Mar 15, 2019

End the Trade War, U.S. Business Leaders Plead

Post by Freedom Partners

Arlington, VA – Amid reports that a U.S.-China meeting to sign a trade deal has been pushed back, a fresh review of recent comments from American business leaders finds widespread concern about the harm wrought by current tariffs and potentially more tariffs to come.

Freedom Partners Executive Vice President Nathan Nascimento issued the following statement:

“From lost sales to increased costs, higher tariffs give America’s job creators big headaches and endanger our prosperity. We urge the administration to work with other nations to drop the tariffs and eliminate all barriers to trade. The time is now because, the longer this standoff drags on, the markets and suppliers that closed overnight to U.S. producers may take years to re-open. Tariffs are destructive taxes that sow only fear and confusion, where free trade fosters job creation and gives American consumers more choices at affordable prices to stretch paychecks further.”

COMPANIES REMAIN WARY OF TARIFF IMPACTS

Economic Outlook

The Congressional Budget Office (CBO) Projected The Administration’s Tariffs Would Limit Economic Growth By 0.1 Percent Each Year For The Next Ten Years If They Remain In Place. “Tariffs imposed by the Trump administration will limit growth of U.S. real gross domestic product by an average of 0.1 percent each year for the next 10 years if they remain in place at current levels, the Congressional Budget Office (CBO) said on Monday.” (Chris Prentice, “U.S Tariffs Will Slow GDP Growth: Congressional Budget Office,” Reuters, 1/28/19)

  • CBO: “U.S. Tariffs Reduce U.S. Economic Activity Primarily By Reducing The Purchasing Power Of U.S. Consumers’ Income As A Result Of Higher Prices And By Making Capital Goods More Expensive.” (Chris Prentice, “U.S Tariffs Will Slow GDP Growth: Congressional Budget Office,” Reuters, 1/28/19)
  • CBO: “…[C]hanges In Trade Policy Increase Policy Uncertainty Among Investors, Which May Further Reduce U.S. Output.” (Chris Prentice, “U.S Tariffs Will Slow GDP Growth: Congressional Budget Office,” Reuters, 1/28/19)

The United States Department Of Agriculture (USDA) Announced That Due To Sharp Decline In Exports To China As A Result Of The Ongoing Trade War, It Expects Farm Exports To Drop By $1.9 Billion To $141.5 Billion During Fiscal Year 2019. “The U.S. Department of Agriculture expects the value of U.S. farm exports to drop by $1.9 billion to $141.5 billion in fiscal 2019 from a year earlier, led by a steep decline in shipments to China due to an ongoing trade dispute, a department official said on Thursday.” (Richard Valdmanis, “U.S. Farm Exports Expected To Fall $1.9 Billion In 2019, Led By China: USDA,” Reuters, 2/21/19)

  • USDA Chief Economist Robert Johansson: “The Share Of Total U.S. Agricultural Exports To China In Value Terms Is Projected To Be 6 Percent, Down Sharply, With China Falling From The Top Market In 2017 To Fifth Place.” (Richard Valdmanis, “U.S. Farm Exports Expected To Fall $1.9 Billion In 2019, Led By China: USDA,” Reuters, 2/21/19)

The Trade Partnership Estimated That If Tariffs On Goods From China Increase To 25 Percent, Combined With All Other Tariffs Currently Imposed By The U.S. And Other Countries In Response, Nearly 1 Million Jobs Could Be Lost, GDP Could Decrease By Nearly 0.4 Percent Per Year, And Families May See An Annual Increase Of Nearly $1,000 For Goods And Services. “We find that U.S. tariffs and quotas (referred to for ease here as simply ‘tariffs’) coupled with foreign retaliatory tariffs now affecting U.S. exports have net negative impacts on the U.S. economy and U.S. workers. Tariffs reduce the dollar value of U.S. GDP by 0.37 percent, a reduction that will occur each year the tariffs are in effect (Table 3). The average America family of four will have to find an extra $767 to pay for higher costs for goods and services resulting from the tariffs, for every year they are in effect… Net U.S. jobs decline by 934,700.” (“Estimated Impacts Of Tariffs On The U.S. Economy And Workers,” Trade Partnership Worldwide, LLC, 2/19)

