In an escalating trade dispute with President Donald Trump, China on Wednesday proposed an additional round of tariffs on $50 billion worth of U.S. exports, a move that could affect Illinois businesses ranging from downstate soybean farmers to Chicago whiskey-makers and a host of other companies.
The move by China followed the Trump administration’s announcement Tuesday night of its own tariff proposal, which would be levied on 1,300 Chinese imports. Together, if implemented, the trade maneuvering by the two countries promises to drive up the prices many Americans pay for imported goods, while making it more difficult for some U.S. companies to sell their goods in China. In Illinois, growers of soybeans, the state’s largest agricultural export, would feel the pain most acutely.
It’s unclear when — or whether — the proposed tariffs might go into effect, but the mere threat of them sent the Dow Jones industrial average tumbling early in the day, before National Economic Council Director Larry Kudlow suggested the proposed tariffs on Chinese imports may not ultimately go into effect. He called the move “potentially” a negotiating ploy in an effort to get China to level the playing field for U.S. businesses.
China’s tariff proposal, which would apply to 106 U.S. products, marked the latest round of trade sparring between the two countries. Last month, Trump implemented tariffs on steel and aluminum imported from China, and last weekend, China responded by rolling out an initial round of tariffs on 128 U.S. products, including pork and fruit.
John Frisbie, president of the US-China Business Council, an industry group representing U.S. businesses that do business with China — including Illinois companies like Abbott Laboratories, Archer Daniels Midland and Caterpillar — cautioned against overreaction to the latest proposed tariffs. A negotiated solution could render them moot, Frisbie said.
Frisbie said there is a need to resolve the issue that started the trade spat — allegations of China’s theft of U.S. intellectual property — but that tariffs are not the way to do it.
“We are urging both governments to come up with solutions and avoid potential harm down the road to both economies, U.S. manufacturers, Chinese manufacturers,” he said. “Nobody wins in a trade war.”
Similar pleas rang out from various corners of industry Wednesday. Exports of American liquor and spirits to China have grown from $959,000 in 2001 to $12.8 million last year — including $8.9 million of whiskey, according to the Distilled Spirits Council, the industry trade group representing American spirits companies like Chicago-based Beam Suntory.
An additional tariff on American whiskey would almost certainly dampen that growth, the trade group said. Even smaller craft distilleries are concerned by that possibility.
“There isn’t anyone in American whiskey that’s not looking to China to grow. It’s where the people are. … A substantial tariff is going to decimate those plans,” said Paul Hletko, founder of Few Spirits, a craft distillery based in Evanston.
The proposed tariffs on Chinese imports could also affect a Chicago Transit Authority contract to replace about half the rail cars in the agency’s fleet — the biggest purchase in its history.
The CTA awarded the $1.3 billion contract two years ago to CRRC Sifang America, and a facility to make the rail cars is under construction in the city’s Hegewisch neighborhood on the Southeast Side. But certain parts for the rail cars, which are expected to be delivered starting at the end of 2019, will be made in China, and potentially subject to the tariff on goods entering the U.S.
In a statement, CTA spokesman Brian Steele said the agency is “looking into the possible impacts, if any, of the proposed tariffs on our current railcar contract.”
North suburban-based Abbott Laboratories made nearly 8 percent of its sales — more than $2 billion — in China last year, according to a filing with the U.S. Securities and Exchange Commission. An Abbott spokeswoman declined to comment.
Abbott’s largest exports to China include those having to do with its diagnostics business, established pharmaceuticals and nutritional products like infant formula, said Debbie Wang, a senior equity analyst for Morningstar.
“Because Abbott is reliant on emerging markets to a greater extent than most med-tech companies are, I would expect Abbott is probably a little more vulnerable to this type of thing,” Wang said. “I would imagine that Abbott, along with any other company that is exporting a fair amount of product over there, would be very worried about any possibility of (escalating tariffs).”
Many of the products Abbott sells in China, however, don’t come directly from the U.S. They’re manufactured elsewhere.
The conflict brewing between the U.S. and China represents an escalation of trade barriers not seen since the Great Depression, said Phil Levy, professor of strategy at Northwestern University’s Kellogg School of Management.
Trump has said he’s trying to bring more balance to America’s trade relationships, a move that could benefit U.S. businesses and spur job growth. The U.S. trade deficit, the difference between the value of what the country imports and what it exports, is at its highest level in almost a decade. The goods deficit with China hit a record $375.2 billion in 2017.
The timing of the back-and-forth between the two countries is especially perilous for farmers across the U.S. who have experienced declining net income for almost five years.
“It is really giving us a lot of angst over what happens going forward,” said Rich Guebert Jr., an Ellis Grove, Ill., soybean farmer who’s also president of the Illinois Farm Bureau.
Illinois was the largest soybean-producing-state last year with more than $3 billion in exports. China was the largest export market for those soybeans.
The U.S. is projected to export more than 2 billion bushels of soybeans this year — about 60 percent of which is expected to go to China, according to Todd Hubbs, an agriculture economist at the University of Illinois at Urbana-Champaign. Should China instead import more soybeans from countries like Brazil due to tariffs, American soybean farmers likely wouldn’t be able to make up the loss in expanded business with other countries.
Many farmers voted for Trump and have since lauded his tax reform and the rolling back of environmental regulations that they considered to be too restrictive.
Lucas Strom isn’t one of them. Strom grows corn and soybeans on about 600 acres on his 103-year-old family farm in Kane County. The prices are locked in for the soybeans he intends to plant later this month, but he’s more concerned about what happens if this trade dispute rages on indefinitely.
Like Trump often does, the farmer took to Twitter on Wednesday morning to voice his opinion. “For American farmers, I hope this trade war doesn’t last too long. I think duration is the biggest threat,” Strom wrote.
Chicago Tribune’s Ally Marotti, Lisa Schencker and Ese Olumhense and The Associated Press contributed.
sbomkamp@chicagotribune.com
Twitter @GregTrotterTrib
Twitter @SamWillTravel
RELATED
