A lot has been written and said about President Donald Trump’s proposed tariffs and China’s counter tariffs, but there is yet to be actual actions taken. The only effect thus far has been in commodity and stock market price volatility, where traders are trying to measure and predict any future impact. Industry and economies have been generally immune.
The tariff pronouncements are the early stages of a seeming tariff dispute between the United States and some of its trading partners. The products at the center of the disputes are steel and aluminum, and President Trump, under his authority as chief executive, has proposed 25 percent and 10 percent tariffs on each, respectively. But whether these are enacted remains a question.
“The tariff war is in a very early stage,” says Daniel Flanagan, founder and head of The Flanagan Consulting Group and board member of Stanford University’s Global Projects Center, “and I am not aware of any market impact yet. Only 2.2 percent of U.S. steel imports come from China for that matter.”
At the moment, the dueling tariffs between the United States and China, which has proposed its own set of tariffs on U.S. imported goods, are posturing and negotiating points. Trying to predict the tariffs’ effects, if and when they are enacted, is a guessing game. What is known is that if tariffs are enacted they could affect the costs of some imports and exports, including steel, which would affect the cost of infrastructure projects as well as the traffic at ports that handle these goods.
According Fitch Ratings, however, in the short term the effects will be muted in the transportation sectors. The ratings agency notes renegotiated trade agreements and higher tariffs will probably affect import/export volumes and some U.S. ports will likely feel the effects more strongly.
“Ports that handle large volumes of steel and aluminum are likely to bear the initial brunt of new tariff policy, though the full effect of these changes will take years to fully materialize,” says Emma Griffith, senior director with Fitch.
But trade routes are flexible and if the United States imposes tariffs, exporters could ship to Mexico and/or Canada first and then route goods from these NAFTA partners to the United States and circumvent the new rules.
“There could be some short-term impact, but in the longer term I don’t think these tariffs will stick or if they do, they can be mostly avoided,” says Michael Likosky, head of infrastructure with 32 Advisors. “Years ago, America erected tariff walls to keep Japanese semiconductors out of here through the Plaza Accords. Japan simply rerouted its semiconductors through Malaysia adding substantial value there. The world trade system incentivizes this type of solution. No tariff mountain is high enough; products will find a way.”
Whether or not the United States should impose tariffs is secondary to what their effects could be. At the core of the issue is the price of imported materials and those costs can affect U.S. business, including infrastructure projects, in a variety of ways.
“You can agree or disagree over the tariffs on principal,” says Likosky. “But it is a mistake to think these are not serious steps with real objectives. At this point, President Trump is testing the ability of countries and leaders to work towards a deal. The world trade system was set up after the Second World War so that we would come together with commerce and fight with weapons such as tariffs. The real risk though is that things get out of control.”
According to a report by The New York Times, meanwhile, the U.S. Government Accountability Office plans to launch a study to learn why infrastructure projects in the United States, and in particular New York, cost much more than they do in other countries. The Times reports, “Auditors plan to examine contracting policies, station design, project routing, regulatory barriers and other elements that drive cost, comparing practices in different cities in the United States and abroad.”
Another aspect of the cost of infrastructure projects in the United States is their permitting and environmental review process, something that President Trump’s infrastructure plan has addressed in a policy aimed at reducing the time of these reviews by six to eight years.
For all the tough talk between the United States and China, the question of whether or not tariffs are enacted depends on how trade and other negotiations unfold in the coming months.