American Businesses Paid An Additional $2.7 Billion In Tariffs During November, Up From $375 Million Paid On The Same Products During November 2017, According To The Most Recent Census Bureau Figures. “Tariffs Hurt the Heartland, a nationwide campaign against recent tariffs on American businesses, farmers and consumers, today released new data that shows American businesses paid an additional $2.7 billion in tariffs in November 2018 — the most recent month data is available from the U.S. Census Bureau due to the government shutdown. This figure reflects the additional tariffs levied because of the administration’s actions and represents a $2.7 billion tax increase and a massive year-over-year increase from $375 million in tariffs on the same products in November 2017.” (Press Release, “New Data Shows Trump Administration Tariffs Cost U.S. Businesses $2.7 Billion In A Single Month, Exports of American Products Targeted For Retaliation Plummet 37 Percent,” Tariffs Hurt The Heartland, 2/14/19)

2019 Q1 CNBC Global CFO Survey & 2019 American Chamber Of Commerce In China Survey

Out Of The 54 Chief Financial Officers (CFOs) Included In CNBC’s Q1 2019 Global CFO Council Survey, 26 Percent Listed “US Trade Policy” As The Biggest External Risk Factor Currently Facing Their Business, Down From Roughly 35 Percent During The Q4 2018 Survey. “Across the total of 54 CFOs included in the Q1 CNBC Global CFO Council survey, consumer demand was cited as the No. 1 external risk factor (28 percent). Meanwhile, U.S. trade policy fell from No. 1 in the fourth quarter of 2018 to No. 2, with 26 percent of global CFOs citing it as the biggest external risk.” (Eric Rosenbaum, “1 In 5 Corporations Say China Has Stolen Their IP Within The Last Year: CNBC CFO Survey,” CNBC, 3/1/19)

  • 63 Percent Of CFOs Said That U.S. Trade Policy Would Have A Negative Impact Over The Next Six Months, Down From 73 Percent Of Respondents During The Fourth Quarter Survey. “U.S. trade policy remains far from a positive contributor to business outlook even as it slipped from the top spot among risk factors. CFOs across the globe overwhelmingly say its impact will be negative over the next six months, but the severity of that view declined from the fourth quarter of 2018 (when 73 percent of CFOs said it would be negative) to the Q1 survey (63 percent).” (Eric Rosenbaum, “1 In 5 Corporations Say China Has Stolen Their IP Within The Last Year: CNBC CFO Survey,” CNBC, 3/1/19)

The Washington Post: American Chamber Of Commerce in China (AmCham) Survey Shows Two-Thirds Of American Companies Operating In China Have Reported Disruptions To Their Business As A Result Of The Trade War. “Two-thirds of American companies operating in China have experienced disruptions to their business as a result of the protracted trade war between the world’s two largest economies, according to a survey by the American Chamber of Commerce in China released Tuesday.” (Anna Fifield, “U.S. Businesses In China Say The Trade War Is Hurting — But Still Support Tariffs,” The Washington Post, 2/26/19)

  • Thirty Percent Of The Respondents Said They Had Suffered A Loss In China, Up From 26 Percent The Year Prior, While Two-Thirds Said That Trade Tensions Had Led Them To Change Business Strategies, Delay Or Cancel Investments, Move Their Supply Chains, And In Some Cases Exit The Chinese Market. “Thirty percent of the respondents said they had suffered a loss in China in 2018, up from 26 percent the year before, and 20 percent said they do not expect their market share in China to grow this year. Among resource and industrial companies like agribusiness, oil and gas, and machinery, one quarter of respondents forecast flat or negative growth in 2019. Two thirds of respondents said that the trade tensions had led them to change their business strategies, including delaying or canceling investment decisions, moving their supply chains or manufacturing operations, or even, in a few cases, exiting the Chinese market.” (Anna Fifield, “U.S. Businesses In China Say The Trade War Is Hurting — But Still Support Tariffs,” The Washington Post, 2/26/19)

What Company Executives Are Saying

Brown-Forman – Owner Of Jack Daniel’s, Woodford Reserve, And Other Spirits Brands – Said The Cost Of Tariffs Implemented By The European Union On American Whiskey Led To A Decline In Sales, While Chief Executive Officer (CEO) Lawson Whiting Said Tariffs Complicate The Company’s Near-Term American Whiskey Strategy. “Brown-Forman owns Jack Daniel’s, Woodford Reserve and numerous other spirits brands. While most of its products are made in the U.S., most of its sales (about 60 percent) are made in international markets. And the cost of tariffs on American whiskey implemented by the European Union in retaliation for new U.S. tariffs were a drag on earnings. A key part of Brown-Forman’s global strategy is to focus on building a market for its super-premium brands, such as Gentleman Jack and Woodford Reserve, CEO Lawson Whiting said during an earnings call today. Europe is a big part of that strategy, he said. The sale of those super-premium brands have grown by more than 20 percent year-to-date in fiscal 2019, compared to last year. The third quarter of Brown-Forman’s fiscal 2019 ended Jan. 31. Whiting said tariffs complicate the company’s near-term American whiskey strategy but said it would continue with it in spite of that.” (David Mann, “Brown-Forman Shares Sink After Earnings Release,” Louisville Business First, 3/6/19)

