An example: On Sept. 9, Trump triumphantly tweeted that “Ford has abruptly killed a plan to sell a Chinese-made small vehicle in the U.S. because of the prospect of higher U.S. Tariffs.” He added: “This is just the beginning. This car can now be BUILT IN THE U.S.A. and Ford will pay no tariffs!” But Ford later issued a statement saying “it would not be profitable to build the Focus Active in the U.S.,” given forecast yearly sales below 50,000. Analysts said Ford could build the hatchback in many other countries around the world.
Such corporate decisions could have long-term impact, far outlasting the trade war. “When anything like this happens, companies make investments that have a life of 20 or 30 years,” said Mauro Guillén, a political economist at Trump’s alma mater, the University of Pennsylvania’s Wharton School. Those decisions also could harden into long-term price rises. “If there are more barriers to trade, more and more companies are going to think twice about very complex value chains,” Guillén said. “At the end of day, companies cannot set up their supply chains in the most efficient way.”
Less efficiency in supply chains would mean higher-priced goods at the store down the line, which in turn hurts the poor and working class the most. That outcome could, in turn, exacerbate income inequality and possibly intensify the political backlash against globalization—thus, once again in an unforeseen way, turning the current trends into a vicious cycle. Another wrinkle is that just because many of the tariffs are aimed at the middle of the supply chain, it could take much longer for the pain to be felt by consumers. By the time higher prices at the store show up, it could be too late to arrest the reversal of free-trade norms or the onset of other crises.