Dive Brief:

• "There's no reason" to suspend tariffs on billions of dollars worth of imports from China, President Donald Trump said at a press briefing Wednesday. The comments came after 160 business and organizations wrote a letter to the president requesting the suspension of tariffs to "mitigate the economic harm from the spread of the coronavirus."
• The letter cited data from the Trade Partnership finding a suspension of tariffs on China under Section 301 and 232 would boost the economy by $75 billion, or 0.4% of GDP. Since the start of the trade war in February 2018, Americans have paid $53 billion in tariffs, according to Tariffs Hurt the Heartland.
• "I can’t imagine Americans asking for" a tariff suspension, Trump said. The U.S. did, however, grant temporary exemptions until Sept. 1, 2020 on several medical supplies imported from China, including sterile drapes, cold packs, disposable shoe covers, face and medical masks and gauze.

Dive Insight:

The focus of risk conversations in procurement has turned to COVID-19 as the outbreak is halting production and creating supply shortages, first in China and now around the world. Tariffs on billions of dollars worth of imports from China still exist and could compound a dire economic situation for many U.S. businesses.

Analysts expect GDP shrinkage or a recession due to the pandemic and resulting social distancing and business closures. JP Morgan estimated U.S. GDP will contract 4% this quarter and 14% in Q2, before rebounding and growing again in Q3 and Q4, according to a research note. Bank of America said a recession is already here. 

"Now more than ever it’s essential that we eliminate unnecessary drags on the American economy," Angela Hofmann, co-executive director of Farmers for Free Trade, said in a statement. "In a crisis [tariffs] only add fuel to the fire" as U.S. shippers — already struggling from reduced demand and a faltering economy — must continue paying import taxes ranging from 7.5% to 25% on a large majority of goods they import from China. 

The trade war instigated an effort to diversify supply bases outside of China for many U.S. importers, but American businesses still rely heavily on China for manufacturing, raw materials and finished goods. China topped 2019 imports, comprising 18% of total imports into the U.S, according to Census Bureau data.  

Tariffs also present risks to the U.S. medical supply chain during this critical time, according to analyses from economic think tanks. Medical equipment imports to the U.S. from China totaled $5.2 billion in 2019. The duties Trump imposed during his trade war raised costs for businesses utilizing imports, including hospitals and health service providers, the American Action Forum wrote. The forum estimated medical supply costs could rise by $400 million. 

The forum said tariff exemptions "will undoubtedly help the U.S. response to the coronavirus​" by eliminating additional costs on medical inputs or goods and increasing access to foreign supply of necessary products during the outbreak.

But the exemptions cover "only a handful of urgently needed products," wrote Chad P. Brown, senior fellow at the Peterson Institute for International Economics. 

Like most industry supply chains, "medical equipment cannot instantaneously sprout up at another plant in some other country," Brown wrote, which left many health purchasers with little choice but to continue importing from China and pay the tariffs.

As COVID-19 spreads in the U.S. and the need for medical equipment becomes urgent, domestic manufacturers, such as Ford and GM, are exploring the possibility of medical supply production as they pause production on automobiles, which would alleviate tariffs for many importers. 

Still, Brown noted bringing all medical equipment production to the U.S. isn't the solution, as the spreading pandemic could force American factories to shut down if workers become sick. "Importing medical products from diverse sources globally has huge benefits," he wrote.