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home : most recent : manufacturing August 21, 2018


7/14/2018 6:16:00 PM
As tariffs take effect, Southern Indiana faces economic pain

Danielle Grady, News and Tribune

SOUTHERN INDIANA — Before the United States issued tariffs on $34 billion in Chinese goods and China responded with $34 billion of their own in July, a Ball State University economist published a study that read like a warning: If the taxes on foreign goods were issued, jobs would drop by the thousands in Indiana and total sales would decrease by the millions.

Now, those threatening numbers are reality.

The study by Michael Hicks, the director of Ball State’s Center for Business and Economic Research, conservatively estimates that Indiana will lose around 6,000 jobs by the end of this year, a number that could climb to 14,000 in 2019 before declining to just under 11,000 in 2025. At the same time, the state’s GDP might drop by $668 million in 2019 to $560 million by 2025. 

The tariffs will disproportionately affect Indiana’s steel, automobile and farming industries. In Southern Indiana, steel tariffs, which have also been imposed by the European Union, Canada and Mexico in response to those enacted by the United States earlier this year, will probably have the most effect, Hicks said.

As a whole, Indiana employs around 22 percent of the country’s steel workers. In Clark and Floyd counties, numerous companies use steel, including almost half the 27 that live in the Port of Indiana-Jeffersonville. Businesses that sell steel products are also seeing the effects of the tariffs, but mostly in prices going up for their consumers.

Hicks said the job losses won't necessarily present themselves as layoffs. Employers could simply decide to not to hire new employees when workers leave. Most people in Southern Indiana probably aren’t feeling anything yet, he said.

“If you live in the Louisville suburbs and you don’t need to have a new washer and dryer (which prices are going up because of this aluminum and steel), if you don’t need a new roof, if you’re not buying a new car this year, if you’re working in a sector that doesn’t deal with this? No big deal, doesn’t hurt you. But eventually, it will catch up to you.”

Hicks says this because the United States has proposed another $200 billion in tariffs on goods from China. This is a move that Hicks fears could throw the country into a recession — and soon. He says that one could start within the first six months of 2019.

TARIFF TIMELINE

The United States started lobbing tariffs at the behest of President Donald Trump’s administration. The first shots in the blooming trade war were made at the beginning of the year: the U.S. enacted taxes on imported solar panels and washing machines inspired by a $336 billion trade deficit with China. The Asian country currently imports fewer goods from the United States than America does from China.

Those were followed up with March tariffs on steel (25 percent) and aluminum (10 percent) coming into the U.S. from most countries, which Trump said he imposed in response to national security concerns. He feared that the country wouldn’t be able to manufacture its own steel if other nations cut off the United Sates. Steel production in the country has declined dramatically over the past few decades, mostly due to automation, the recycling of scrap metal and a decline in tubing orders.

Other countries responded with their own taxes. Canada imposed tariffs on $12.6 billion worth of American goods, Mexico on $3 billion and the European Union on $3.2 billion. Their list of affected products ranged from whiskey to motorcycles.

The Trump administration turned its attention once again to China in April after the Asian country issued tariffs on $2.4 billion in U.S. exports. Trump responded with a list of his own 25 percent tariffs on 1,300 goods, which was met by another list from China.

At the beginning of the month, updated lists of American and Chinese tariffs went into effect.

U.S. tariffs focused on Chinese industrial goods while China targeted Trump’s voter base by imposing theirs on agricultural products, including soybeans.

Now, the United States is threatening more tariffs on Chinese goods.

LOCAL PAIN

In April, the News and Tribune talked to Frank Atkins, the president of Cylicron, a steel company in Jeffersonville. At that point, his business was already seeing an effect from the tariffs as higher prices reduced steel deliveries. Atkins feared that his customers would cut down on orders, which could potentially result in layoffs — even though Atkins ultimately approved of the reason for Trump’s tariffs.

Today, it isn’t just businesses with steel in the name that are feeling an impact.

As the manager of Reese Wholesale in Sellersburg, Mike Colpetzer sells building accessories, such as roof edging, that are made of steel and aluminum to contractors. Since talk of tariffs began, he has seen prices climb for those products by 15 to 20 percent. The increase doesn’t affect him as much as it does the end consumer.

Chase Murphy can back that up. Murphy is the owner of Murphy Homes in Floyds Knobs, and he said that over the past three months, the price of his supplies has jumped by 20 percent. Now, a home he would normally sell for $180,000 costs $200,000. That worries him.

“Everything is coming up so fast, we’re having to raise the prices so dramatically that my main concern is we’re starting to get houses unfavorable for the public,” he said.

But Murphy’s profit margins are so tight that he can’t avoid raising the price of his homes.

Tariffs are even threatening aspects of Murphy’s business. Because prices have increased so quickly, he fears that appraisals won’t be able to keep up, as the comparisons they use are of homes sold before the tariffs.

In Southern Indiana, farming isn’t as important to the local economy as it is in other parts of the state, Hicks said, but those in the industry that do live in the area are concerned about tariffs, too.

Terry Vissing owns land in Marysville, where he harvests corn and soybeans for a living. He estimates that 80 to 90 percent of his soybeans are shipped overseas, many of them to China. 

Indiana farmers will likely see soybean prices lower by 5 percent this year, according to agriculture economist Chris Hurt, who was quoted in a CNHI article. Vissing, a habitual saver, will likely survive (even though he’s close to breaking even this year as is). But newer or poorer farmers might not.

“We’re not only feeding the United States, we’re feeding the world, and we want to. We enjoy doing that,” Vissing said. “In turn, I’m not against tariffs, but there are going to be a lot of industries that are initially hurt.”

Murphy doesn’t disapprove of tariffs, either. He believes that if they succeed in increasing American manufacturing, they’re worth it.

“I know it’s hard for people to see that,” he said. “But I truly feel that it’s better investing long-term. It’s just that right now, it hurts. It’s hurting bad.”

Still, Murphy isn’t sure if tariffs will help. Hicks would say that they won’t.

FACT, NOT THEORY

The vast majority of economists, right-leaning to left-, believe that trade is a good thing, said Hicks.

“Economists are about as united on this issue as medical researchers on the role of cigarettes in causing cancer,” he continued.

Hicks doesn’t think tariffs will result in more American-made goods. Trade makes a country better at making things, he said. Through it, they find what they’re good at producing.

In 2015, Hicks released a study that found that 88 percent of the country’s lost manufacturing jobs were from automation, not trade.

A vendetta against trade is something of a recent development, according to Hicks. In the 1950s, people still remembered the fallout from the Smoot-Hawley Act, when tariffs from the United States spurred a trade war, reduced global trade, and contributed to the Great Depression.

“This isn’t theory,” Hicks said about the benefits of trade. “This is fact.”

Related Stories:
• Hoosier farmers starting to feel effects of trade war with China
• Trump tariffs affecting businesses in Madison County
• EDITORIAL: $12 billion helps, but doesn't fix trade issue

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