U.S. retailers specializing in home appliances, luxury apparel and auto parts say tariffs imposed by President Trump in widening international trade disputes haven’t hurt their earnings much so far.
Some of the harshest duties have yet to take effect, though: Potential levies on another $416 billion of Chinese imports and 25 percent duties on cars and vehicle components. The tariffs already in force include duties of 25 percent on steel imports and 10 percent on aluminum, 25 percent on $34 billion of goods from China, and up to 50 percent on washing machines.
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“Naturally, we are monitoring the situation closely” as the U.S. Trade Representative reviews tariffs on $200 billion of Chinese goods including handbags, Kevin Wills, chief financial officer for luxury-goods maker Tapestry Inc., told investors Tuesday. If imposed, those duties would cover about 40 percent of the possible total against the world’s second-largest economy.
Fortunately, Wills said, only about 5 percent of the company’s handbags are made in China, thanks to a diverse manufacturing base for labels that include Coach handbags, Stuart Weitzman shoes and Kate Spade. The retail and consumer industries, which typically rely on complex global supply chains, have been among the most worried by the prospect of a trade war Trump claims is necessary to buoy the American economy and reverse a trade imbalance.
Corporate executives, economists, Wall Street analysts and lawmakers from the president’s own party have all warned that his policies risk undercutting the benefit of last year’s tax cuts and, at worst, prompting a global recession. Trump has dismissed such concerns so far, promising trade deals that will benefit American workers, and corporate earnings reports from the three months through June may give him more maneuvering room.
Great financial numbers being announced on an almost daily basis. Economy has never been better, jobs at best point in history. Fixing our terrible Trade Deals is a priority-and going very well. Immigration on Merit Based System to take care of the companies coming back to U.S.A.
— Donald J. Trump (@realDonaldTrump) August 6, 2018
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Tapestry’s net income in the period totaled $211.7 million, even as supply costs widened 27 percent, the company said.
Advance Auto Parts, which also reported quarterly performance on Tuesday, declined to specify how much of its inventory is imported from China, but said the impact of U.S. tariffs imposed so far has been “very manageable.” Inventory costs rose just 3.5 percent to $1.32 billion, the Roanoke, Va.-based company said, and profit surged to $117.8 million.
“We are working with our suppliers to find the best country to provide from, but at this point we have been able to pass it along into the marketplace,” Mike Broderick, the executive vice president for merchandising, told analysts Tuesday. “So, it’s really been not much of an issue at this point in time.”
Higher supply costs, fueled partly by tariffs, are pressuring profitability at Atlanta-based building-supply chain Home Depot, said Ted Decker, the executive vice president for merchandising, “but as the customer’s advocate for value, it is our job to work with our partners throughout the value chain to manage these pressures.”
Inventory costs rose 7.8 percent to $20.1 billion in the three months through June, the company said Tuesday, while net income surged 31 percent to $3.51 billion.
“I would say, at this point, that the tariff environment is manageable — and given our sales and our size and scale, it’s even that much more manageable,” said Chief Executive Officer Craig Menear. “We are seeing increased cost requests from suppliers, particularly the ones that have been impacted by the tariffs.”
Companies that are smaller and newer than Home Depot are more likely to encounter challenges from the tariffs, however. Several — in regions of the country that supported Trump — have already announced job and production cuts.
“While the average firm in the U.S. can likely withstand the rise in costs, some marginal firms will not, and we envision some establishments closing permanently,” Seth Carpenter, an economist with Swiss lender UBS, said in a July report. “We see the newly resurgent manufacturing sector and the retail sector as among the areas that are likely to experience such disruption.”
The tariffs will “create a temporary drag” on the U.S. economy by the end of the year, with growth slowing to 2.7 percent in the three months through December from a previous projection of 3.1 percent, he predicted.
