U.S. businesses are showing resilience in the face of President Trump’s escalating demands for tariffs on China and the prospect of a trade war.
The S&P 500, the Dow Jones Industrial Average, and the NASDAQ composite were up slightly from the prior day’s close following the Trump administration’s announcement Wednesday that it was upping the pressure on China by considering raising planned tariffs on $200 billion of goods imported from the country, from 10 percent to 25 percent.
Analysts expect the business sector to weather the latest signs of a trade war just as well as they have previous threats from Trump and responses from abroad.
“The economy generally is so strong that, despite the challenges of the potential trade war, the strength of the economy is more than offsetting that,” Randy Frederick, vice president of trading and derivatives at Charles Schwab & Co. Inc., said in an interview. “Corporations have posted record profits this quarter that we haven’t seen in over a decade.”
Some businesses, such as Coca-Cola, General Motors, Caterpillar, Ford, Harley Davidson, and others, have warned investors that the existing 25 percent tariffs on steel imports and 10 percent tariffs on aluminum imports, as well as the prior tariffs on $34 billion in Chinese goods, are going to weigh on earnings for 2018 and beyond. China and trading allies like the European Union, Canada, and Mexico have all issued retaliatory tariffs.
Some small businesses, too, have suffered from the imposition of tariffs.
A slew of companies, however, are enjoying higher profits for the three months through June. Apple sales in China, for example, jumped 19 percent in the quarter. Caesars Entertainment Corp. posted an 89.3 percent increase in profits to $282 million. And despite forecasting price hikes, net income at Caterpillar rose 112 percent in the quarter to $1.7 billion.
The impact of the new tariffs — which are not expected to go into effect until September at the earliest — will likely not manifest in actual company earnings until months after that. And despite the intense rhetoric, there is evidence the existing trade conflicts are not yet slowing U.S. economic momentum — at least not in the view of Federal Reserve officials.
Still, the increased levies on China under consideration could end up being particularly damaging. China remains a key growth market for many U.S. companies. GM’s vehicle deliveries in the country, for example, grew 4.4 percent in the quarter that ended on June 30, which the carmaker said was a record high for the period. The company, in a statement, said it is “assessing the potential impact of all of the recent and proposed trade and tariff actions, including recent announcements regarding China tariffs.”
Most of the immediate worries are on the short-term disruption in the markets from, among other things, inconsistent messaging from the White House, Frederick said.
Despite expressing prior concerns, spokespersons from Coca-Cola, Caterpillar, Ford, and others did not respond to emailed inquiries about the potential increase in tariffs. Instead, industry associations — accustomed at this point to sending similar warnings — issued statements reiterating opposition to the administration’s trade agenda.
“We said before that this round of tariffs amounted to doubling down on the recklessness of imposing trade policy that will hurt U.S. families and workers more than they will hurt China. Increasing the size of the tariffs is merely increasing the harm that will be done,” National Retail Federation CEO Matthew Shay said in a statement. “Quite simply, there has been no better example of cutting off one’s nose in order to spite the face.”
Others, like the National Association of Manufacturers, called for trade talks to resume between the U.S. and China. Ironically, USTR cited the desire for new, bilateral negotiations as a key reason why Trump was directly asking the office to consider hiking the impact of the new tariffs.
“China cheats, and the Trump administration has rightly made addressing China’s longstanding unfair trade practices a priority,” Linda Dempsey, NAM’s vice president of international economic affairs, said in a statement. “But the last thing America’s manufacturing workers need is an escalating trade war, which threatens to unwind the strong growth manufacturers have achieved thanks to tax and regulatory reform.”
As the administration continues to turn a deaf ear to the concerns from the U.S. business community, several are turning their attention to Congress. Groups like the U.S. Chamber of Commerce are hoping to persuade lawmakers to pass legislation curbing President Donald Trump’s ability to unilaterally impose new tariffs, a measure that would almost surely be vetoed by the White House.
Sens. Rob Portman, R-Ohio, Doug Jones, D-Ala., and Joni Ernst, R-Iowa, introduced on Wednesday a bill that would require the Department of Defense to determine whether tariffs address a national security crisis. The Trump administration levied the prior tariffs using an obscure trade authority, known as Section 232, that allows the White House to impose levies based upon a U.S. security threat.
The legislation received immediate praise from key business groups.
“As new tariffs against automobiles and auto parts are being considered, this proposal to reaffirm Congress’s exclusive constitutional authority to regulate foreign trade is a welcome development,” U.S. Chamber policy chief Neil Bradley said in statement.
