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Trade war casualty in US: cheap prices for everyday goods
NEW YORK, July 29, 2018 (BSS/AFP) – The US economy may be roaring ahead,
but American consumers face the prospect of paying more for everyday goods,
due in part to trade tariffs.
Big companies reporting earnings over the last week or so described price
hikes on everything from soda to airplane tickets to household paint and
tools.
Some of the price hikes are still in the planning stages and not all
companies are sure they will be able to make higher prices stick due to
competitive pressures.
“We have implemented price increases for these implemented tariffs,” said
Donald Allan, chief financial officer at Stanley Black & Decker, whose
products include hammers, saws and power tools.
The 175-year old Stanley expects to generate $190 million more in revenues
in 2018 from price hikes, Allan said on a conference call this month.
Soda giant Coca-Cola also recently enacted price hikes in North America,
in part because of tariffs on steel and aluminum that raised costs of cans
and some production processes.
Coca-Cola chief executive James Quincey acknowledged that retailers were
not thrilled with the development.
“Clearly these conversations are difficult, I think it’s working its way
through,” he told analysts this week.
“Ultimately the beverage industry is not the only industry that is facing
pressure from changing imports and the need to take pricing,” he said.
“That’s just partly the general environment.”
At paint company Sherwin-Williams, executives hinted at price hikes due to
inflation in petroleum-linked commodities.
“Our historic practice has always been to talk with our customers first
and then the investment community,” chief executive John Morikis told Wall
Street analysts.
“We are going to protect our margins and we’re going to talk to consumers
first. And you can connect the dots from there.”
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– Prices already elevated –
Analysts see a number of factors behind higher commodity prices, with US
tariffs on steel and aluminum imports a frequently-cited catalyst.
But while trade actions by US President Donald Trump have gotten much of
the attention, analysts note that prices of many goods — including steel and
oil — were already elevated before the trade war took center stage.
Higher inflation also typically accompanies increased macroeconomic
growth, which was estimated on Friday at 4.1 percent in the second quarter by
the US government, the fastest level in six years.
Inflation also surfaced as a concern in the first- quarter earnings
season, but more companies are now discussing price hikes and some companies
said the problem has worsened as Trump has expanded the attack to more
countries and regions and as the steel and aluminum tariffs moved from threat
to reality.
JJ Kinahan, chief market strategist at TD Ameritrade, said it was still
premature to view inflation as a major worry.
“What makes me hesitant on inflation is not how it starts but that it can
rise really quickly,” he said.
Economists fear that a sudden surge in prices could spark more aggressive
interest rate hikes from the Federal Reserve, which could itself derail
growth.
– Companies face dilemma –
For companies, the issue of how to respond to elevated commodity prices
has compelled difficult choices between accepting lower profits, cutting
other spending and lifting retail prices.
General Motors suggested this week that it expects to eat at least some of
the hit from $2 billion in higher costs due to metals tariffs and the strong
dollar. GM trimmed its 2018 profit forecast, a move that sent shares diving.
GM has managed to offset about half the $2 billion through negotiations
with suppliers and hopes consumers will shoulder at least some of the rest,
said chief financial officer Chuck Stevens.
“To the extent we can, we’re recovering that through pricing,” Stevens
said. “Obviously the market in the United States is challenging.”
American Airlines responded to $2 billion in additional fuel costs this
year by cutting some planned additional capacity and defer deliveries of new
planes.
These moves will trim $1.2 billion in capital spending over the next three
years.
Executives said they also hoped to lift prices on tickets.
“We see a strong demand for the product, and so we’re optimistic that
there’s the chance to recover some of the cost of the increase in the price
of jet fuel,” said president Robert Isom.
“But over the long run, it depends on the economy and it depends on how
much supply is out in the marketplace.”
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