Thursday, July 5, 2018

The Trump Tariff Impact

Trump's tariffs will shrink the economy and cause distortions. And it is already starting.

From The New York Times:
With tariffs driving up the price of stainless steel, the precision-part manufacturer Accu-Swiss in Oakdale, Calif., came up with a plan to save money: turn off the lights but keep the machines on.

“We are being hurt because of
the cost increase,” said Sohel Sareshwala, the company’s owner and president. To squeeze more output from existing equipment, he is “running the machines in a lights-out operation.” After his regular 10-person staff leaves for the day at 6 p.m., Mr. Sareshwala said, the plant is experimenting with slowing down the machines and letting them run unattended for four more hours...

Last week, the potential impact on American companies was thrust into sharp relief when General Motors warned that a new wave of tariffs under consideration by the administration could lead to “less investment, fewer jobs and lower wages” at G.M...

Edward Farrer, director of purchasing at Principal Manufacturing in Broadview, Ill., which produces automobile parts, has felt the same effect. His company, which employs 330 people and has $50 million in annual sales, is a purchaser of imported steel and has not been able to find a domestic alternative.

Even if one emerges, he said, “the tariffs have been a springboard for domestic producers to increase their price” — and those higher costs will put American companies like his at a disadvantage compared with foreign manufacturers. Moreover, he said, any change in Principal’s suppliers would require customer approval, an exhaustive process that would cause significant delays....

In Milwaukee, Mr. Carlson of Lakeside Manufacturing said he had contracts to get steel through the summer, but was worried about the fall. All the steel distributors, including his own, want to take care of their biggest customers first, he said. At the same time, the largest companies are hoarding as much steel as they can, making it tougher for smaller businesses to find alternatives.

Before the tariff threats, steel orders took six to eight weeks. Once the announcement was made in March, the wait time grew to eight to 12 weeks. “Now we don’t know when we’re going to get our orders filled,” Mr. Carlson said. “We’re hand-to-mouth.”
And this via The Financial Times:
The Federal Reserve has detected rising concern among US business about the potentially harmful impact of tariffs as growing trade tensions prompt some executives to freeze investment plans.
According to minutes of the Fed’s June meeting, some business indicated they had already “scaled back or postponed” plans for capital spending due to “uncertainty over trade policy”, while a larger group voiced concern about the impact of trade restrictions on future investment.
The minutes were released on Thursday, a day before the US is due to start imposing tariffs on $34bn of imports from China on Friday, with Beijing set to target an equal amount as a nascent trade war between the two largest economies takes centre stage in an escalating series of disputes.

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