CEOs buckle in for a bumpy ride as US-China trade war gains traction-Sino-US


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CEOs buckle in for a bumpy ride as US-China trade war gains traction
Stacks of Tyson Foods beef imported from the US sit on pallets at the Suzhou Huadong Foods cold storage facility in Suzhou, China, last month. The US-China trade war and the tariffs it brought left the warehouse housing unaffordable American steak. Photo: Bloomberg
 
As the two largest economies add more tariffs, corporations are starting to see expenses rise, and executives say it’s hard to make any plans
 
Executives at US multinational corporations have started taking measures to counter the impact of tariffs in the US-China trade war, but they must face a hard truth – the acceleration of the dispute is introducing an unprecedented uncertainty to their businesses.
 
In discussing their business outlooks recently, executives from the agricultural, food and manufacturing sectors said they were acting cautiously and taking one step at a time.
 
On Monday, when Thomas Hayes, the chief executive officer at Tyson Foods, the largest meat supplier in the US, was asked his view on the prospects of the pork industry next year, he said: “We don’t have an assumption that they are going to improve. … We just don’t know.”
 
“It’s hard to predict,” he said. “If you have an answer on that one, I’m happy to hear it.”
 
Meat producers are front and centre in the trade war that began in April when US President Donald Trump first threatened tariffs on US$50 billion of Chinese goods. While many had expected progress in negotiations by now, Washington and Beijing instead embarked on tit-for-tat retaliation.
 
Tariffs on US$34 billion worth of imported Chinese goods went into effect in July, with another US$16 billion in duties to be imposed in about two weeks.
 
China answered with matching tariffs on US$50 billion worth of US imports; US$34 billion went into effect in July, and the list of American goods for the remaining US$16 billion was announced on Wednesday.
 
China also said it would apply tariffs on another US$60 billion of imports if Trump moved forward with his latest threat: tariffs on an additional US$200 billion of Chinese goods.
 
Over the weekend, Beijing said it was ready for “a protratracted war” and did not fear sacrificing short-term economic interests.
 
On recent calls with shareholders and analysts, many executives have noted the unusual geopolitical events, saying they had brought unprecedented ambiguity.
 
Tyson Foods last week cut its fiscal 2018 projections by about 85 cents a share, to as low as US$5.70 from US$6.55 earlier, citing “uncertainty in trade policies and increased tariffs negatively impacting domestic and export prices.”
 
Stanley Black & Decker, a Fortune 500 manufacturer of industrial tools and household hardware based in New Britain, Connecticut, estimated a US$35 million hit this year from tariffs on steel and aluminium, materials of obvious importance to the company’s product lines.
 
Manufacturers know that one way to mitigate the impact of tariffs is to shift the chain of suppliers away from affected countries. Even so, there are trade-offs, and executives are wary.
 
“We also have to be cognisant that any time you move the supply chain around significantly, there’s cost associated with it and there’s also risk associated with it,” James Loree, CEO of Stanley Black & Decker, said a few weeks ago.
 
“So in the near, near term, there won’t be a lot of supply chain manoeuvring, it will be mostly price,” referring to price increase to counter the rise in costs associated with tariffs.
 
The difficulty, Loree said, is that “we really don’t know the length of these tariffs.”
 
In hopes of bringing the trade war to an end, leaders of some global companies have taken on a role unusual for them, that of diplomats.
 
“We are standing up for responsive global trade that lets food move freely,” David MacLennan, Cargill’s chairman and chief executive officer, wrote in a letter to shareholders on Tuesday.
 
Cargill, a 153-year-old provider of agricultural and industrial products that is the largest privately held corporation in the US, has done business in China since the early 1970s.
 
“We advocated with policymakers to build upon existing trade agreements like those between the US, Mexico, Canada, China and South Korea, rather than walk away from the negotiating table,” MacLennan said.
 
In May, Cargill, which is based in Minnesota, sent a five-page letter to US Trade Representative Robert Lighthizer, contending that the tariffs then proposed by the US against China would “not effectively advance the goal of addressing distortive trade practices”.
 
US farmers, the letter continued, would be hurt the most “due to declining prices” caused by “China’s proposed retaliatory tariffs”.
 
It also argued that “the use of tariffs is unsuccessful in achieving lasting solutions.”
 
Cargill launched an advocacy website, fedbytrade.com, “to show how farmers, workers and consumers are better off thanks to global trade,” MacLennan said when announcing the company’s quarterly results last month.
 
Also in July, John Flannery, the chairman and CEO of General Electric, said that while the company hadn’t seen a major impact on its business yet this year from tariff-related costs, GE was “supportive of fair and open trade”.
 
GE imports about US$2.9 billion of Chinese goods into the US, and China generated more than US$7 billion in annual revenue for the conglomerate in fiscal 2017 – about 6 per cent of its total.
 
“We hope and we expect that ultimately these matters reach a sensible negotiated conclusion. And we think that’s really in the best interest of all parties involved,” Flannery said during an earnings call with analysts.
 
For now, many executives, and their businesses, have just one big question awaiting one big answer.
 
As Loree of Stanley Blacker & Decker said: “What the lifespan of these tariffs is going to be, a couple of months, a couple of years, forever, who knows?”

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