Many American businesses are already facing disruptions in sales and supply chains as the trade war is setting in. Though U.S. tariffs were supposed to help its businesses, exporters are expected to be negatively affected by them.
Due to the anticipated spike in the price of steel and aluminum, companies that use those raw materials are expecting their cost of production to rise. Meanwhile, due to foreign countries’ retaliatory tariffs, U.S. companies are anticipating higher costs in shipping and lower demand from international customers.
Some main industries and companies to take note of are Harley-Davidson (HOG - Free Report) , the U.S. soybean business, and German motor companies. Let’s take a closer look.
Harley-Davidson Inc., a motorcycle maker, is afflicted by both the U.S. tariffs on steel and aluminum and the European Union’s retaliatory tariffs.
U.S. tariffs on steel and aluminum could increase the company’s bill for raw materials by as much as $20 million this year. In addition to that, the 31% tariffs the E.U. enacted would raise the cost of each bike it ships from the U.S by about $2,200.
In response to that, Harley said it will have to shift production of some cycles overseas to offset E.U. tariffs. This will cost as much as $100 million annually, but with its lowly position in the trade war, the company doesn’t have much choice.
Last Friday, the U.S. imposed tariffs on $34 billion worth of imported Chinese machinery, auto parts, medical devices, and other goods. In response, China said it is going to immediately impose equivalent tariffs that would cover 545 categories of U.S. products—including soybeans.
Soybean farmers are now facing plunging prices. Paul Burke from the U.S. Soybean Export Council told The Wall Street Journal that Chinese importers have mostly stopped buying U.S. soybeans. China imported about $14 billion in U.S. soybeans last year, making soybeans the top item targeted by China’s proposed tariffs, according to Wind Information via the WSJ.
Germany’s Mercedes-maker Daimler (DDAIF - Free Report) and BMW (BAMXF - Free Report) sell U.S.-made sport utility vehicles in China. Starting last Friday, those vehicles were subject to a 40% tariff.
These motor companies, along with Ford (F - Free Report) and Tesla (TSLA - Free Report) of the U.S., are expected to be most affected from the tariffs as they export a large amount of their vehicles to China.
BMW and Daimler are particularly vulnerable to this tit-for-tat U.S. – China trade war. Both companies have huge factories in the southern U.S., with thousands of employers that build vehicles for export to China and Europe.
The tariffs leave the companies with two choices: raise the price for customers in China or absorb the added costs. Though possible long-term plans include shutting down a plant or shifting production to other markets, such plans take years to plan and require even more additional cost. All in all, these auto companies surely are on the losing front of the trade war.
As of now, Trump is planning on a second round of tariffs on an additional $16 billion worth of goods, which will probably go into effect in August.
According to The Wall Street Journal, China experts think that the two main sides of this trade war—China and the U.S.—are likely to start negotiations again when the impact of tariffs become too big, and markets begin to react.
U.S. manufacturers will face tough decisions in coming months over whether to raise prices for their consumers or cover the higher costs themselves. As long as there is a possibility for more tariffs on imports from China, U.S. manufacturers will most likely halt their investments on domestic supply chains.
However, there is always a level of uncertainty regarding how the tariff dispute will actually turn out—causing decision making to be even more difficult for these companies.
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