From frozen cuts of pork to leather jackets, tariffs on more than $200 billion of Chinese imports take effect on Monday. On the same day, tariffs on another $60 billion in products headed in the other direction get a retaliatory hike, as imposed by the Chinese government.
After more than a few rounds in the tit-for-tat trade war, Colorado businesses are weary of not knowing which tariffs will stick, and they’re making big plans just in case they do.
Gov. John Hickenlooper says Arrow Electronics, one of Colorado’s largest companies, is threatening to move jobs out of state to minimize the impact of tariffs.
“If tariffs continue to go forward the way they’ve been, (Arrow is) going to have to restructure their supply lines,” Hickenlooper said at a recent news conference. The company’s exports support “30 percent of their jobs in Colorado. Once they reshuffle those supply lines so that their customers buying those products don’t have to pay the large tariffs, those jobs will probably never come back.”
Colorado’s top imports affected by trade war with China
1. Electrical machinery and equipment
2. Industrial machinery (computers)
3. Furniture
4. Plastics
Colorado’s top exports affected by trade war with China
1. Rawhide and skins
2. Optics, medical and surgical equipment
3. Industrial machinery
4. Photographic and cinematographic goods
Source: Colorado Office of Economic Development & International Trade
In an interview with Bloomberg TV on Monday morning, Hickenlooper reiterated that the impact is significant, particularly given how much money Arrow has put into the state.
“They are probably going to have abandon some of those investments, they are going to have to lay off 1,000 people that they’ve hired in Colorado and probably not hire 1,000 more,” he said.
Hickenlooper signed a letter Monday with Ohio Gov. John Kasich, a Republican, urging the Trump administration to end the trade war.
“I think the tariffs — the way they’ve gone about this — the administration has been really reckless,” Hickenlooper told Bloomberg TV during an interview in New York.
President Donald Trump says his push for tariffs on Chinese imports is an effort to fight intellectual property practices. China also taxed some U.S. imports long before the current trade war began.
Arrow, one of the world’s largest electronics distributors, did not comment on restructuring, but spokesman John Hourigan pointed to the company’s Aug. 2 earnings call during which CEO Mike Long addressed the topic with the calm of an executive overseeing a $26 billion company.
“None of us like tariffs … all they do is they hurt American businessmen, they’re not doing anything to the Chinese right now,” Long said, adding that there are other manufacturers outside of China. “…And if they (the Chinese) want to start something up, we can redirect the supply chain completely out of the U.S. in a moment’s notice and totally eliminate the tariff.”
Other tech companies have spoken out against tariffs, including Apple, which managed to get the tariffs removed from smart watches built in China. But farmers, manufacturers and smaller companies are also heavily affected by the ongoing trade war.
Over in Niwot, the 121-employee SparkFun, which sells electronic components to makers who want to build their own gadgets, offered a detailed teardown of the financial impact. Its 17-piece Essential Sensor Kit set includes five items hit by tariffs.
On a tariff bill the company shared, SparkFun paid a 25 percent tariff, or $828.16, on a batch of imported goods from China. Previously, it would have paid 0.6 percent, or $19.41, said Megan Arnold, a SparkFun spokeswoman.
“We have over 100 suppliers in China that we’re constantly managing,” Arnold said. “We (now) have an ad hoc team that handles our pricing and we now have a process in place to track products that are affected by tariffs and change the prices as much as possible.”
SparkFun ended up not raising the kit’s $39.95 price tag, which means, Arnold said, “we are eating a significant share of the cost increases due to tariffs.”
Arnold added on Monday that the company will only raise prices “if necessary.”
That’s one reason consumers haven’t felt the impact of the trade war on everyday items. At this stage, businesses are the ones feeling the pressure. Some even promoted a “pre-tariff” sale to get customers buying ahead of the tariffs going into effect, said Alex Padilla, an associate professor of economics at Metropolitan State University of Denver.
