Some of the largest companies in America are reporting that they are suffering the sting of the Trump administration’s trade war, sounding an alarm in an otherwise prosperous economy.
Midway through the corporate earnings season, companies across a broad array of industries are citing tariffs, particularly those imposed on aluminum and steel, as the culprit for lower profits, higher prices for consumers and even sweeping changes in their planning and operations, such as moving production out of China.
Goods as varied as whiskey and My Little Pony, washing machines and Maseratis are caught in the crossfire of a trade war that has brewed for months. Since March, President Trump has imposed tariffs on hundreds of billions of dollars of steel and aluminum imports from China, Canada, Mexico, the European Union, Japan and other nations. He is also threatening to impose tariffs on cars and uranium.
Some worry that the tariffs could disrupt a healthy economy that, so far, has withstood Trump’s Twitter storms, a rise in oil prices and anticipation that the Federal Reserve will keep notching up interest rates. Despite Washington’s chaos, reliably strong corporate earnings have provided a ballast in U.S. financial markets since the prospect of a trade war emerged.
Now, companies including General Motors, Harley-Davidson and Whirlpool say the tariffs give them reasons to worry.
Trump tweeted Tuesday that “tariffs are the greatest!” The president sees them as a tool to level the playing field for U.S. businesses “in a contained, not too violent way, such that the economic growth we are experiencing will basically save us from any turbulence,” said Michael Farr, a Washington investment manager.
“So there’s the theory, and we are well into act one,” Farr said. “And I don’t think we really know the answers.”
Companies including General Motors, Coca-Cola, Harley-Davidson and Brown-Forman have warned that the tariffs could push them to raise prices for customers.
Brown-Forman said it would raise prices on its whiskeys, including Jack Daniel’s, in parts of Europe because of tariffs on American-made bourbon. The company told CNBC at the end of June that buyers of Jack Daniel’s or Woodford Reserve whiskey could expect a 10 percent bump in the price of a standard, 700-ml bottle.
Coca-Cola’s chief executive James Quincey told CNBC on Wednesday that it, too, was being squeezed by the steel and aluminum tariffs.
“We had to take, with our bottling partners, an increase [in prices] in our sparkling beverage industry in the middle of the year, which is relatively uncommon,” Quincey said after Coke reported better-than-expected earnings this week.
General Motors said Wednesday that it has lowered its outlook for 2018 earnings in part because of significant increases in the costs of raw materials. GM’s stock fell about 6 percent by afternoon trading. GM’s chief financial officer Chuck Stevens said in a call with analysts that the company will offset some of the higher costs by raising prices for consumers.
“To the extent that we have opportunistic ability to pass along some, we will,” he said.
Rebecca Lindland, an analyst at Kelley Blue Book, said the pressure of tariffs has been weighing on automakers for so long that manufacturers wonder whether this is their new reality. But the industry is not nimble. Carmakers operate on a massive scale, with multiyear commitments to assembly plants and suppliers. According to Lindland, swiftly navigating the whims of the Trump administration won’t be easy.
“Trump will sometimes talk about pain in the short term and gains in the long term,” she said. “But the short term is years, and that pain could lead to very bad consequences, because you’re undermining profitability.”
Higher prices may also trigger challenges for consumers. Most car owners max out the amount of money they can borrow to buy a vehicle, Lindland said. But more expensive cars may lead to extended repayment periods, meaning people will owe more on their vehicles than what they are worth, for longer periods of time. In turn, this may delay or prevent new car purchases, she said.
On Tuesday, Harley-Davidson said that it expects its operating margin as a percent of revenue to hit 9 to 10 percent because of the tariffs, down slightly from last year. In June, the company said E.U. tariffs will add about $2,200 to the average price of a motorcycle, posing “an immediate and lasting detrimental impact to its business.”
Harley-Davidson also plans to shift operations overseas. The company that prides itself in its made-in-the-USA brand has plants in operation in Australia, Brazil and India. It had already planned to open a facility in Thailand and says moving production out of the United States will soften the blow of E.U. tariffs.
On a company earnings call this week, executives said the plant in Thailand — set to open this year — will help secure lower prices for dealers and consumers that aren’t “burdened with excessive tariffs.”
The toymaker Hasbro is also planning a move, saying Monday that it will relocate much of its Chinese production elsewhere. It did not specify where.
Companies say their profits are suffering, too. Whirlpool, which was supposed to benefit from Trump-imposed tariffs on foreign-made washing machines earlier this year, reported Tuesday that it did not make its second-quarter earnings estimates as steel prices rose 50 percent.
On a company earnings call, Whirlpool chief executive Marc Bitzer said steel costs worldwide have “risen substantially. ”
“And, in particular in the U.S., they have reached unexplainable levels,” Bitzer said.
The tariffs Trump imposed in January on foreign washing machines were celebrated at the time by Whirlpool, which had been losing market share to its Korean competitors LG and Samsung.
Fiat Chrysler, too, said on Wednesday that some of the company’s biggest challenges stem from negative effects of duties on imported vehicles to China. Chief Executive Mike Manley said the duty changes led to “a significant slowdown in sales and shipments to dealers” of Maseratis.
Trump argues that the tariffs will right years of unfair trade policies.
Many of the affected countries have imposed retaliatory tariffs of their own. For example, China announced it will impose tariffs on imports of American soybeans and buy more from Brazilian markets.
On Tuesday, the White House announced a $12 billion emergency aid bailout to American farmers caught in the escalating trade war.
Trump shows no signs of backing down. On Wednesday morning, he took to Twitter again, saying, “Are we just going to continue and let our farmers and country get ripped off?”
“Every time I see a weak politician asking to stop trade talks or the use of tariffs to counter unfair tariffs, I wonder, what can they be thinking?” he wrote.
Farr cited a recent Wells Fargo report which said the effects of tariffs will not pose serious risks for the economy. But he said that if Trump’s administration doesn’t get a handle on the tit-for-tat tariffs of an escalating trade war, the country could steer into a recession.
In the meantime, Farr said, company executives feeling the weight of the tariffs have a responsibility to respond and to “find a way around it as quickly as he or she is able.”
“You can always apologize for overreacting,” he said. “You look like a fool for apologizing or underreacting, and not seeing it coming.”