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Trump tariffs, China trade war hurting US companies, increase prices

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President Donald
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  • President Donald Trump’s full-on trade war with China has
    dragged on for nearly four month,s and American businesses are
    starting to really feel the pain.
  • Surveys from Markit and the Federal Reserve showed increasing
    costs for businesses that are in some cases being passed on to
    consumers due to Trump’s tariffs.
  • Additionally, major companies like Tesla, 3M, Ford, and
    Harley-Davidson are feeling the burn and expect millions of
    dollars in costs from the tariffs.

As President Donald
Trump’s trade war
with
China drags on with no end in sight
, US businesses are
starting to take hits from the escalating tariff attacks.


Companies’ earlier worries
are starting to
translate into actual pain
as
new orders coming in from China
are faced with the higher

duties the Trump administration has imposed
.

Surveys from the Federal Reserve and market research firms
released Wednesday showed widespread worries about the tariffs,
while individual companies have started to tabulate the tens of
millions of dollars in new costs that they will incur from the
tariffs.

Surveys look messy

While previous months’ surveys exposed worries about soon-to-come
cost increases from the tariffs, new data seems to show that
businesses are now facing that reality.

The Federal Reserve’s Beige Book — a collection of perspectives
from the Fed’s 12 district banks — showed widespread concern with
the mounting trade war’s effects. The word “tariff” appeared
51 times in Wednesday’s edition of the Beige Book, up from 41 in
September’s version and 31 in July’s release.


trump xiGetty Images / Thomas
Peter-Pool

Concerns over the tariffs boiled down to a few issues:

  • First, businesses were concerned that
    goods coming into the US from other countries
    were more
    expensive.
  • Many of those goods were used in products sold by these
    American companies to consumers, so the increased import prices
    prompted a boost in costs for firms and an
    increase in prices for consumers
    .
  • Second, the retaliatory tariffs made it harder for businesses
    to sell goods to markets like China and Canada.
  • In turn, the build up in US supply for those goods subject to
    tariffs abroad — notably farm goods like pork and soybeans —
    caused prices to sink in the US and businesses to receive less
    for their products.

Here’s a few examples of those concerns from the Fed’s Beige Book
(emphasis added):

  • Boston Fed: “Also, three manufacturing firms
    faced higher input prices due to tariffs on Chinese goods and
    services that were not readily substitutable, and the
    firms expected to pass on (or had already passed on) to
    consumers at least some of the tariff burdens
    .”
  • Philadelphia Fed: “Other firms reported
    difficulty meeting the prices of foreign competitors who are
    not exposed to tariffs on the primary input commodities of
    their products.”
  • Cleveland Fed: “The majority of contacts
    attributed at least some of these increases to import tariffs.
    One trucking contact noted that prices for pallet jacks, tires,
    and packaging material were higher because of the tariffs.”
  • Chicago Fed: “Contacts reported a
    notable drop in Chinese purchases of US soybeans

    following an increase in Chinese tariffs.”
  • Dallas Fed: “Among manufacturers, roughly
    60 percent of contacts said the tariffs announced
    and/or implemented this year have resulted in increased input
    costs
    . The share was even higher among retailers, at
    70 percent.”

In addition to the Fed’s survey, Markit’s purchasing manager
index released Wednesday reported the largest jump in input cost
inflation since September 2013 due in large part to the tariff
costs. Chris Williamson, the chief market economist at IHS
Markit, pointed out a number of other recent highs set due to the
tariff costs.

“Tariffs also drove a further marked rise in prices, exacerbating
an upward trend in price pressures borne out of robust domestic
demand,”
Williamson wrote
. “Average prices charged for goods rose at
one of the fastest rates seen over the past seven years while
average charges for services showed the second-largest rise since
the global financial crisis.”

Business are starting to feel the burn

Business concerns aren’t limited to general surveys: Many large
corporations expressed concerns about the rising tide of the
trade war in their recent quarterly earnings calls.

Those same corporations are already estimating the tariffs’
effects, and for some firms, the costs could exceed $100 million
a year.

Auto manufacturers, retailers, and home goods makers all weighed
in on the downside of the tariffs. Here are a few examples:

  • 3M (consumer goods
    manufacturer):
     “If I fast forward a little
    into 2019, we think tariffs will be having a negative impact on
    our total sourcing cost… And I’ll talk more about this in on
    November 15th but our view is we have approximately $100
    million headwind from tariffs,” CFO Nick Gangestad

    said Tuesday
    .
  • Tesla (automaker): The
    company said Wednesday
     in its earnings release that
    the China tariffs will cost $50 million in the fourth quarter
    alone.
  • Harley-Davidson (motorcycle
    manufacturer):
    “In total, we now expect to incur
    approximately $43 million to $48 million of increased costs
    related to tariffs during 2018,” CFO John Olin
    said Tuesday
    .
  • Ford (automaker): “From Ford’s
    perspective the metals tariffs took about $1 billion in profit
    from us,”
    Hackett said
    . “The irony of which is we source most of that
    in the US today anyway. If it goes on any longer, it will do
    more damage.”
  • Sleep Number (mattress and bed manufacturer):
    The latest tariff rate hikes affect about 5% to 6% of
    our overall [cost of goods sold],”
    CFO David Callen said
    . “We are working with our global
    sourcing providers to mitigate the potential for 40 basis
    points to 60 basis points of margin rate pressures arising from
    this fast changing tariff landscape.”
  • Polaris (Motorcycle, ATV, vehicle
    manufacturer):
    “As I mentioned earlier, these efforts
    have largely been effective so far allowing us to hold our 2018
    gross tariff impact to the previous communicated $40 million…
    Through recent discussion and analysis, we now believe it is
    unlikely there will be a short-or medium-term agreement with
    China on trade issues, and with substantial impact of the 301
    list looming, we are considering and taking more aggressive
    action,”
    CEO Scott Wine said
    .
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