Time, says President Trump, is all he needs to show American voters and businesses that his widening trade disputes will enrich everyone.
But the more time that passes, corporate executives countered in second-quarter earnings conferences, the greater the damage will be to their bottom lines from an array of tariffs that are pushing up raw materials costs, disrupting global supply chains built over decades and, potentially, costing jobs.
While Fiat Chrysler’s fixed-price contracts for steel used in its cars and trucks are insulating the manufacturer from rising metals prices this year, “we obviously need to keep a real eye on commodity prices as we move into the first part of 2019,” Chief Financial Officer Richard Palmer said.
Harley Davidson, the motorcycle-maker that’s moving some production outside of the U.S. to avoid European tariffs retaliating for Trump’s double-digit duties on steel and aluminum, said the levies are pushing up its operating costs by as much as $55 million this year.
That would trim the company’s operating margin by 50 basis points to about 9 percent, Chief Executive Officer Matthew Levatich said. Harley is still working on a plan to curb trade-dispute expenses that may be as much as $110 million next year, including $40 million from the U.S. metals tariffs and $70 million from Europe’s retaliation.
Executives are working with the White House and other governments involved to “do the best we can to get these tariffs removed,” added Harley CFO John Olin. “We are very engaged, and we’ve got a dialogue, and a constant dialogue, going on with the respective parties.”
In the meantime, until the Milwaukee-based company can relocate manufacturing for European customers, it’s absorbing duties of about $2,200 per motorcycle. “That was a very key part of our decision when the tariffs went into effect to protect the marketplace and our customer value equation as well as our dealer business model,” Levatich said.
The executives’ dour assessments, along with comments from leaders at General Electric, Whirlpool and Boeing, reflect rising concern that Trump’s wide-ranging tariff disputes, which include levies on as much as $500 billion of Chinese imports, will impair economic growth and undermine the benefits of last year’s tax cuts before this fall’s mid-term elections in the U.S.
“We should stop self-inflicting permanent damage to America’s economy through tariffs and a trade war,” Sen. Ron Johnson, a Wisconsin Republican, said after the White House announced $12 billion in aid to farmers hurt by tariffs China imposed in response to Trump’s actions.
Despite the criticism, Trump has stood by his trade policies so far, promising that they will yield agreements that boost American manufacturing and limit what he describes as unfair competition by longtime U.S. allies as well as competitors such as China.
“You have to see these trade deals I’m working on; they’re a disaster,” he said in a late July speech at the national convention of the Veterans of Foreign Wars in Kansas City, Mo.
Foreign nations don’t want to pay tariffs on exports to the U.S., the world’s largest economy, and they’re seeking deals to evade them, Trump said, urging the audience to ignore claims that his policies will prove damaging, which he blamed on lobbyists and the news media.
“Just be a little patient,” he said. “Remember: What you’re seeing and what you’re reading is not what’s happening. And I’ll tell you, I have so many people that are so in favor — because we have to make our country truly great again.”
Trump’s tactics appeared to yield a payoff last week when he and European Commission President Jean-Claude Juncker outlined a tentative agreement for the U.S. to ship more liquefied natural gas and soybeans — a crop targeted by China — to the the region. Both men said they would delay further action on tariffs unless one side withdrew from negotiations, which will include how to eliminate trade barriers.
The U.S. has never done as well financially as it is now, said Trump, who noted that the U.S. and Europe together account for roughly half of the $80.1 trillion world economy. “We’re going to do a lot better after we do this deal and other deals that we’re working on.”
In the meantime, however, businesses fear protectionist policies are likely to push up inflation.
Amid climbing costs for steel and aluminum used in Pratt & Whitney jet engines, Carrier air conditioners and Otis elevators, parent company United Technologies will be forced to raise prices, CEO Greg Hayes said.
“That’s going to lead to a little bit of inflation, and hopefully not so much it is going to curtail demand, but we are always mindful of that trade-off,” he said. “These tariffs aren’t helpful to anybody, but we’re going to have to deal with them.”
At General Motors, which vigorously opposed Trump’s proposal to add 25 percent tariffs on auto and auto imports, CEO Mary Barra is ensuring that the administration understands that the auto industry’s well-paying jobs rely on expensive factories and production systems that can’t be relocated easily.
“We’re focused on providing the right input” she said, so that decisions aren’t made “that have unintended consequences that don’t serve anybody.”
