Writing an economic forecasting piece is never easy. After all, John Kenneth Galbraith said there are only two kinds of forecasters—those that don’t know and those that don’t know they don’t know. Predictions are tough, as there are always zigs when one is expecting zags, and the data changes constantly. That said, there has rarely been a period like the one we are experiencing now.

Daily changes

Tariffs are imposed in the morning and abandoned in the afternoon. One day a trading partner is a friend, the next day a foe. Does anybody really have a clue what is going on, or is this all pure chaos? Electrical contractors and their clients get caught in this dilemma. 

It reminds me of the old African proverb about two elephants fighting. It is the mice living underfoot that suffer. In other words, vulnerable people are often hurt by conflicts between powerful entities. 

Much of the work done by electrical contractors is dependent on the decisions of others, and one is left trying to puzzle out what their response will be.

Out in the open

Is there a logic to the policies pursued or is this just the caprices of men? In truth, this kind of tariff negotiation is common and has been employed for centuries. The difference now is that we are seeing every move and adjustment as it happens. This used to be the somewhat hidden world of the diplomat—discussions in private until a final position is staked out. 

Tariffs are used to protect domestic business from imports, but that is not their primary function. If a nation wants an action taken by another, there will need to be some kind of incentive—a reward or punishment, and often both. This kind of open tariff negotiation has taken place several times under Trump—to some degree during his first term but particularly in the first few months of his second.

Back and forth

Mexico and Canada were to be subject to a 25% tariff but won a temporary stay for committing to a more aggressive stance on immigration. While those tariffs eventually did go into place as of mid-March, further temporary exemptions were made for some imports. 

Trump also granted a one-month exemption on the tariffs for U.S. car manufacturers after the “Big 3” (Ford, General Motors and Stellantis) protested, and promises were made to expand imports from the United States.

In response to what many news outlets are calling a trade war, Ontario threatened a 25% surcharge on the energy it sends to three U.S. states. Trump retaliated by threatening to double the 25% tariff on steel and aluminum from Canada, bringing it up to 50%. The Canadians backed off, and the administration went ahead with the original 25% tariffs. 

What do we do?

Where does this leave electrical contractors? The bad news is that many construction projects are now stalled, as companies do not have a clue what happens next. The good news is that these projects have not been canceled. 

The hope is that this economic conflict calms down and business can start to settle into a pattern. The main stumbling block for contractors is the uncertainty. They can adapt as needed to supply chain issues (as they did during the COVID-19 pandemic), but they need to know the rules. 

The best estimates hold that the tariffs will be lifted when there is a clear U.S. interest at stake. The auto sector is crucial and  demanded concessions from the administration, so it got them. The Canadian threat over energy, however, was somewhat of a bluff and a bit overblown, which can happen in these situations.

In future negotiations, look for the party that has leverage. China depends on the U.S. market, but the United States also needs a great deal from China, and that gives both sides leverage. The Trump administration’s goal is to blunt U.S. dependence on China. That means a stricter approach may be more useful than that same approach with nations better seen as allies.

For the most up-to-date information on U.S. tariffs and recommendations for electrical contractors, visit NECA Regulatory Alerts here.

sveta / stokck.adobe.com