US consumers and businesses are already starting to feel the pain from Trump’s trade war, and the worst is yet to come

US consumers and businesses are already starting to feel the pain from Trump’s trade war, and the worst is yet to come



donald trump

President Donald
Trump

Justin Sullivan/Getty
Images



  • President Donald Trump has gotten the US into trade
    fights with China, Canada, and the European Union, among
    others.
  • Inflation data, business surveys, and recent decisions
    by high-profit businesses all show that Trump’s trade fights
    are starting to cause US consumers and companies pain.

Consumers and businesses are starting to feel the pinch of
President Donald Trump’s sustained
trade battles
with the rest of the world and the pain may be
just starting.

Trump has launched protectionist trade campaigns aimed at
countries from Canada to
China.
 The result of Trump’s
tariffs
is starting to pop up everywhere from inflation data
to confidence indicators to individual, high-profile businesses’
decisions.

Given Trump’s push for
tariffs on auto imports
and interest in
yanking the US out of the World Trade Organization
, it
doesn’t look like the trade tensions are going to ease up anytime
soon.

The trade fight is pushing up inflation for consumers and
businesses

New data on prices of goods subject to Trump’s tariffs showed
that the cost of certain items has already jumped as a result of
the tariffs — and more are coming.

Take, for instance, washing machines:

  • Trump announced
    tariffs on imported washing machines
    in January, one of his
    earliest trade maneuvers.
  • The latest consumer price index released by the Bureau of
    Labor Statistics showed the average cost of laundry equipment
    jumped 7.4% from April to May, after leaping 9.6% oin the
    previous month.
  • This is compared to a 0.2% price increase for all items.

Neil Dutta, head of US economics at Renaissance Macro Research,
also pointed to the soaring cost of consumer appliances as
evidence the tariffs are starting to drive up costs.

Even though core commodity CPI has been deflating, there
have been pockets of tariff related pressure,” Dutta said in an
email.

Over the last three months, he said, CPI for household
appliances were up 15.7% on a seasonally adjusted annual
rate.

And companies are seeing the cost of raw material soar, as
well.

Since the Commerce Department’s recommendation to impose
steel tariffs came on February 16, the price of steel has soared.
According to CME Group, the cost of 

US
 Midwest
Domestic Hot-Rolled Coil Steel — a proxy for domestic steel
prices — jumped from $694 just before the recommendation to $907
on Thursday, a 30% increase.


Steel

Workers
arrange steel rims for export at a wheel factory in Lianyungang,
Jiangsu province, China.

Reuters/China
Daily CDIC


Canadian lumber tariffs were first imposed in April 2017,
with additional rounds coming later in the year. Price of lumber
used in housing have jumped and are starting
to filter down to homebuyers

The National
Association of Home Builders, the largest industry
group, warned
in April that these tariffs
were putting a cost squeeze on
builders and making new homes pricier.

Tom Derry, the CEO of the Institute for Supply Management,
told Business Insider that business contacts are already starting
to shift their decision-making because of the higher
prices.

“Statements that we hear are that people are already
looking for alternative locations for supply,” Derry said.
“They’re already seeing their suppliers impose higher prices and
are paying higher prices for steel and aluminum products. It’s
been quite a disruption. If you have a highly-machined part that
requires special skills, it takes a while to identify qualified
suppliers.”

More could come if Trump continues down a protectionist
path. For instance, Trump has threatened to hit car and truck
imports with a 20% tariff.


What happens if auto tariffs go through?”
Dutta said, predicting the industry would experience similar
price increases.

Tariffs are starting to shake business confidence

While consumers are starting to see higher prices on goods
coming in, businesses are also eyeing the tariffs’
effects.

A series of surveys released over the past few weeks
indicate that companies are growing concerned that the trade
fight could hurt their bottom lines, drive up costs, or make it
difficult to operate.

On Monday, the latest
ISM Manufacturing Purchasing Managers Index
 showed that
while business in the sector remained strong, businesses have
worries going forward.

“Demand remains robust, but the nation’s employment
resources and supply chains continue to struggle,” said Timothy
Fiore, chair of ISM’s survey committee. “Respondents are
overwhelmingly concerned about how tariff related activity is and
will continue to affect their business.”

Respondents to the survey said their companies were bracing
for the worst.

“US tariff policy and lack of predictability, along with
the threat of trade wars, is a causing general business
instability and is a drag on growth for investments,” one
electrical equipment manufacturer said.

A food, beverage, and tobacco producer said that because of
the tariffs, the company was shifting its operations outside of
the US.

“We export to more than 100 countries,” the person said.
“We are preparing to shift some customer responsibilities among
manufacturing plants and business units due to trade issues (for
example, we’ll shift production for China market from the U.S. to
our Canadian plant to avoid higher tariffs). Within our company,
there is a sense of uncertainty due to potential trade
wars.”


trump trudeau

President
Donald Trump talks with Canadian Prime Minister Justin Trudeau
during the Women’s Entrepreneurship Finance event at the G20
Summit in Hamburg, Germany, Saturday, July 8,
2017.

Evan
Vucci/AP


Meanwhile, the latest Markit Manufacturing Purchasing
Managers Index found that manufacturing production growth fell to
its lowest level in nine months.

This downturn was reflected in manufacturing businesses
confidence, said Chris Williamson, Markit’s chief business
economist.

“Risks are tilted to the downside for coming months.
Business expectations about the year ahead have dropped to a
five-month low, led by the weakest degree of optimism for nearly
one and a half years in manufacturing,” Williamson said. “Exports
are back in decline, showing the worst performance for over two
years, causing factory order book growth to slump sharply lower
compared to earlier in the year.”

Other recent business
surveys from the Dallas
and
Kansas City Federal Reserve
branches also surfaced worries
about the direction of Trump’s trade policy.

“Investment decisions are being postponed because there is
no certainty around the trade relationships,” said Derry, the CEO
of the Institute for Supply Management. “And that has a real
immediate negative impact on the US economy, because rather than
making capital investment decision we’re just postponing them.
That capital expenditure is not being made, we’re not adding to
production capacity.”

Companies are shifting decisions because of tariffs

Trump’s trade wars have also caught individual companies in
the crosshairs. 

Perhaps the most high-profile
example: Harley-Davidson, which announced it would shift some
production out of the US.

But small businesses are feeling the pinch, as well. During
a recent hearing with Commerce Secretary Wilbur Ross, Sen. Claire
McCaskill highlighted the
plight of the Mid Continent Nail Corporation
in her home
state of Missouri.


donald trump harley davidson
Pablo Martinez Monsivais/AP
Images

The company uses a special type of steel to produce nails that is
not made by a domestic supplier. Given the increased cost for
that metal, the firm has been forced to lay off 60 temporary
workers. They’ve warned another 200 people could be out of jobs
soon. And they say they could shut down by the end of July unless
the firm gets an exemption to avoid the tariffs.

“Something would have to happen very fast, within days in
order for us to know that things were going to
improve,” Elizabeth Heaton, a spokesperson for Mid Continent
Nail, told local media. “We’re hoping that this could get pushed
through very quickly.”

Harley and Mid Continent likely wouldn’t be the last businesses
to feel the pinch of the tariffs.

“I don’t think the administration understands the broader
impact,” Derry told Business Insider. “If they’re focused
narrowly on steel and aluminum, they’re really missing the point
on the harm to the broader US economy.”

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