  • CFO Jane Moreau Called The Tariffs A Substantial Burden, Either Affecting Underlying Net Sales Or The Cost Of Sales, And Estimated The Annual Cost Would Be $125 Million If Tariffs Remain. “CFO Jane Moreau called tariffs a substantial burden for the business, saying they affect either underlying net sales or the cost of sales — depending on how the business operates in a given market. (Different markets have different distribution models for alcoholic beverages.) She said tariffs lowered the company’s year-to-date underlying net sales by 1 percent in fiscal 2019. Moreau estimated that if the tariffs stay in place, the annualized cost would be about $125 million.” (David Mann, “Brown-Forman Shares Sink After Earnings Release,” Louisville Business First, 3/6/19)

In An Earnings Call, American Woodwork Corp. CEO Cary Dunston Noted That The Company Has Passed A Little Of The Cost Due To A 10 Percent Tariff On To The Customer, However Expects Further Pricing Action If Tariffs Are Lifted To 25 Percent. “Regarding the 10% tariff, to-date we have passed a little of the increase through via pricing as we remain sensitive to the elasticity of the market… Clearly, we are watching the current negotiations with China closely and the potential of this — of the tariffs moving to 25%. We have taken numerous actions in anticipation of the tariff, including building inventory of imported product. Our purchasing and manufacturing teams have also been actively working to mitigate our exposure by resourcing and leveraging our low-cost platform in Mexico. As I mentioned previously, the uncertainty of the tariff is a significant challenge with the most recent news simply further delaying the decision. However, if the 25% tariff materializes, we will take pricing action as a means to help offset the impact.” (“American Woodmark (AMWD) Q3 2019 Earnings Conference Call Transcript,” The Motley Fool, 2/26/19)

  • CFO Scott Culbreth: “With Respect To The 301 Tariffs, Assuming The Tariffs Rise To The 25% Levels, We Could Be Exposed To Approximately $8.5 Million Of Potential Annual Direct Cost Increases. We Work To Mitigate These Impacts Through A Combination Of Price Increases, Supply Negotiations, Supply Chain Repositioning And Internal Productivity Measures.” (“American Woodmark (AMWD) Q3 2019 Earnings Conference Call Transcript,” The Motley Fool, 2/26/19)

CEO & Chairman Of Universal Electronics Inc. Paul Arling: “While We Have Acted Quickly To Respond To The Punitive Tariffs Implemented By Our Government During 2018 By Broadening Our Sources Of Supply To Locations Outside China, This Transition Delayed Shipments And Net Sales Fell Short Of Our Expectations In The Fourth Quarter.” (Press Release, “Universal Electronics Reports Fourth Quarter And Year-End 2018 Financial Results,” Associated Press, 2/21/19)

CFO And Vice Chairman Jon Moeller Of Procter & Gamble Co. Estimated Tariffs Would Cost The Company Nearly $100 Million In 2019. “The cost of conflicts between the U.S. and its trading partners will cost The Procter & Gamble Co. nearly $100 million this year, the company’s CFO said Feb. 21. CFO and Vice Chairman Jon Moeller quantified the projected hit to the company’s 2019 fiscal year profit while speaking in Boca Raton, Fla., at the Consumer Analyst Group of New York’s annual conference, or CAGNY.” (Alex Bitter, “P&G CFO: Tariffs To Create Almost $100M In FY’19 Costs,” S&P Global, 2/21/19)

  • On An Earnings Call, Moeller Reported The Company Was More Concerned About The Ability To Import And Export Products Freely Across Markets, Stating That Has “An Impact On Our Sales.” “During an earnings call in January, Moeller acknowledged that P&G would face costs from tariffs, but added that the Cincinnati-based company was more concerned about ‘the ability to … import and export products freely across markets.’ ‘That has an impact on our sales,’ he added.” (Alex Bitter, “P&G CFO: Tariffs To Create Almost $100M In FY’19 Costs,” S&P Global, 2/21/19)

