Businesses plead with Trump as trade war pain sets in

American businesses say President TrumpDonald John TrumpMarine unit in Florida reportedly pushing to hold annual ball at Trump property Giuliani clashes with CNN's Cuomo, calls him a 'sellout' and the 'enemy' Giuliani says 'of course' he asked Ukraine to look into Biden seconds after denying it MORE’s year-plus trade war with China is starting to inflict serious financial damage.

What began as a worrisome situation in 2018 has now become an economic reality for many U.S. companies. And the situation is not expected to improve anytime soon.

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“Since the trade war started well over a year ago, the impact has been gradual,” said Association of Equipment Manufacturers Senior Vice President Kip Eideberg. “We are now starting to see the actual impact.”

The trade war has reached new heights in recent weeks as China announced retaliatory tariffs on U.S. goods and Trump threatened to increase the level of current and scheduled tariffs.

Businesses that initially thought they could weather a minor financial hit during a quick trade spat have since realized they are likely facing a protracted trade war between the world’s two largest economies.

“When you deal with the Chinese, their sense of time is different than the Americans. They’re playing the long game,” said Raimundo Diaz, head of the Americas at TMF Group, a firm that facilitates cross-border business.

The sheer extent of the tariffs is also taking its toll on U.S. companies.

Since January 2018, Trump has imposed tariffs on steel and aluminum, solar panels and washing machines, and $250 billion worth of Chinese imports. On Sunday, he is scheduled to add a 15 percent tariff to another $112 billion, followed by $160 billion in mid-December.

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In between, on Oct. 1, he’s set to raise the tariff rate on the original $250 billion to 30 percent, up from 25 percent.

“We are reaching a tipping point in this trade war where American consumers, workers, farmers and businesses of all sizes will start to feel a greater impact,” said Bethany Aronhalt, a spokeswoman for the National Retail Federation. “Imagine what small businesses facing a 30 percent tax on Oct. 1 are dealing with right now. Small companies can’t absorb that cost. Some may even be forced to close their doors.”

And while the likelihood of those tariff increases will add to the anxiety of U.S. businesses, industry leaders say the uncertainty can also cause damage.

“This uncertainty the China trade war has brought to our industry is stifling U.S. growth and halting capital investment in jobs, infrastructure, technologies, and more competitive pricing for our customers,” a group of 200 footwear companies, including Adidas and Foot Locker, wrote in a Wednesday letter to Trump.

When businesses can’t accurately predict their supply chain costs, as is the case for many firms caught up in the trade war crossfire, they tend to refrain from making big financial decisions.

“The uncertainty is a broader impact that hits the industry as a whole. It is really hard for U.S. manufacturers to make investments in new plants, new facilities, and new jobs,” Eideberg said. “At some point those decisions about deferred investments and deferred hires will turn into decisions about layoffs.”

Those problems, taken together, have lowered economists’ expectations for U.S. growth in the coming months.

“In our view, these recent events have shaken investor confidence further, and incrementally worsened the global business and economic outlook,” S&P Global said in an analysis. “The latest retaliations in the U.S.-China trade dispute seem to dash any chance of a near-term resolution.”

On Thursday, yields on 30-year bonds hit a record low, a sign that investors were pessimistic about near-term economic conditions. Instead, they are clamoring to move their money into the safe, long-term bond.

Another warning sign from the bond market, in which short-term bond yields are higher than long-term ones, has flashed frequently in recent weeks. That financial shift, known as an inverted yield curve, is often followed by a recession anywhere from 12 to 18 months later.

Trump has defended his trade policies, arguing that China and other countries have been taking advantage of the U.S. for years. He has also criticized the trade gap between the world's two largest economies.

"What they've done is outrageous — that presidents and administrations allowed them to get away with taking hundreds of billions of dollars out every year, putting it into China," Trump said at the Group of Seven (G-7) summit over the weekend in France.

He has maintained that China is bearing the brunt of the trade war, and that the uncertainty it causes is a necessary casualty for extracting a deal with China that's favorable to the U.S.
 
"Sorry, it's the way I negotiate,” he said at the G-7 summit.
 
But the prolonged trade war threatens to weaken Trump’s reelection prospects, particularly as the president has often pointed to economic conditions as a measure of success.

A Quinnipiac University poll released Wednesday found that for the first time under Trump’s presidency, more voters said the economy was worsening.

The survey found that 37 percent of voters said the economy was getting worse, while 31 percent said it was improving.

And while business groups have urged Trump to reconsider the trade standoff, they’re also moving on to Plan B: preparing for the worst.

“We’ve been on this tariff roller coaster for some time. We’ve been asking repeatedly to get off, but we’re belted in to the long term,” said Eideberg. “When will this end?”