#736 – How Higher Tariffs Affect Different Industries

Posted on | The Agurban

Unless you live under a rock, you cannot have missed the latest news on the trade war between the United States and China. And, by the time this Agurban posts, it is likely to change again. As a developer that focuses on manufacturing, we are keenly interested in how these tariffs will affect our clients. Below are excerpts from a recent Wall Street Journal article on the subject.

How Higher Tariffs Affect Different Industries
A Wall Street Journal Roundup, May 11, 2019

The increased tariffs enacted by the U.S. on products coming from China raise the costs for many American companies and threaten their future profits.

On Friday (May 10, 2019), the U.S. raised import tariffs to 25% on $200 billion of Chinese goods, such as circuit boards, microprocessors, vehicle parts and machinery. President Trump also has warned about imposing 25% tariffs on $325 billion in Chinese goods that aren’t currently taxed. Such a move would cover virtually all Chinese exports to the U.S. and spread the pain to consumers.

Consumers haven’t felt the brunt of the U.S.-China trade fight since the tariffs so far have largely targeted components used by manufacturers or because businesses absorbed some of the initial 10% tariffs.

Below is a look at some of the industries grappling with the effect of tariffs.

The tariff increase will cover a range of auto-parts imports, from spark plugs to exhaust pipes, and likely cascade through the supply chain, potentially affecting prices on new and used cars, industry experts said.

As the auto industry has globalized, Chinese suppliers have become dominant at certain points in the supply chains. There are few affordable alternatives for some of these materials and parts, industry trade groups said.

If a 25% tariff were levied on all automotive imports, the average price of a vehicle sold in the U.S. would increase by $4,400, according to a report from the Center for Automotive Research. The price of an imported vehicle could rise by as much as by $6,875, the group said. —Adrienne Roberts

Executives at major U.S. manufacturers said they would respond to any change in the tariff by sourcing from other countries and by raising prices.

More than 1,200 companies have applied for exemptions from tariffs for products they said they could get only from China. Through May 3, about 13% of requests had been granted. —Austen Hufford and Bob Tita

Fresh data from the U.S. Department of Agriculture on Friday underscored how much the domestic supply of crops and livestock is piling up amid trade tensions with China.

The department’s estimate for the size of U.S. corn, soybean and wheat stockpiles grew more than expected in May to 995 million bushels of soybeans, 2.1 billion bushels of corn and 1.2 billion bushels of wheat.

Some traders said any government purchases of U.S. farm goods were unlikely to make up for business lost to China’s huge and growing market. —Kirk Maltais

Consumer Electronics
The higher tariffs will encompass telecommunication and networking equipment, as well as electronic devices ranging from TV components to burglar alarms. Naomi Wilson, senior policy director for Asia at the Information Technology Industry Council in Washington, said that while the Trump administration’s challenge to China’s trade practices was welcome, the tariff increase would only “raise the toll” on American businesses, workers and consumers. —Asa Fitch

5G Wireless Networks
U.S. development of next-generation 5G wireless networks will feel the effects of 25% tariffs, the Consumer Technology Association warned Friday.

In less than a year of 10% tariffs, U.S. tech companies have already paid more than $745 million extra for 5G-related products, which include routers, switches and gateways that form the backbone of new networks, CTA president Gary Shapiro said. —Asa Fitch

Higher tariffs mean more pain for the bicycle industry, which was already struggling with weak sales. The number of bicycles sold in the U.S. dropped by about 15% in the first quarter compared with the same period a year earlier, according to the market research firm NPD Group. Revenue dropped by about 2% as bicycle companies passed along higher costs. —Ruth Simon

Solar Equipment
The higher tariffs will impact Chinese-made solar inverters, a piece of electrical equipment that converts the output of solar panels to alternating current. But the effect may be muted, because many inverter makers have already begun to shift manufacturing away from China to avoid the existing 10% tariffs and in anticipation of potentially higher tariffs. —Russell Gold

Walmart Inc. and other large retailers have prepared for potential tariff increases since last year, importing goods early and working with suppliers and manufacturers to lower production costs. But shelf prices are likely to rise on a host of common products with a 25% tariff, Walmart said in a September letter to trade officials arguing against the measure.

The largest U.S. retailer by revenue could weather higher tariffs better than smaller rivals, said retail analysts. Stores that earn a higher percentage of sales from groceries, including Walmart, Costco Wholesale Corp. and others will see lower impacts, according to a Bernstein report. Larger retailers also have more robust sourcing teams and greater ability to pressure suppliers to lower prices.

Around 56% of Walmart’s U.S. sales come from groceries, which are less likely to come from China than other products like Christmas lights or apparel. Around two-thirds of Walmart’s purchases are made in the U.S., company executives have told investors. —Sarah Nassauer

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