Unless you live under a rock or North of Hwy 64, like me, I am sure that you have seen an article or heard a news report about the US/China trade war. Talk of new tariff’s on Chinese goods have been in and out of headlines since the initial tariff taxes of 10% on most goods were imposed last fall. But last week this trade war ramped up to the next level when trade talks stalled, and an additional 15% tariff tax was added to goods that were already carrying the initial 10% from 6 months ago.
Although there has been a great deal of “tariff talk” lately, some may not exactly understand what a tariff really is and how it will affect our industry. Everyone has their own opinion, mostly depending on their political affiliation. So, rather than quoting a bunch of headlines from CNN to Fox news, let’s just do a brief dissection of the meat of this trade war so you can form your own opinion!
Let’s start with….
WHAT IS A TARIFF? A tariff is a special fee that is charged to the corporation that imports certain products from other countries. Like Walmart for instance, when they order a whole bunch of Haier TV’s or that nasty frozen tilapia fish they sell; the products come into one of our 328 US ports of entry for inspection. Upon inspection Walmart will get charged a tariff or “duty” fee for the release of the goods. US and custom border agents collect the fees that go directly to the US Treasury. By the way; don’t eat that Chinese tilapia, it is like poison; but that is a story for another day…moving on.
ARE TARIFF FEES CHARGED ON ALL IMPORTS? 96% of all imported products are charged a tariff fee, with the average rate at 2%. Currently, China is the highest rate at 25%; bumping the Bahamas out of the top spot, with a current fee of 18.56%. Coincidently, the current duty fee to China are only about ½ the size of the 59% fees that were implemented back in the 30’s during the great depression.
WHY CHARGE TARIFF’S? Tariffs are charged for a couple reasons. The major reasons are to generate income for the government and to protect the US manufacturing industry. For instance, if there were no tariff fees on BMW, a new three series would cost about the same price as a Ford Focus…and that is just not right! This is not something that Ford wants or can financially handle. So, basically it puts the US on a more even playing field with other countries. In theory, it keeps US manufacturer successful, which keeps the US workforce gainfully employed.
HOW WILL THE TARIFF’S AFFECT US? Everyone has a different view on this, because a few things can happen. Product prices could go up-> retail and manufacturing facilities may look at temporary lay-offs to cut expenses…but on the flip side-> American made product sales could soar -> US manufacturing facilities may have to increase their workforce due to new orders?
On the energy side, China was one of our biggest exporters of propane. Since the start of these tariffs, way back in September 2018, China has completely slowed their orders and are now at a slow trickle. This has caused inventories to rise throughout the winter and I am sure we will see some big numbers this summer as usage throughout the Midwest declines. Typically, high inventories lead to lower pricing; unless the transportation services decide to take a bigger piece of the pie and raise their fees (supply and demand). I am not sure if these savings will ultimately make it to the consumer or not?
This may be an interesting summer. With this current trade situation and the expiration of OPEC’s production cuts, we may see some 1st in the energy sector. Buckle up folks, I think we are in for a fun ride!
Written by: Kim Leisner, Energy Sales Manager