U.S. President Donald Trump’s narrative on the trade war is that he is taking strong action against unfair trade practices by countries—China in particular—that harm American interests. In reality, he is waging war on corporate America.
Trump is attacking on three fronts: He is hurting many publicly listed U.S. companies by roiling financial markets and destabilizing their valuations. He is eroding corporate America’s competitiveness at home and abroad by making its inputs more expensive. Third, he is threatening to force U.S. companies to leave China, all in the name of making America great again, only to produce the opposite result.
U.S. companies with significant exposure to U.S.-China trade have already been hammered in financial markets. According to the Center for Economic and Policy Research, each escalation of the trade war hits not only the stock prices of listed companies (with exposure to U.S.-China trade), but also their bonds and the pricing of insuring against their default, arguably raising their cost of funding. As new tariffs are imposed on more imports, additional American companies are falling into this category.
Furthermore, new tariffs have fallen disproportionately on America’s intermediary goods imports, according to the Peterson Institute for International Economics. These are inputs needed by American companies to produce goods consumed domestically and exported. Even for U.S. companies with extensive domestic supply networks, such as General Motors and General Electric, the same research reveals that a high proportion of their domestic suppliers depend on imported inputs. Everything else being equal, U.S. products are less competitive in both the global and the domestic markets when their inputs are more expensive. It’s hard to imagine a more effective policy for weakening U.S. competitiveness.
Finally, Trump has threatened to force U.S. companies to leave China by, among other possible measures, invoking the International Emergency Economic Powers Act of 1977. This is no idle threat. Trump could also leverage the government’s massive procurement contracts to pressure U.S. companies to stop doing business with China if they want to do business with the U.S. government.
China, however, now imports almost as much as the U.S., and in a few years will surpass the U.S. to become the world’s largest importer. China’s consumer market, moreover, has been growing four times faster than America’s in recent years. Trump’s actions don’t just risk shutting U.S. companies out of this market—they seem aimed to do so. Trump once claimed a trade war would be “easy to win.” But with each increasingly drastic measure he takes, corporate America is made the loser. With a friend like Trump, corporate America needs no enemies.