The British newspaper The Economist said that the next wave of tariffs is expected with the arrival of Donald Trump to the White House It may be more painful for American companies than the previous wave.
This comes as American companies sought to reassure investors that they were fully prepared for a new round of tariffs, in the weeks following Trump’s landslide election victory.
The newspaper reported that some companies, such as Stanley Black & Decker, a maker of industrial tools and household appliances, have focused on efforts to shift their supply chains away from China, while others, such as Lowe’s, a home retailer, have pointed to measures they have put in place. To deal with tariffs after Trump’s first term, during which he imposed tariffs on $380 billion worth of imports ranging from steel and aluminum to washing machines, most of them from China.
The newspaper said that the upcoming disruption may have a broader impact and less predictability than many American companies expect. On November 25, the president-elect wrote on the social networking site Truth Social that he would impose 25% tariffs on all products imported from Mexico and Canada, and raise duties on goods from China by 10%, but at the same time, His recent statements about Mexico and Canada raise doubts about his intention to carry out his threat against them.
The newspaper added that if Trump imposes tariffs on America’s northern and southern neighbors, the impact on American companies will be devastating, according to the newspaper. Companies from Mattel, the maker of Barbie dolls, to Whirlpool, the manufacturer of home appliances, have factories in Mexico. About 3-fifths of the aluminum that America imports and a quarter of the steel it imports comes from Canada, with large quantities of steel also flowing from Mexico.
Car companies are the first affected
According to Citigroup, Trump’s tariffs would raise the price of steel for American manufacturers by 15-20%.
Among the most affected by the tariffs are American automakers; For example, General Motors imports more than half of the trucks it sells in America from Mexico and Canada, and about 9% of the value of auto parts produced in America comes from the two countries.
According to Nomura Bank, the tariffs proposed by Trump on November 25 will wipe out 4-fifths of General Motors’ operating profits next year, and foreign automakers, such as Toyota, will also be hurt.
3 ways to adapt
According to the newspaper, companies can respond to tariffs in three ways:
1- The first is to stockpile goods. Microsoft, Dell, and HP are among the American technology companies that are rushing to import as many electronic components as possible before the new administration takes office in January. However, there are limits to this strategy, as stocks may be exhausted. Long before tariffs are lifted, holding inventory also requires warehouses and restricts cash (in the form of stored imported components).
Many major companies have increased their inventories in the wake of the supply chain chaos caused by the Covid-19 epidemic, and their appetite for increasing them may be limited, especially since high interest rates raise the cost of doing so.
2- The second option for companies is to pass the tariffs on to customers by raising prices, and many companies, including Stanley Black & Decker and Walmart, the largest retailer in America, have already indicated that they may do so.
There are limits, however: The excess savings Americans have accumulated during the pandemic have been diminished by inflation, there are signs that the country’s job market is slowing, and the credit card delinquency rate is at its highest level in a decade.
3- The third and most difficult method is to reconnect supply chains. Once new suppliers are found, they must be tested and negotiated, a process that can take years, and many American companies have worked to diversify their supply chains away from China.
According to Kearney, a consulting firm, China’s share of imports of US manufactured goods fell from 24% in 2018 to 15% last year. Meanwhile, the share of other low-cost Asian countries rose from 13% to 18% and Mexico’s share increased. 14% to 16%.
An analysis by Fernando Lebovici and Jason Dunn of the Federal Reserve Bank of St. Louis shows that the decline in China’s share of imports was largest in industries in which America was most dependent on its competition, including communications and information technology.
Will shifting away from China end the problem?
But shifting production away from China may not be enough. The Biden administration – which has maintained many of the tariffs imposed by Trump and added some of its own – has imposed strict restrictions on Chinese goods entering America via circuitous routes. Last July, A “smelting and casting” rule was imposed on Mexican steel, requiring the metal to be produced in the country to avoid tariffs.
It may become increasingly difficult to obtain products from Chinese companies, including makers of everything from televisions to seat belts, that have set up factories abroad.
On November 29, the federal government imposed anti-dumping duties on solar panels produced in Southeast Asia by Jinko Solar and Trina Solar, two Chinese companies, among others.
According to the newspaper, Trump’s “protectionist anger” is directed not only at China, but at all countries with which America has a trade deficit, and as a result, companies that have shifted their supply chains to Mexico, Vietnam, or other low-cost countries may be exposed to damage.
Production in America
The Economist indicated that some may decide that the only safe option is to return production to the United States, and this is already happening in a few industries, including semiconductors. In the first nine months of this year, spending on building factories in America reached $172 billion, which is double what it was in the same period in 2019.
The self-sufficiency index compiled by Kearney, which is calculated as US manufacturing output (minus exports) as a proportion of imports (minus re-exports), has been on the rise since 2021, after declining over the previous eight years. However, manufacturing will remain… For many companies in America it is unbearably expensive.
The newspaper concluded that the next wave of tariffs may be more painful for American companies than the previous wave.
According to research conducted by Carlyle Baird of North Carolina State University, US companies that were exposed to Trump’s tariffs on Chinese imports during his first term saw their operating profits as a proportion of assets shrink by 5.4%, compared to those that were far from their impact, according to what was reported. The newspaper.
Last month, Stanley Black & Decker’s chief financial officer said that the customs duties imposed in the first period initially cost the company about $300 million annually, which is equivalent to a quarter of its net profits in 2017, and it continues to cost about $100 million annually.
The newspaper concluded its report by stressing that company heads will closely monitor Trump’s account on the Truth Social website.
