Asset prices, the trade war in China hurting US companies, drive up prices

While the trade war between President Donald Trump and China continues without end, US companies are beginning to be affected by the proliferation of tariff attacks.

Business concerns are beginning to translate into real pain as new orders from China face higher fees imposed by the Trump administration.

The Federal Reserve and market research firm surveys released on Wednesday revealed widespread concerns over tariffs, while individual companies have begun to compile the tens of millions of dollars in new costs they will face.

Investigations seem messy

While previous months' surveys showed concern over cost increases due to upcoming tariffs, new data seems to show that businesses are now facing this reality.

The Federal Reserve's Beige Book – a collection of views from the Fed's 12 district banks – is a reflection of widespread concern over the growing effects of the trade war. The word "tariff" appeared 51 times in the Wednesday edition of the Beige Book, as against 41 in the September version and 31 in the July issue.

Concerns about rates can be summarized in a few points:

• First, companies feared that imports from other countries entering the United States would be more expensive.
• With many of these products being used in products sold by US companies to consumers, rising import prices have led to increased costs for businesses and higher prices for consumers.
• Second, retaliatory tariffs prevented companies from selling products in markets such as China and Canada.
• Increasing US supply for products subject to foreign tariffs, including agricultural products such as pork and soybeans, has pushed prices down in the United States and made it more difficult. so that businesses receive less for their products.

Here are some examples of these concerns from the Fed's Beige Book (emphasis added):

• Boston Fed: "In addition, three manufacturing companies faced higher input prices because of tariffs on Chinese products and services that were not easily substitutable, and companies that are supposed to transmit (or have already transmitted) to consumers at least part of the tariff. "
• Philadelphia Fed: "Other companies have reported struggling to cope with the prices of their foreign competitors who are not subject to the tariffs applicable to primary inputs of their products."
• Cleveland Fed"The majority of contacts attributed at least a portion of these increases to import tariffs." A trucking sector contact indicated that prices for pallets, tires and packaging materials were higher. because of the rates. "
• Chicago Fed: "Contacts reported a notable decline in Chinese soybean purchases following an increase in Chinese tariffs. "
• Dallas Fed: "Among the manufacturers, around 60% of contacts said that the rates announced and / or implemented this year had led to an increase in the cost of inputs. The share was even higher at retailers, at 70%. "

In addition to the Fed's survey, the Markit Purchasing Managers' Index, released Wednesday, announced the largest increase in input cost inflation since September 2013, due in September. much of the cost of tariffs. Chris Williamson, Chief Market Economist at IHS Markit, highlighted a number of other recent highs due to pricing costs.

"Tariffs have also led to a further sharp rise in prices, exacerbating an upward trend in price pressures resulting from strong domestic demand," wrote Williamson. "Average prices charged for goods have risen to one of the fastest rates seen in the last seven years, while average fees for services have posted the second largest increase since the global financial crisis. . "

Businesses start to smell fire

Business concerns are not limited to general inquiries: many large companies have expressed concern over the rise of the trade war in their recent quarterly earnings calls.

These same companies already estimate the effects of tariffs and, for some companies, the costs could exceed $ 100 million per year.

Car manufacturers, retailers and household goods manufacturers all weighed down prices. Here are some examples:

• 3M (manufacturer of consumer goods): "If I do a little advance until 2019, we think the rates will have a negative impact on our total supply cost … and I'll talk more about it on November 15, but we estimate that we have about $ 100 million in tariffs, "said Finance Director Nick Gangestad on Tuesday.
• Tesla (car manufacturer): The company said Wednesday in its statement that tariffs in China would cost $ 50 million in the fourth quarter alone.
• Harley-Davidson (motorcycle manufacturer): "In total, we now expect to have to increase from about $ 43 million to $ 48 million in tariff costs in 2018," Finance Director John Olin said Tuesday.
• Ford (car manufacturer): "From Ford's point of view, metal prices have generated for us a profit of about $ 1 billion," said Hackett. "Anyway, the irony of the situation is that we found most of it in the US today, if it continues, it will do more damage."
• Number of sleep (mattress and bed manufacturer): "The latest tariff increases concern about 5% to 6% of our [cost of goods sold]Chief Financial Officer, David Callen, said: "We are working with our global sourcing suppliers to mitigate the potential of 40 to 60 basis points of margin pressure pressures resulting from the fact that we are in the market. rapid evolution of the tariff situation. "
• Polaris (motorcycle, ATV, car manufacturer): "As I mentioned earlier, these efforts have been largely effective so far, which has allowed us to maintain our gross tariff impact of 2018 on the $ 40 million previously disclosed … or an agreement in the medium term with China on trade issues, and with the substantial impact of the 301 list looming, we are considering and taking more aggressive action, "said CEO Scott Wine.