One of Donald Trump’s campaign promise was to promote U.S. indigenous manufacturing. Indeed, his decision was based on the heydays of U.S manufacturing that not only increased jobs but were also vital in developing the country’s infrastructure and transportation industry. Several financial analysts have, however, questioned his method to achieve so – by imposing tariffs on foreign import, esp. Chinese goods and services. Washington’s trade war with Beijing has resulted in both countries apply tit-for-tat tariffs to hundreds of billions of dollars in bilateral trade. Now, the repercussions of the trade war are slowly being felt across various U.S. sectors, especially manufacturing.
Manufacturing companies such as Caterpillar Inc., 3M Co., and Harley-Davidson Inc. have reported lower-than-expected earnings in their third-quarter report. As the outlook for these companies fell short of expectations, analysts who expected a boost in 2008 are thoroughly disappointed. The mining and construction equipment maker Caterpillar lost 21 % of its market value as tariffs increased metal procurement cost and trade friction generated concerns among investors. Its shares fell down 7.6% after the announcement of the third quarter report, having been 10% at one point. The company announced that $40 million have been spent to counter the negative impact of imposed tariffs during the quarter, with the number poised to be higher than $100 million for the 2018 financial year.
China also witnesses an economic growth cooldown period following the inception of the trade war. Its economic growth of 6.5% in the third quarter was its weakest pace since the financial crisis of 2008. 3M, a multinational conglomerate operating in fields of industry, healthcare, and consumer goods, have stated that the sale of its face masks and other products in China have reduced considerably. After releasing its third-quarter revenue report, 3M’s shares fell down 4.4%. As China also spend lower on cars, paint and coatings maker PPG Industries have also seen a reduction in their demand.
Meanwhile, motorcycle company Harley Davidson has stated that a stronger U.S. dollar has dented its earnings form the international sales, a medium the company is relying on to drive market growth. It iterated that stronger dollar cost it $7.4 million in the latest quarter. As a result of such revelation, its shares too plummeted 2.2%. Other manufacturers have stated the rise in oil prices, as well as a shortage of automobile parts, have pushed up their operational cost.
Overall, the S&P machinery index fell down 4.2% during the week. Caterpillar stated that it would raise prices on most machines and engines by as much as 4% from 2018, while 3M and other manufacturers are also following similar paths. Paint maker PPG Industries Inc. and consumer goods giant Procter & Gamble Co. are raising prices to reflect higher commodity costs as well. The effect of the trade war is slowly seeping down and increasing the cost of commodities and services.
Analyst Steve Volkmann has stated that these signs are akin to “chinks in the armor”. While Trump has mentioned that winning trade wars would be easy, he has clearly not predicted the impact on the prices of goods and services. The current trend of rising cost in the manufacturing sector could hit the economy hard, as Trump seeks to find a way back from the massacre that he has committed.