“What we know as economists, and I don’t want to sound too nerdy, but in general, consumers’ reaction to price increases often are do we really need the goods? If you need it, you’re going to buy it. But certainly a lot of people are going to react by delaying their purchase,” Padilla said. “The question is will consumers realize that the increased prices are related to the tariffs or something else? Most consumers won’t know.”
According to the state’s Office of Economic Development and International Trade, 75 percent of Colorado’s imports from China will be affected by the latest tariffs. Going the opposite way, 95 percent of what Colorado exports to China will now face Chinese tariffs.
“A lot of uncertainty still remains about how far this conflict is going to go,” said Conner Murphy, the economic development agency’s diplomacy manager. “As we’ve seen over the months, the tariff rates and industries affected are increasing. And that’s fueling the uncertainty in the industry.”
For added perspective, only 7 percent of Colorado’s exports head to China. But, Murphy added, “7 percent is still a significant number.”
Dollar wise, that’s about $554 million a year, he said.
The state’s farming and agriculture industry was slapped with Chinese tariffs over the summer. It was China’s response to a U.S. tariff on steel and aluminum imports that started on June 1. Monday’s new round of Chinese tariffs includes an extra 10 percent on items like meat, wheat and wine.
“We would like this to be settled,” said Zach Riley, director of public policy and national affairs for the Colorado Farm Bureau. “Tariff-neutral would be ideal.”
Many farmers and agricultural businesses have a backup plan, which has come in handy due to a massive drought in Colorado.
But, said Riley, China’s not the top trade partner for the Colorado agriculture industry anyway. Mexico and Canada are more critical. Farmers are eligible for a special $12 billion trade-relief program if they’ve been hurt by the trade war.
Of course, farmers prefer to trade their produce in foreign markets rather than just get relief, Riley said. “But we’re not complaining about having relief.”
Arrow Electronics, which moved its headquarters to Centennial from New York in 2011, employs 2,000 of its 19,000 global employees in Colorado. The company is a heavy importer of electronic components from China. But with the new U.S. tariffs on Chinese imports, the company may reshuffle its supply since there are many manufacturing plants outside of China. The change in supply however could effect 30 percent of its jobs in Colorado, the company told Gov. John Hickenlooper. (Tamara Chuang, The Colorado Sun)
President Trump has received praise and criticism for his aggressive stance on trade with China, which has taxed some U.S. imports.
The most recent battle began Sept. 17, when Trump announced a 10 percent tariff on roughly $200 billion of imports from China starting Monday.
The tariffs on the 5,745 items (here’s a list) will jump to 25 percent Jan. 1, according to the Office of the United States Trade Representative.
And Trump promised it won’t end there.
“Further, if China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports,” Trump said in a statement released by the White House.
China responded a day later to Trump’s new round of tariffs. So on Monday, China is adding new tariffs on $60 billion worth of U.S. goods (Here’s a timeline from Bloomberg.)
“We’ve never had an administration with this approach before, a tough guy approach. In the past we’ve had not complacency but collaborative diplomacy,” said John Holcomb, a professor at the Daniels College of Business at University of Denver. “Trump is making the case that we’ve been too soft and gave in.”
Holcomb said Trump is right because China has been hammering the U.S. with tariffs for awhile. But challenging China is a gamble.
“It’s a vicious cycle that spirals,” said Holcomb, who teaches in the Department of Business Ethics and Legal Studies. “Some will say we (in Colorado) don’t have as many areas that are as vulnerable because we don’t have the producers. But we do have other products that are subject to retaliatory tariffs, which is what Arrow is experiencing.”
Staff writer John Frank contributed to this report.
UPDATE: This story was updated at 10:57 a.m on Sept. 24, 2018 to reflect SparkFun’s view on price changes affected by the tariff. It was updated at 11:15 a.m. to include comments from Gov. John Hickenlooper’s interview with Bloomberg TV.
Contact Tamara Chuang at tamara@coloradosun.com
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