US consumers and businesses are already starting to feel the pain from Trump’s trade war, and the worst is yet to come | Digital Asia
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- 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.
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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.”
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.
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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