During A Quarterly Earnings Call, President And CEO Kurt Darrow Of La-Z-Boy, Reported The Company Increased Prices By 2-3 Percent On Some Of Its Furniture Business, And If Tariffs Increase To 25 Percent, Prices Would Increase By 6-7 Percent. “In September, a 10% tariff was implemented on goods coming from China, which impacted several items we source for our manufacturing operations, including cover for our upholstered product… We are passing on the combined tariffs through a surcharge on our wholesale business that increased our prices roughly 2% on our upholstered business and about 3% on our upholstered units with power… However, should the tariffs on goods from China go up to 25% in March, this would translate to a roughly 6% to 7% increase in pricing and combined with several other price increases over the past 18 months to offset raw material cost…” (“La-Z-Boy Incorporated (LZB) Q3 2019 Earnings Conference Call Transcript,” The Motley Fool, 2/20/19)

After First Quarter Sales And Profits Missed Expectations, Deere & Co.’s CEO Samuel Allen Cited The Trade War, Higher Costs For Materials Like Steel, And Worries By Farmers Struggling With The Impact Of Tariffs As Major Causes. “U.S. farmers, struggling with global trade disputes, are getting stingier on spending, and that apparently includes Deere & Co.’s iconic yellow and green tractors and combines. The world’s biggest agricultural equipment maker reported first-quarter results that missed analyst estimates for sales and profit. Chief Executive Officer Samuel Allen cited worries by farmers struggling with the impact of tariffs and trade spats with China and other nations. Higher costs for raw materials such as steel have also taken a toll. The shares declined in response.” (Lydia Mulvany, “Deere’s CEO Calls Out Tariffs, Trade As Profit Disappoints,” Bloomberg, 2/15/19)

  • Deere & Co.’s CEO Samuel Allen: The Trade Issues “Have Weighed On Market Sentiment And Caused Farmers To Become More Cautious About Making Major Purchases.” (Lydia Mulvany, “Deere’s CEO Calls Out Tariffs, Trade As Profit Disappoints,” Bloomberg, 2/15/19)

On A Post-Earnings Call, Newell Brands Inc. Announced It Would Take A $200 Million Loss In Profits During 2019, In Part From Retaliatory Tariffs Imposed By Europe And Canada, As Well As Tariffs On Products From China. “Newell Brands Inc. on Friday forecast lower-than-expected full-year sales and profit, hit by a strong dollar, higher costs and sluggish sales of its Graco baby products in the aftermath of the liquidation of Toys ‘R’ Us, sending its shares down nearly 19 percent. Large U.S. consumer goods makers like Newell, which sell products across the world, have been pressured by strengthening dollar and higher commodity and freight costs in its domestic market. Adding to the pressure is cost escalation related to retaliatory tariffs imposed by Europe and Canada as well as U.S. tariffs on certain imports from China. Newell, on a post-earnings conference call, said inflationary pressures, including tariffs, strong dollar and higher input costs, would dent profits by $200 million in 2019.” (Soundarya J, “Newell Shares Plunge As Toys ‘R’ Us Liquidation, Strong Dollar Weigh On Forecast,” Reuters, 2/15/19)

Chief Executive Paul Shekoski Of Wisconsin-Based Primex Family Of Companies On Tariff Impacts: “It Has The Potential Of Putting Us Out Of Business If We Don’t Do Anything.” (Mark Niquette & Andrew Mayeda, “CEOs Are Scrambling to Avoid Trump Tariffs and Survive Trade War,” Bloomberg, 2/7/19)

  • Shekoski On Filing For Exemptions From Tariffs After All Of Their Requests Were Denied: “We Were Like, ‘You’re About To Put A 75 Year-Old Company Out Of Business?,’… Why Would It Not Be Economic Harm?’’ (Mark Niquette & Andrew Mayeda, “CEOs Are Scrambling to Avoid Trump Tariffs and Survive Trade War,” Bloomberg, 2/7/19)

On A Q4 2018 Earnings Call, General Motors CFO Dhivya Suryadevara Described Tariffs, In Part, As Creating Headwinds “To The Tune Of $1 Billion.” “Touching on the headwinds; we will take downtime to the tune of 25,000 units, as we prepare for the launch of our all-new full-sized SUVs. We expect China equity income to be down moderately year-over-year. We expect to see headwinds year-over-year from commodities and tariffs to the tune of $1 billion.” (“General Motors Co (GM) Q4 2018 Earnings Conference Call Transcript,” The Motley Fool, 2/6/19)

Suryadevara: “We Do Have The 301 Tariff Factored Into Our Outlook For The Year, That’s Embedded In Our $1 Billion Number.” (“General Motors Co (GM) Q4 2018 Earnings Conference Call Transcript,” The Motley Fool, 2/6/19)