By Heather Somerville and Tripp Mickle
American businesses, from technology startups to large
corporations, are displaying confusion and concern as they struggle
to understand what President Trump's latest China messages mean for
their operations.
President Trump tweeted Friday that he "hereby ordered" U.S.
companies doing business in China to explore relocating operations.
He also tweeted late Friday afternoon that he would raise existing
and planned tariffs on Chinese goods by 5 percentage points.
On Sunday, after Mr. Trump suggested at the Group of Seven
meeting in France that he had second thoughts about ramping up the
trade war with China, the White House said the president had been
misinterpreted and that he regrets not raising tariffs higher.
After a tumultuous week for trade negotiations, top
administration officials said the president didn't order U.S.
companies to leave China and has no plans to invoke emergency
powers to force them to relocate their operations.
"Everyone is running their business thinking: 'This is life as
we know it'," said an adviser to chief executives of several large
U.S. companies with significant China operations. Executives are
unlikely to view the president's tweets as an edict, said the
adviser who declined to be identified. Rather, they are more likely
to see it as yet another salvo in the continuing tussle over trade
policy and "evidence things are getting hotter now."
"This is bonkers," Aaron Levie, chief executive of cloud
computing company Box Inc., tweeted in response to President
Trump's call for companies to look for alternatives to China. Mr.
Levie has previously spoken out against Trump policies, although
Box doesn't have significant exposure to China.
Businesses crave predictability so they can make informed
decisions and plan for the future. Many companies that depend on
Chinese manufacturers and consumers have already shifted supply
chains out of the country and taken other steps to reduce their
exposure to China. And while Mr. Trump's tweets are unlikely to
trigger immediate changes, more uncertainty is unwelcome.
"Continued escalation and rhetoric are harmful to American
businesses, workers and farmers," said Tom Linebarger, chief
executive of Cummins Inc., which makes diesel engines. Cummins pays
a tariff on components it imports from its own plants in China for
engines assembled at U.S. factories by American workers. The
tariffs amount to a tax paid by Cummins' customers, he said.
The Chinese market has been a boon for aviation from Boeing Co.
to U.S. producers of smaller aircraft, including Robinson
Helicopter Co. Robinson exports 60% of its helicopters and has seen
a reduction in sales due to tariffs, said Kurt Robinson, its
president and chairman.
"Any tariffs are harmful to the U.S. aviation industry," Mr.
Robinson said.
Boeing declined to comment on Mr. Trump's tweets. The airplane
maker has previously said it is counting on China to make up nearly
a fifth of global jet deliveries in the next 20 years.
In 2018, Boeing opened a plant in China to install seats and do
other completion work on some planes that are built in the U.S.
Dennis Muilenburg, Boeing's chief executive officer, has said the
facility in China isn't a direct threat to American jobs and is an
essential part of doing business in the country.
Technology companies are entwined with Chinese parts makers. The
Consumer Technology Association, a trade group representing more
than 2,200 U.S. consumer tech companies, panned additional tariffs
and pointed to the stock market decline on Friday as evidence that
the trade war was stoking fears of a global recession.
Stocks, government bond yields and commodities fell on Friday as
anxiety over trade relations with China roiled financial
markets.
"The president is right to fight against China's forced
technology transfers and IP theft, but tariffs are taxes on
Americans, putting us on the wrong economic path and compromising
our global leadership," said Gary Shapiro, president and CEO of the
Consumer Technology Association. He called the tariffs "a great
economic mistake."
Tech startups building hardware are in a particularly difficult
situation. From electric scooter services to robotics businesses,
many of them get crucial components from China. For them, Mr.
Trump's demand to stop doing business in China seemed
impossible.
"There is no other easily identifiable supplier or manufacturer
for a lot of parts," said Eric Klein, a partner at venture-capital
firm Lemnos, which invests in hardware startups. Shifting
production out of China would be a complex process that would
entail re-engineering production facilities, requiring a company to
halt or slow production for months, he said.
"It would be financially devastating to a startup that isn't
sitting on a pile of capital," said Mr. Klein. "The smaller the
company, the more fragile their economic state is and changes like
this are massively disruptive."
American Fire Glass Inc., which sells crushed glass used in
fireplaces and fire pits, will pay roughly $150,000 in tariffs this
year, up from $9,000 two years ago, said CEO Matt Doll, and
payments could total as much as $500,000 in 2020 if higher tariffs
remain in effect for the full year.
Some materials his company needs aren't in North America, and he
has only found them in China, Mr. Doll said. To counter the
additional cost, American Fire Glass raised its prices and saw
sales slip, and cut its workforce to 27 employees from 34 people
last year, he said.
Even larger manufacturers are feeling the pinch. China tariffs
are already a drag on Apple Inc.'s stock price, said Daniel Ives,
an analyst at Wedbush. "This remains a nightmare that will not go
away for investors," he said.
Apple has explored shifting some of its production out of China,
but it would take the iPhone maker years to cut ties with Chinese
suppliers. Apple declined to comment.
In June Broadcom Inc. reduced its annual sales forecast by $2
billion partly because of a U.S. ban on exports to Chinese telecom
company Huawei Technologies Co. Qualcomm Inc., which is a major
supplier to Chinese smartphone makers, recently reduced its
forecast for global smartphone sales by 100 million units.
--Alison Sider, Ruth Simon and Bob Tita contributed to this
article.
(END) Dow Jones Newswires
August 25, 2019 16:38 ET (20:38 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.