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US businesses of all sizes and stripes feel the pinch from President Trump's trade tariffs

Last updated: 06:07 17 Nov 2018 AEDT, First published: 05:21 17 Nov 2018 AEDT

A generic depiction of a Chinese ship nose-to-nose with a Chinese ship
Tariffs are raising input prices for American businesses, increasing their operational costs and putting pressure on profit margins

The US and China have exchanged billions in tit-for-tat tariffs over the last several months, and there are strong signs it’s hurting the US more than China. Not surprisingly, the damaging tariffs imposed by the Trump administration dominated earnings calls this reporting period as more than a third of companies detailed the fallout.

Central to Trumponomics is the idea that trade wars are good, easy to win and won't impede a US investment boom and a roaring bull market, but the reality is quite disastrously different. Of the 110 S&P 500 companies that have already reported third-quarter earnings through 23 October, 37% have either explicitly discussed or answered questions about the fallout from tariffs on their conference calls, according to FactSet.

Clearly, tariffs are raising input prices for American businesses, increasing operational costs and putting pressure on profit margins.

WATCH: Trump's steel tariffs to have 'serious international knock-ons'

“Let’s stop pretending. An import tariff is nothing but a tax on consumers and businesses. Not in the exporting country, but the importing one. So the 10% tariff on $200 billion of Chinese imports that President Trump has just imposed is, in reality, a new tax on Americans,” wrote former banker Frances Coppola in Forbes.

"I would expect pricing will also have to increase next year if these tariffs remain in place," United Technologies CEO Gregory Hayes said on an earnings call. "Ultimately these tariffs, it all gets passed onto the consumer in one form or another. It's just a tax on the consumer in another way to think about it."

Caterpillar sets alarm bells ringing

Shares in Caterpillar Inc (NYSE:CAT) dropped the most since 2011 despite record third-quarter profits after the industrial bellwether disclosed the cost of steel and other materials was rising because of the tariffs.

The Illinois-based heavy machinery maker posted earnings of $2.86 a share on a record $13.5 billion in sales. Still, there was more than enough reason for investors to sense trouble ahead when Caterpillar didn’t raise its profit guidance for 2018. Instead, the company indicated that recently imposed tariffs have begun to bite: Caterpillar said they are expected to raise material costs by $100 million to $200 million in the final six months of the year.

The Trump administration's tariffs of 25% on steel imports and 10% on aluminum imports took effect June 1.

Lost opportunities in China

Meanwhile, it is not only industrial heavyweights that are feeling the pinch. Pressure BioSciences Inc (OTCQB:PBIO) said its total revenue fell 19% to $521,800 in the third quarter compared to $646,100 for the same period in 2017 primarily due to “lost opportunities in China because of new tariffs imposed by both countries.”

"During the third quarter, a combination of factors temporarily reduced our revenue trend. …A large (six figure) instrument and consumables order from our biggest Chinese customer was put on hold because of new imposed tariffs,” Pressure BioSciences CEO Richard T Schumacher said Thursday in an earnings statement.  

The South Easton, Massachusetts, company is a leader in developing high-pressure-based technologies for the life sciences market worldwide.

"Regarding the large Chinese order placed on hold in September because of the new tariffs, we remain in weekly communication with our customer and continue to explore pathways to consummate the transaction," added Schumacher.

Similarly, soybean tariffs could be particularly hard on US farmers as China often imports about 50% of US soybean exports in a normal year. That has impacted US soybean farmers from the East Coast to the Rockies. The Department of Agriculture reported that US soybean exports to China over the past seven weeks tumbled 97% from a year ago.

Meanwhile, car exports to China plunged 56% from a year ago in August, and China’s tariff hike on US vehicle imports likely bear some of the blame.

Taking a bite out of pork products

American ham and other pork products now face massive tariffs — between 62% and 70% – after two rounds of retaliatory tariffs by China. One in four hogs raised in the US is sold overseas, and the Chinese are the world's top consumers of pork. The Trump trade war has led to almost a standstill in pork exports to China.

"We put a halt on all investment, not just because we will be losing money, but because we don't know if growing in the US is the right move if we won't be an exporting country," Ken Maschhoff, chairman of Maschhoff Family Foods and co-owner of the largest family-owned pork producer, told CNBC.

Maschhoff said that the farm industry has been "asked to be good patriots."

"We have been," he explained to CNBC. "But I don't want to be the patriot who dies at the end of the war. If we go out of business, it's tough to look at my kids and the 550 farm families that look us into the eye and our 1,400 employees."

 

Contact Uttara Choudhury at uttara@proactiveinvestors.com

Follow her on Twitter@UttaraProactive 

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