Who Are the Trade War Losers? Just Look at the Earnings Rolling In

Corporate earnings are the strongest they have been in years. Headline numbers suggest the economy is doing pretty well under President Donald Trump.

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Peter Eavis
, New York Times

Corporate earnings are the strongest they have been in years. Headline numbers suggest the economy is doing pretty well under President Donald Trump.

The stock market, however, is starting to signal that the good times might not last for many.

On the surface, stocks look to be performing well. The S&P 500 is up more than 6 percent this year, and it is close to getting back to the historic high it hit earlier this year.

A deeper look, however, suggests there is increasing concern among stock investors. A small group of the largest technology companies has driven much of the recent rally. The stocks of other types of companies have not performed nearly as well, in part because of worries that Trump’s tariffs will harm corporate profits.

The stock market is not a perfect predictor of the future, but the lackluster performance of a large part of it may portend a difficult period for many companies in which they pull back on their businesses and perhaps shed jobs in the process.

The trade talks announced Wednesday between the United States and the European Union could prevent an escalation of the fight between the two trading partners. Some investors have been betting that Trump’s bellicose stance was a bargaining tactic. Stocks jumped after news of the talks was reported.

But a joint statement from the United States and the European Union merely laid out their intentions to talk and did not provide many details. Failure to make progress in negotiations with the European Union and continued tensions with China could dampen investors’ spirits.

And investors and executives are finding plenty of reasons to remain nervous as companies report their second-quarter earnings. The trade war’s impact on some companies is causing their stocks to crater. So far, the hit is largely coming from the tariffs on steel and aluminum, which have pushed up the prices many firms pay for the metals.

The higher costs have hurt a company like Whirlpool, which was meant to be the beneficiary of Trump’s tariffs on imported washing machines. Its stock has fallen 18 percent since it announced disappointing results Monday.

The metals tariffs also tripped up Alcoa. The company imports aluminum to the United States that it processed in its plants in Canada. Its stock has fallen more than 10 percent since the pain from the trade war was evident in its earnings last week.

It’s possible that the economy is strong enough to make up for the drag caused by the trade confrontations. United Technologies, an industrial conglomerate, on Tuesday raised its profits forecast even as it reported higher costs because of the tariffs.

But executives on earnings calls are saying their companies have only just begun to feel the effect of the tariffs. Their second-quarter results, for instance, reflected steel and aluminum bought at lower prices than exist in the market today. And few of the other tariffs that Trump has proposed have gone into effect yet. That could change by the end of the year, including an additional $200 billion of tariffs on imports from China. Trump is also pushing for tariffs on autos, though these may not be imposed on European imports if progress is made in the talks announced Wednesday.

General Motors, which reported earnings Wednesday, showed the many ways in which Trump’s trade actions could damage the company’s business. Higher steel costs were one of the reasons General Motors slashed its profits forecast for 2018, a move that helped send its stock down 4.6 percent Wednesday.

The company’s costs didn’t rise because it is purchasing a large amount of foreign steel that is subject to tariffs. Over 90 percent of the steel used in General Motors’ production comes from the United States, said Tom E. Henderson, a company spokesman. But the tariffs have pushed up prices for all steel, including American, and put a burden on even companies that rely on domestic suppliers. Higher prices for steel and aluminum could add as much as $700 million to General Motors’ costs this year, Chuck Stevens, the company’s chief financial officer, said Wednesday.

General Motors sells a large number of vehicles in China, where it has significant operations. Trump’s actions against China could end up provoking Chinese consumers to boycott GM’s cars — a real possibility, given that those same buyers recently shunned South Korean autos and other products. But Stevens said Wednesday that the company had not seen any sign of a boycott.

General Motors cannot rule out the possibility that Trump will impose tariffs on auto imports, and other countries will retaliate with their own measures. The company said last month that auto tariffs could lead to higher prices and job losses. When asked about the auto tariffs on Wednesday’s call, GM’s chief executive, Mary T. Barra, said: “I would just, again, focus on the fact that I think it’s in everyone’s best interest to have a strong United States auto industry. It’s a big provider of quality jobs.”

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