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Focus on markets leaves tariffs in limbo

For businesses hit by U.S.-China trade war, ‘phase two’ deal seems far away by RACHEL SIEGEL THE WASHINGTON POST | March 18, 2020 at 2:19 a.m.

Jay Foreman laid off a dozen workers late last year as his company, Basic Fun! Toys, stared down a round of China tariffs that were supposed to take effect in mid-December.

Foreman, of Boca Raton, Fla., dodged those levies when President Donald Trump announced a "phase one" agreement with Beijing. But Foreman stayed on guard, knowing that any rupture in the trade deal -- or in the broader economy -- could trigger a sudden blow.

Then came coronavirus. At first, Foreman worried about a supply chain backlog as Chinese factories ground to a halt. Then, once manufacturing started coming back online, the U.S. economy went into free fall, and Foreman isn't sure whether his customers will keep their orders. A week and a half ago, he laid off 18 people.

Given the outbreak's shock factor, inconsistent initial government response and economic calamity, Foreman summed up his situation bluntly: "This is like 9/11, [Hurricane] Katrina and the financial crisis all condensed into one."

[CORONAVIRUS: Click here for our complete coverage » arkansasonline.com/coronavirus]

In a matter of weeks, the pandemic has sent global markets into a nose dive, spurred hundreds of layoffs and pushed the U.S. economy toward recession. From entire industries to small businesses, companies that planned to hire new employees this year or invest in updated equipment are backing off, holding onto hope that the economy will turn around once the outbreak is contained.

That may not come soon enough for businesses already hurting under the trade war, which spurred billions of dollars in retaliatory tariffs from the United States and China alike. In mid-January, Trump signed a partial deal that he said would reset an off-balance economic relationship.

But that agreement left a slew of unresolved trade issues still on the table. And many American companies saw their tariff burdens unchanged.

Even before coronavirus, experts were skeptical that both countries could follow through on their "phase one" commitments. Now with the world scrambling to counter a public health and economic nightmare, attention has shifted far away from "phase two," experts say, leaving businesses in extended limbo.

"It's really hard to see how they would have the bandwidth," said economist Mary Lovely of Syracuse University and the Peterson Institute for International Economics.

On future talks with China, "ultimately the question is, does the president have the political incentive to push this before the election?" Lovely added. "And I think the answer to that is pretty clearly 'no.'"

Multiple administration officials said this month that talks about a second China agreement have all but evaporated. Rhetoric about China from Trump and other White House officials has also hardened, complicating the prospects of a future agreement and eliciting a backlash from Beijing.

Initially, Trump lavished praise on China's response to the outbreak. In early February, Trump said Chinese President Xi Jinping's response to the virus was "strong, sharp, and powerfully focused" and predicted it would lead to a "very successful" result.

But as it became clear that China failed to contain the spread, Trump and other officials started blaming the outbreak on failures of Chinese leadership, particularly that of China's government, to accurately report how many people were infected. That issue has also raised questions about the trustworthiness of China's commitments under the "phase one" agreement.

The Office of the United States Trade Representative did not respond to requests for comment. The White House last week referred to Trump's Oval Office address March 11. During that speech, Trump announced sharp travel restrictions to the United States from Europe for 30 days, setting off confusion over whether the ban applied to trade and cargo.

"Because of the economic policies that we have put into place over the last three years, we have the greatest economy anywhere in the world, by far," Trump said during his address.

That relief hasn't reached Tiffany Zarfas Williams, owner of the Luggage Shop of Lubbock in Texas, who got no help from the trade deal. Williams said many luggage manufacturers are trying to source products out of Vietnam and India because of the trade war. But Williams worries that the quality of the products will slip. Raising prices to balance out the cost of the tariffs seems completely off the table now.

Sales at her shop are already down 50 percent compared to last year. Williams joked that if she sold cleaning products or hand sanitizer, she'd be turning away customers.

This time of year, shoppers would normally be packing bags for spring break. Williams wonders who will be buying luggage anytime soon.

Her company used to have five employees. One recently left, and Williams said she isn't going to fill that empty slot. She was looking forward to replacing her shop's computer system. Now that's on hold.

"How can things change so quickly?" Williams said. "It definitely is a double whammy when you put this on top of the tariffs."

Information for this article was contributed by Jeff Stein of The Washington Post.

Business on 03/18/2020

Print Headline: Focus on markets leaves tariffs in limbo

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