By Austen Hufford
U.S. manufacturers are investing less in their factories and
workforces as the trade dispute with China makes it more difficult
for executives to anticipate costs and demand.
The shifting contours of the tariffs that the U.S. and China
have applied to each other's goods are prompting some companies to
put business plans on hold. Others are cutting back investments as
trade volumes and economic growth slow around the world.
These companies are buying fewer machines for their factory
floors and shortening shifts. The knock-on effect means lower sales
for those suppliers and less pay for workers, contributing to
slower U.S. economic growth.
"You have a cloud of dust out there, and you are trying to see
clearly through it," said Paul Reitz, chief executive of heavy duty
tire maker Titan International Inc. "It's tough to do."
Mr. Reitz recently delayed buying new machinery for Titan's six
U.S. factories. He said sales could be flat or negative this year,
down from the 10% annual growth he expected heading into 2019. He
is considering reducing shifts or laying off workers.
Truck maker Navistar International Corp said Wednesday that it
expects to spend $115 million on capital projects this year, down
about 25% from its previous forecast after truck orders slowed
sharply in recent months. Caterpillar Inc.'s capital expenditures
dropped 16% in the quarter ended in June from that period a year
earlier. And Illinois Tool Works Inc. said business uncertainty
reduced demand for its welding, measurement and other equipment in
the second quarter. The company spent $154 million on additions to
its plants and new equipment in the first half of the year, down
from $181 million in the first half of 2018.
Some manufacturers see benefits from rising tariffs. Wenger
Manufacturing Inc., which makes equipment for producing breakfast
cereals and meat substitutes, is getting more orders from customers
in countries like Australia and New Zealand that are selling
products in China without paying tariffs, said Dennis Funk, a vice
president of the Sabetha, Kan., company.
Other companies aren't changing course as the trade winds shift.
"We don't update our forecast on a tweet-by-tweet basis," David
Burney, financial chief for manufacturer and defense contractor
Astronics Corp., told analysts in August.
White House spokesman Judd Deere said Mr. Trump is standing up
to unfair trade practices that harm U.S. manufacturers.
"Talks with China are continuing, but there is no doubt that
President Trump will continue to use every available tool to level
the playing field for American workers and reduce barriers to the
export of our goods and services," Mr. Deere said.
Overall, manufacturers are investing less. U.S. imports of
capital goods fell in July to the lowest level since 2017,
according to the Census Bureau. That contributed to a narrower U.S.
trade gap that month as manufacturers bought less machinery and
supplies, the Commerce Department said Wednesday. New orders for
capital goods posted their first year-over-year decline in three
years in July.
The downturn in capital spending has meant less demand for the
equipment IPEG Inc. makes for plastics manufacturers. Chief
Executive Chris Keller said orders have softened since July as the
trade war has intensified and concerns about the economy have
"It creates uncertainty, and uncertainty does make people
hesitate to invest," Mr. Keller said.
The diminished orders also suggest manufacturing output, down
1.6% since December according to the Federal Reserve, will remain
subdued. Capacity utilization at U.S. factories in July was the
lowest in two years. Activity at U.S. factories shrank for the
first time in three years in August, according to the Institute for
Supply Management's manufacturing index.
GHL International Inc. -- which makes popcorn poppers, cat
litter and other products -- said tariffs on its goods made in
China, such as water fountains for pets, have cut up to $200,000
from its profits each month. The company said it has delayed a $4
million investment in its factory in Cedarburg, Wis., that would
add at least 40 jobs because of the uncertainty and reduced
"You can't play roulette. You can't gamble with 30 years of
work," said John Lipscomb, chief executive of GHL, which was
founded in 1989.
Neenah Inc., which makes envelopes, filter components and other
goods, is seeing lower demand for its industrial products in the
U.S. and lower sales in China as customers switch to local
suppliers and the weaker yuan makes its products more expensive
there, Chief Executive John O'Donnell told analysts last month.
The Atlanta-based company is cutting capital expenditures to
about $30 million this year from $38 million in 2018 and spending
mainly on maintenance and on products that will reduce costs over
Some executives say President Trump has exacerbated the
uncertainty by making impromptu changes to trade policy. Mr. Trump
said on Twitter on Aug. 30 that "badly run and weak companies" are
blaming tariffs for their business failings.
Herb Kimiatek, president of Kimson Chemicals Inc., has a
shipment of his products coming to the U.S. from China and doesn't
know how much of a tariff will be applied when they arrive. He
thinks his products will face a tariff of either 25% or 30%.
Others say the shifting policies have left them unsure of which
products will face tariffs and how much they'll have to pay.
Thousands of requests have been filed for exemptions from tariffs
on products from China. About 23% of the earlier requests have been
granted, according to the Office of the United States Trade
Representative, and many are still pending.
Mpowerd Inc., which makes solar-powered lanterns in China, is
paying U.S. tariffs on many of its products. That has delayed
hiring and product launches as employees focus on negotiating price
increases with retailers in the U.S. and look for alternative
John Salzinger, a founder of Mpowerd, said the way Mr. Trump and
the federal government have communicated policy changes has
amplified his frustrations.
"Not just the increase but the way in which it has been
deployed. I'd call it sloppy at best," he said.
Write to Austen Hufford at email@example.com
(END) Dow Jones Newswires
September 08, 2019 05:44 ET (09:44 GMT)
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