s latest trade threats with anger — and talk of a more aggressive response. While the hardening battle lines in the negotiations could be part of each sides’ effort to force more concessions, domestic business groups aren’t counting on it. Instead, they are mobilizing to try and convince both the Trump administration and foreign governments that it would be a mistake to target their industries.

“We know [foreign governments are] getting a lot of domestic pressure to do something” to respond to Trump, said Jason Bernstein, the director of global affairs for the American Chemistry Council, saying that even though the ACC has convinced some countries to pull back from retaliating against certain imports, “we don’t know how long it’s going to last.”

The U.S. chemical and plastics industry exports around $164 billion worth of goods a year and is listed as the country’s second largest exporting sector. That market is growing in key countries like Brazil, the EU and even China, as the industry has become dominant in producing high quality chemicals used in everything from semiconductor production to the flame retardants in batteries.

“I’ll be honest with you, we may be more of a model of ‘America First’ trade policy than you might think,” Bernstein said, referring to Trump’s desire to make more things in America to sell abroad. “When we hear about energy dominance, yeah, we’re in.”

But that dominance — and other countries’ reliance on chemicals for their own domestic industries — may not be enough to insulate it from retaliation, as countries look for areas to exert pain on U.S. exports. The EU specifically listed chemicals and plastics on the retaliation list it released Monday night, and the industry is concerned it might also be a target for Brazil, as well, after Brazilian President Luiz Inácio Lula da Silva threatened to impose a 50 percent tariff on U.S. goods in response to any tariffs the U.S. levies on Aug. 1.

Trump has continued to warn countries against retaliation, including a line in the letters he sent last week to 25 countries warning that if they “decide to raise your Tariffs and retaliate, then, whatever number you choose to raise them by, will be added onto” their existing tariffs.

But on Tuesday, the president struck a slightly less confrontational tone, dismissing the idea that the EU may go through with their proposed retaliatory tariffs. That’s a much different reaction than when he threatened to put a 200 percent tariff on European wine and spirits in March.

“Well, I don’t know how they can retaliate,” Trump told reporters at the White House, when asked about the EU’s new trade war preparations. “You know, they’ve made a lot of money. They’ve treated us very badly, but now they’re treating us very nicely, and I think we’ll end up, I think everybody’s going to be happy with the EU.”

Some EU countries, however, are not in the mood to make nice after Trump once again upended the negotiations, sending a blunt weekend letter saying he planned to raise tariffs on the bloc to 30 percent.

“We are partners, and we must reach an agreement,” French Foreign Minister Jean-Noël Barrot said at a Foreign Affairs Council meeting in Brussels Tuesday. “The European Union is the United States’ largest trading partner, but it is not destined to become a vassal of the United States.”

The letter also outraged some in Japan, which has not, to this point, threatened any retaliation to Trump’s tariffs. “We may have to rethink whether being nice, polite, diplomatic, is something that would move President Trump,” a former Japanese official said last week. “It appears that leverage is the only language that will be understood by the White House.”

Domestic companies fear the increasingly harsh rhetoric could escalate into soaring tit-for-tat tariffs next month, which is especially alarming for those that have been in the cross-hairs of a Trump trade war before.

Despite months of lobbying from Ireland and France, the EU included bourbon among its tariff targets, in a repeat of Europe’s tariff strategy during Trump’s first administration.

The previous retaliatory tariffs, aimed at the signature industry of then-Senate Majority Leader Mitch McConnell (R-Ky.), caused American whiskey exports to Europe to drop by 20 percent between 2018 and 2021, according to the Distilled Spirits Council, a trade group representing the liquor industry.

“This is devastating for the bourbon industry,” said Rep. Morgan McGarvey (D-Ky.). “We don’t have to guess, we can just look at what happened last time.”

This time, the bourbon industry has also taken a hit in Canada, where the government-controlled liquor stores have pulled “Made in the USA” products like bourbon from the shelves in response to Trump’s threats to make Canada the 51st state.

It’s a dynamic that can be just as threatening as retaliatory tariffs for some of the signature, American-made products that tend to be targeted in trade wars — like Levi’s jeans.

“That ‘Made in USA’ dynamic has very, very strong appeal overseas, in Europe, in Canada — well, had been in Canada — in key Asian markets, Middle East markets as well,” said Stephen Lamar, the president and CEO of the American Apparel and Footwear Association, which represents brands like Levi Strauss and Nike. “And so to the extent we see either retaliation in the form of tariffs or retaliation in the form of, say, consumer boycott, which is also something we’ve seen in Canada, that begins to hurt the ability of companies in the U.S. to dig down and do more ‘Made in America.”

The more developed markets that are more capable of retaliating against the U.S. tariffs — like the EU, China and Canada — are also the markets where apparel companies sell U.S.-made products. Lamar said that, if companies expect the tariffs to stay on for a long time, they may even consider producing more abroad and relying less on the Made in USA tag to carry sales overseas.

“Bracing for it is a good word,” Lamar said. “We’re expecting it. It’s something that we’re hoping doesn’t occur.”