(Bloomberg Opinion) -- Demand for manufacturers’ products is cratering as the coronavirus crisis brings the U.S. and European economies to a screeching halt. A growing number of plants can’t make goods even if they wanted to as an uptick in ill workers forces the greatest factory shutdown since World War II. Bailout packages worth tens of billions of dollars are being pulled together for the hardest-hit sectors. Meanwhile, calls are rising for industrial companies to do their patriotic duty and repurpose operable facilities for the production of vital health-care equipment. So why, amidst all of that, are tariffs still in place on many industrial products imported from China?
While the U.S. canceled or partially rescinded tariffs on $300 billion of mostly consumer-facing products as part of a trade deal formally inked in January, 25% levies still apply to the $250 billion of largely industrial Chinese imports that were first in the trade-war firing line. Taxes also remain in place for foreign aluminum and steel. Asked on Wednesday if the White House would look to roll back tariffs in light of the coronavirus outbreak, President Donald Trump rebuffed the idea, repeating his oft-stated and still wrong claim that China is the one footing the bill. It’s not; U.S. manufacturers are.
The tariffs were initially an inconvenience that kneecapped growth for industrial companies at a time when the general economy was doing well. Nowadays, they are an unnecessary tax on manufacturers that in some cases are fighting for their survival and in others are trying to figure out how to do everything they can to help the country’s war against the coronavirus.
Trump this week invoked the Defense Production Act, a 1950s-era piece of legislation that gives the government more control to direct U.S. industry and could be used in this case to rapidly scale the country’s supply of key medical equipment and protective gear. While Trump has indicated a reticence to aggressively use the powers the act confers, it should be looked at as a potential source of fiscal stimulus in addition to a battle plan. Rather than handing aerospace manufacturers a blank check to make up for their idled factories, the government could give those companies a contract to make masks, ventilators, gloves or goggles.
This works best if the government greases the path for repurposing facilities in other ways. Already, the Trump administration has waived regulations to allow N95 respirators produced for industrial uses to be used by healthcare workers. This increases availability by up to 75% to 90%, coronavirus response coordinator Deborah Birx said in a press conference on Thursday. Similarly, Vice President Mike Pence said the government had identified tens of thousands of ventilators that could be converted to treat patients. Another relatively easy — and most importantly, cheap — way to speed production and support the economy is to eliminate the tariffs.
The Trump administration only recently granted tariff relief to makers of certain health-care products and protective gear that were previously denied exemptions. It remains a half-measure, with tariffs still applying to other medical devices and components, according to the Wall Street Journal. Separately, Chinese manufacturers are barred from fulfilling the federal government’s request for 500 million N95 respirator masks, according to the grant application, despite expectations that it will take 18 months for the order to be fully filled. This protectionist attitude toward health-care equipment is insane and should stop now. We need all the help we can get.
But what of the tariffs on auto parts or the levies that still apply to steel and aluminum? General Motors Co. CEO Mary Barra offered to call back workers to the company’s idled plants to make ventilators, according to White House economic adviser Larry Kudlow. Tesla Inc. CEO Elon Musk has also made noises on Twitter about a willingness to help. Cash-strapped Ford Motor Co. isn’t offering to make ventilators yet, but it is offering up to six-month payment relief for recent buyers of new cars, even as it suspends its dividend. This is admirable and the reward for the auto industry shouldn’t be a continuation of the economic obstacle course of tariffs. Notably, carmakers aren’t even among those seeking bailouts this time around.
I wrote earlier about the need for companies to make some sacrifices if they want to participate in government bailouts, whether that’s chopping the dividend, curtailing executive pay or giving more protections and benefits to workers. But the White House is going to have to make some sacrifices to its agenda, too, if it wants to see the country through this.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.
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