Economic Perspectives - 11/27/24

Last week's Perspectives section examined potential exposure to the US and its states if new or higher tariffs are imposed on products imported into the US. A country that has tariffs imposed on the products it exports to the US (imports for the US) may retaliate by imposing tariffs on products imported by their businesses from the US (exports for the US). Today's Perspectives section examines the exposure for the US and its states to the other side of tariffs: exports.

If countries have new or higher tariffs assessed against the products they export to the US (US imports), they may institute retaliatory tariffs on products the US exports to their country. This could hurt the sales of US exporters. Lower exports mean lower US GDP growth.

• Canada and Mexico account for 33% of total exports.

• The top three US export products make up 40.9% of total exports.

• Texas is the leading state for exports as exports from Texas account for 22.1% of total US exports.

Remember that the threat of tariffs is not the same as the actual implementation of tariffs. US exporters should develop a game plan for the risk of tariffs being imposed so that they are able to respond objectively if threats become reality.

The data comes from the US International Trade Agency and is as of 9/30/24.

 I will focus on five topics related to US exports.

• Top twenty countries for US exports.

• Top ten products exported by the US.

• Top five products exported to the top twenty US export countries.

• Top ten states, plus Oregon and Idaho, for US exports.

• Number one exported product by the top ten, plus Oregon and Idaho, export states.

• The threat of US tariffs has been the hot topic of conversation since the elections.
  • Just this week, President-elect Trump announced his intention to impose 25% tariffs on all Canadian and Mexican imports and an additional 10% tariff on Chinese imports.

• What has not received nearly as much press or discussion is the threat to US exporters if countries that have new or higher US tariffs imposed on them choose to retaliate with tariffs on US products being imported into their country.

• Remember that export sales add to US GDP growth.

  • Any loss in export sales due to countries shifting their purchases away from US products will hurt GDP growth.

  • The threat for a US exporter is if their foreign customer can find a new supplier that does not impose tariffs. A loss of business is effectively a 100% tax.

  • The risk for US exporters is that other countries strategically target tariffs on US products that have competing choices.

  • That would allow their businesses to shift their supply chain away from the US.

• Canada, Mexico and China are the major US trading countries for US exporters.

  • They account for 33% of total US exports.

• The US has concentration risk for its exports as the top three export products comprise 40.9% of total US exports.

  • Transportation Equipment

  • Chemicals

  • Computer & Electronics

• A trade war (i.e. dueling tariffs) creates the threat of slowing global economic growth.

  • Tariffs are a tax on any business (globally) that buys imported products that have tariffs assessed against them. The difference with a tariff tax compared to other taxes (like an income tax) is that businesses can directly tie the tariff to a product when identifying and increasing the price of a product. 

  • If businesses cannot find a new supplier and decide to pass the cost of the tariff onto the price of their end product, then inflation will remain a global problem.

• The reality that we must keep in perspective is that the threat of tariffs by any country is far different than actual tariffs imposed.

  • All countries can use the threat of tariffs as a negotiating tool for other topics that they want addressed.

    • President-elect Trump's stated reason for planning new tariffs on Canada and Mexico is because he does not believe they have done enough to curb illegal immigration into the US. His stated reason for higher tariffs on China is because he believes they have not done enough to stop the flow of Fentanyl into the US.

  • Remember that tariffs are not a simple thing to implement or avoid so the process will not happen immediately.

    • It takes time to put the processes in place to identify items that will be tariffed, and to calculate and collect the tariffs.

    • It is also not a simple process to avoid tariffs. Changing supply chains takes time assuming that a buyer can even identify a new supplier.

• Tariffs on US exports have the same level of uncertainty as US plans to impose tariffs on imports.

  • Now is the time to develop a game plan if your business has exposure to potential tariffs.

  • This will allow you to respond objectively once the details on actual tariffs imposed become known.