Taxing all Chinese imports would be bad for the companies that just pledged loyalty to US workers

Preparing America for import substitution.
Preparing America for import substitution.
Image: Reuters/Kevin Lamarque
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Representatives from Walmart, General Motors, IBM, Microsoft, and some of the US’s biggest companies (and one of Taiwan’s) gathered at the White House yesterday (July 19) to sign a pledge to “America’s workers” about committing to training for new jobs.

Some might have regretted their photo-op participation had they known what Donald Trump had told CNBC a few hours earlier. In an interview that ran this morning, the US president said he was considering raising tariffs on $500 billion worth of Chinese-made goods. Virtually all of what the US imports from China, in other words.

If he follows through on that threat, Trump could hurt a slew of the companies that just inked his pledge:

  • Apple The world’s most valuable public company—which wasn’t at the event but signed the pledge—would be hit hard, as could its prime contract manufacturer in China, Foxconn (which did send a representative to Trump’s signing event, according to the pool report, though it was conspicuously unmentioned in the White House press release). Last year, Apple sold an estimated 61 million Chinese-made iPhones in the US. IBM and Microsoft also source heavily from China, according to a US government report (pdf) published in April.
  • Walmart The retail giant, which vowed to train a million Americans over the next five years, more than a quarter of the workers in Trump’s plan, could face the dilemma of passing on costs to customers or watching profits shrivel. Though some of the zillions of Chinese goods that stock its stores have already been hit with tariffs, a blanket trade barrier would hurt even more—particularly when it comes to apparel. Walmart operates on ultra-thin margins in selling cheap stuff to America.
  • General Motors US sales of autos made in China account for around 1% of GM’s sales, the Wall Street Journal (paywall) reports. In addition, Trump’s proposed tariffs would hit GM’s recent strategy of using Chinese factories, which are cheaper than North American ones, to make niche models for US showrooms, says the WSJ.

There’s also the risk that Trump’s threat will provoke more Chinese retaliation. China could hit back with tariffs of its own—this time, perhaps, on Boeing commercial aircraft, which it so far has declined to do (like Apple, Boeing signed the pledge but didn’t attend the event). One of the biggest risks is the Chinese government imposing onerous bureaucracy and regulation on US-owned companies’ China operations. Apple already dreads this possibility, as the New York Times (paywall) recently reported. Foxconn and GM might suffer too.

Chinese consumer boycotts are also a real risk. This is a worry for Apple, which has 41 stores in China and for GM, which sold more than 4 million autos in China in 2017, claiming 14% of the market. Walmart operates 439 stores in China.

Maybe the twin prongs of the White House media blitz weren’t a coincidence: Get companies to promise to train more US workers so that they can start making all the stuff Trump wants America to stop buying from China. (Though more likely it was an effort to flush the ongoing Russia controversy from the news cycle.)

Of course, training 3.7 million American workers won’t help cushion the blow to these multinationals’ Chinese sales and operations. Then again, it increasingly seems Trump’s original rationale for trade actions against China—gaining US companies freer access to China’s market—was but a means to his desired end: fulfilling his campaign promise to bring back American manufacturing jobs, regardless of who foots the cost.