Signs China tariffs are starting to hurt U.S. businesses, wallets
White House advisers like National Economic Council Director Larry Kudlow have been telling Wall Street and Corporate America that despite President Donald Trump's tough talk this spring on trade and tariffs, the administration isn't pursuing a trade war with China or anyone else. "This is just a proposed idea," Kudlow told reporters in early April about potential tariffs on $50 billion worth of Chinese steel, heavy machinery and 1,300 other products. "Nothing's happened. Nothing's been executed."
Yet early signs are emerging that tariffs and their countermeasures, proposed or imposed, already are hitting some U.S. industries, some in areas of the country that voted for Mr. Trump in the 2016 election. Consider:
• Chinese importers cut pork orders starting in early April, according to a report in The Wall Street Journal citing U.S. Department of Agriculture data. After China imposed retaliatory tariffs on April 2, the USDA reported the biggest weekly drop in net pork sales to the country since October 2016. Boneless hams in cold storage hit a record 86 million pounds earlier this year as the industry had been looking to sell more, not less, to China, the Journal said.
• China is purposely avoiding direct soybean purchases from the U.S., Bloomberg reported. "Whatever they're buying is non-U.S.," Bunge Ltd. CEO Soren Schroder told the news service last week. "They're buying beans in Canada, in Brazil, mostly Brazil, but very deliberately not buying anything from the U.S." The Associated Press reports that USDA data show that sales of soybeans to China have fallen from about 255,000 metric tons in the first week of April, when the trade dispute began, to just 7,900 in the week that ended April 26. Cancellations have also jumped, to more than 140,000 metric tons in the week ending April 26; in the same week last year, there were no canceled sales at all.
• Another casualty in the shadow trade war: some 2,000 growers of pecans from California to the Carolinas who sell about a third of their crop to China. Pecans were among the U.S. products China slapped with a 15 percent tariff after Mr. Trump proposed steel and aluminum tariffs in late March. That penalty hurts buyers and gets passed to growers and exporters with "immediate impact," according to Randy Hudson, CEO of Hudson Pecan in Ocilla, Georgia. He's holding off on planned production expansion until things become clearer. "We were going to triple our capacity ... build another warehouse and hire another 20 people," Hudson told CBS MoneyWatch. "Right now it's a little uncertain. We've got to get a sense for what's going to happen."
• Companies from Caterpillar (CAT) to Harley-Davidson (HOG) have said on earnings calls that higher commodity prices tied to tariffs are expected to be a drag on results this year, according to The Wall Street Journal. Steel costs for the equipment industry as a whole were up about 15 percent in the quarter ended in March, executives at construction and mining equipment maker Caterpillar said on an earnings call in April, according to a transcript. "We expect steel and other commodity costs to be a headwind all year," Caterpillar CFO Brad Halverson said. "However, at the end of the day, higher commodity costs benefit many of our customers." Metal users Boeing (BA) and Ford (F) are also among companies monitoring prices.
• Some small businesses aren't hiring as planned in the wake of tariffs imposed on steel and aluminum, Reuters reported, pointing to comments from the Institute for Supply Management's April report. One company, The Metalworking Group in Cincinnati, lost about 1,000 hours renegotiating contracts because it couldn't honor prices. It also delayed plans to spend around $500,000 on equipment this year and bring on new staff to expand, Reuters reported.
• It's not just China trade that has been hit. Higher newsprint prices because of tariffs aimed at Canadian mills prompted the Tampa Bay Times to begin cutting 50 jobs. Prices rose more than 30 percent, or to about $800 from $600 for every ton, adding more than $3 million to the paper's annual newsprint bill. The newspaper uses about 17 tons of newsprint every year, Paul Tash, the newspaper's CEO wrote in March.
• Complicating matters in U.S. aluminum markets are sanctions imposed on Russia in early April that sent the metal soaring to six-year highs and unleashed the widest swings in prices since at least 1997, according to The Wall Street Journal. That left shipments from Russian aluminum company Rusal sitting unopened in U.S. ports including Baltimore and Houston as customers avoid violating sanctions, the Journal reported, citing Harbor Aluminum Intelligence, an Austin, Texas-based consultant to aluminum companies, banks and hedge funds. Rusal is the world's second-biggest aluminum company in metric tons produced behind China's Hongqiao, according to Statista. The U.S.'s Alcoa is sixth.
So far, China has only matched a smaller opening round of tariffs, like on steel, tit-for-tat. Other trade war potential hangs in the air as Europe waits another 30 days for a metals decision and negotiations resume this week for the North American Free Trade Agreement.
For China, the U.S.'s biggest trading partner, more negotiation "will likely result in a scale back of the current proposal on tariffs as China quickens its implementation of some announced opening and reform measures," UBS economists Tao Wang and Ning Zhang predicted in a note late last week.
A U.S. delegation including Treasury Secretary Steven Mnuchin emerged from talks in Beijing last week without an agreement as the Trump administration inches closer to imposing the first round of tariffs on at least $50 billion of imports from China. "After two days of 'candid' trade talks, the U.S. and China are said to have 'fully exchanged views' and agreed to talk more," the UBS economists wrote. "There is no grand trade agreement. On the positive side, both sides seem to want to continue to negotiate to avoid an immediate outbreak of a serious trade war."
Still, they noted, "we do not expect all core differences in the US-China trade relationship to be resolved."
-- Jillian Harding contributed to this report