Colorado braces for fallout from trade tariffs

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In a new campaign, the U.S. Chamber of Commerce is warning that the Trump administration’s escalation of trade tariffs is “the wrong approach, and it threatens to derail our nation’s recent economic resurgence.”

The U.S. Chamber released a state-by-state analysis of the potential impact of retaliatory tariffs from China, the European Union, Canada and Mexico, saying the “tariffs imposed by the United States are nothing more than a tax increase on American consumers and businesses.”

Released July 2, the analysis estimates $277 million of total Colorado exports are threatened by the new tariffs.

Colorado economists and trade experts agree the state’s producers and consumers will be hurt in the accelerating trade war. They say ripples from the tariffs may spread further — and be felt sooner — than many expect.

“I think you’ve got to look at the full spectrum to appreciate and understand what you’re giving up when you start these trade wars, and we’re really grateful the U.S. Chamber is highlighting that this isn’t just true for Colorado, it’s true [across] the country,” said Kelly Brough, CEO of the Denver Metro Chamber of Commerce. “In Colorado, our two biggest trade partners are Canada and Mexico. So it’s really important that we maintain good relationships with them, and we explore how we can make sure trade continues to work for us. But I think what we’re getting ourselves in is a strategy that’s going to hurt Coloradans in the long run.”

Brough said Colorado producers aren’t the only ones who will suffer; consumers will also feel the pinch through higher prices.

“The price of everything is going to go up to pay for those tariffs — so as consumers, those things that we’re bringing in to our economy are also now going to be more expensive for us as well,” she said.

Tom Binnings, senior partner at Summit Economics, said trade barriers always increase the cost to consumers.

“Pretty much across the board, everything we’re imposing a tariff on will have a higher cost,” he said. “The steel and aluminum, we tend to think, ‘Well, we don’t use a lot of steel and aluminum’ — but it’s incorporated into so many products that it does have an impact. So we expect to see that.”

Binnings said in the solar energy industry, tariffs might protect Colorado’s production of panels and wind turbines in the long term, but in the short term they could “stymie … and substantially impact” consumers and the cost-effectiveness of installation.

Brough said Colorado jobs will also be impacted.

“What’s very clear is that trade is part of why our economy is doing so well in Colorado,” she said. “We have about three-quarters of a million jobs that depend on trade for their success. Our economic growth and opportunity certainly is related to our ability to trade. When somebody else pays for a product we produce here, those are really good jobs for Coloradans.”

Brough noted that trade had helped grow jobs in Colorado’s agriculture, manufacturing and beverage industries, as well as in medical devices — “and you really, really want to hold those jobs.”

When the United States tells other economies there’s going to be a penalty on the products they send here, she said, “in turn what we’re getting back is, ‘We’re going to hit you in the same way.’ And that’s going to hurt our jobs and our ability to hold those jobs, if we can’t make money on the exports like we have in the past.”

Colorado Business Roundtable is “paying close attention” to the impact imposed tariffs will have on Colorado companies’ ability to compete globally, president Jeff Wasden said.   

“The threat of a trade war with retaliatory tariffs, at a time when the U.S. economy is showing signs of recovery, is troublesome and may cause harm to the U.S. economy,” he said. “In addition to passing increased costs on to Colorado families, the threat to Colorado businesses could have a negative $277 million dollar impact across our business sector. Farmers, manufacturers, health care products and technology companies will be adversely impacted.

“The Business Roundtable believes the [Trump] Administration should focus on the long-term objective of protecting U.S. workers and businesses,” Wasden added.

In an email, Tammy Fields, chief economic development officer at the Colorado Springs Chamber & EDC, limited her comments to the Pikes Peak region specifically, saying while it has “some companies that use larger amounts of steel and metal to manufacture their products, so I’m sure there will be some impact to those manufacturers … the overall effects to our region will not be as dramatic as may be seen in other parts of the country where there are very large manufacturers of vehicles, etc.”

Fields also noted the Pikes Peak region is not a heavy agricultural producer — which is one of the industries expected to be heavily impacted — and does not export a large amount of consumer products internationally. And within the region’s emerging whiskey and microbrewery industries, she said, there’s a larger focus on distribution opportunities stateside than on international exports.

However, Fields said, “We have seen a key project we were courting in 2017 totally go away due to the tariffs that have been implemented. Not only did Colorado Springs lose the opportunity for the project, but the U.S. lost the opportunity for the project, which represented a significant number of manufacturing jobs and investment.

“I recently attended a large foreign direct investment conference in Washington, D.C., where I noticed a definite decline in foreign company attendees from previous years,” she added. “I believe that the tariffs are [having] and will continue to have an impact on foreign companies building new plants in the U.S. I think there will be some companies that will decide not to build plants in the U.S. due to how the tariffs impact their overall bottom line; on the other hand, I also think that we will see some companies that will move forward with building new plants in the U.S. — particularly those that can get their needed raw materials in the U.S., keeping in mind that if they make it and sell it in the U.S. they won’t pay a tariff.”

Karen Gerwitz, president and CEO at World Trade Center Denver, said Colorado’s agricultural community is responding with “mostly alarm … about how it’s going to impact their already low margins, especially on the soybean front and meat fronts.

“It’s going to impact our farming and ranching community substantially,” she said.

Gerwitz added that others among Colorado’s top exports — niche manufactured medical devices and oil and gas equipment — will be hurt by the tariffs in other ways.

“They can’t actually source certain products [like certain steel and aluminum components] from the U.S., so they have to buy those from overseas and they’re having now to pay more, meaning it’s cutting into their bottom line,” she said. “It’s hurting the small, the mid-size manufacturers,” she said, “and of course it hurts consumers.”

Binnings said “the hurt — on the consumer — can happen pretty quickly” after tariffs are imposed, adding, “Prices can rise as soon as the tariff is imposed, and it either restricts supply to American providers, or American consumers are paying, essentially, the tariff.”

Binnings said his estimate of the likely economic impact of tariffs on Colorado would be “much more aggressive than what the U.S. Chamber [is estimating] — but the U.S. Chamber is targeting kind of the first round of the trade war, and their total is $277 million.”

Looking at the makeup of exports from Colorado, he said, “if this thing becomes a full-blown trade war, I would say as much as half of Colorado exports are at some level of risk.

“I think, in the short term, it’s going to be more of the agricultural-related products and aluminum, steel, [that’s] where the first round of retaliation comes from. If it becomes greater, then of course it just spreads into other products — especially some of the high-tech manufacturing that goes on in Colorado.”

To the extent that other nations are “doing on their end what Trump advocates” by creating trade barriers to benefit their own economies, Binnings said, “in a sense … his policy of saying, ‘Time out — what about the American economy, and how does everything play out?’ is an appropriate pause and reset — and time for some renegotiation.

“If the World Trade Organization isn’t doing it well enough, or if it’s too easy for everybody to sort of stick with the status quo, then sometimes you have to say ‘OK, we’re questioning the whole system of trade. Now let’s talk about how we go forward and what the ground rules are going to be,’” he said. “And those ground rules, it’s both sides. So China would like more access to be able to invest in the U.S. — are we going to allow them to do that? We would like more unfettered ability to invest in China — are they going let us do that? Having the broad discussion and escalating and creating somewhat of a mini-crisis is appropriate … as long as it’s being done to bring people to the table and to talk about what needs to happen.

“Certainly, in terms of international relations, it would be more appropriate if we could do it … not going around being disrespectful,” he added. “But sometimes you have to really assert yourself.”

Note: This is the first in a two-part series on trade tariffs.

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