TARIFFS CAUSING
trouble for U.S. companies.
WASHINGTON — Investors breathed a sigh of relief Thursday when Tesla Inc. calmed fears that it was burning too much cash and losing money.
But a word sprinkled in the text of the quarterly report signaled another potential problem that may lie ahead for the electric-car maker: tariffs.
Tesla warned that U.S. duties on imported parts from China will cause a hit of about $50 million to its gross profit on combined sales for its Model 3, S and X vehicles.
Chief Executive Elon Musk referred to “the tariff wars” in a call with analysts Wednesday in citing some of the uncertainties about ramping up production for sales in Europe.
Companies large and small are grappling with the effects of the escalating trade war between the U.S. and China. And the disruption — the tariffs already in place and the uncertainty of more looming — threatens to slow U.S. economic growth.
“It’s total chaos,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York
“All you have to do is look at the earnings calls that many of these companies have given already,” he said. “Their operations are being disrupted. There’s no two ways about it.”
At least 64 large companies mentioned tariffs in their third-quarter earnings reports and calls so far, according to a roundup by Bloomberg. All but seven said the tariffs were having a negative effect.
A September survey of 110 Texas manufacturing executives by the Federal Reserve Bank of Dallas found nearly half said there was a negative
net impact on their firm from tariffs implemented or in the works. Just 9 percent said the impact was positive.
Heavy-equipment manufacturer Caterpillar Inc., said this week that tariffs cost it about $40 million in the third quarter and had estimated a hit of $100 million to $200 million over the full year.
James A. Simms, chief financial officer of Vicor Corp., a Massachusetts maker of power-supply systems, told analysts last week that the company would add a tariff surcharge to the sales price of its products because “tariffs on Chinese imports are becoming a material percentage of our material costs.”
Avery Dennison Corp. of Glendale, which supplies labels for apparel, said tariffs have had a minimal effect on its business so far. But if there are additional tariffs on apparel, “I think you’d see a bit of more of an acceleration of the migration out of China into other regions for apparel sourcing,” Chief Executive Mitchell R. Butier
told analysts on an earnings call Tuesday.
David Weinberg, chief operating officer of Skechers USA Inc., the Manhattan Beach, Calif., footwear maker, said it was unclear how the company would respond if the trade war accelerates and hits imports from its factories in China.
“I find that if you try to sit and work out all the possibilities of the tariffs, you could spend days and days and days and never get close to what’s going on,” he said on an earnings call last week.
“We do have capacity to move outside of China,” Weinberg said. “We’ll be no different, I believe, than anybody else. We’ll look for where the best availability is … for production quality and price around the world.”
President Trump triggered the trade war in July by imposing tariffs on $34 billion of imports from China after negotiations faltered to address U.S. concerns about unfair practices and theft of intellectual property from American companies.
The battle escalated over the summer, with the two nations placing 25 percent tariffs
on a total of about $50 billion of imports from each other. Last month, the Trump administration levied a 10 percent tariff on an additional $200 billion of Chinese goods and plans to increase that tariff to 25 percent on Jan. 1.
China retaliated with tariffs of between 5 percent and 10 percent on $60 billion more of U.S. imports.
Trump has threatened to up the ante again by putting tariffs on another $267 billion in Chinese goods. That would more than cover the value of all goods the U.S. buys from China, according to U.S. government data from last year. The U.S. imported $505 billion worth of Chinese products in 2017, Census Bureau figures show.
The hit to the U.S. economy from the tariffs will begin this quarter and cut the nation’s rate of economic growth by 1 percentage point through the first quarter of next year while reducing employment here by 351,000 jobs, said Robert Martin, U.S. economist at UBS, the Swiss financial services firm.
He’s assuming the U.S. tariffs on $200 billion in goods will increase to 25 percent
on Jan. 1 as planned but that the Trump administration won’t follow through with the threatened tariffs on $267 billion of additional Chinese goods.
The biggest impact of the tariffs will be on newly created U.S. manufacturing firms, which can’t handle higher costs, Martin said.
“We’ve had a disproportionate number of new establishments being formed, and new establishments are fragile,” he said.