Analysts said companies such as Ford and General Motors would be hit hard if the U.S. sets tariffs on imported steel and aluminum as President Donald Trump announced last week.
According to MarketWatch, the automotive corporations are estimated to take a hit to their profits in the neighborhood of $1 billion each should the tariff proposal be enacted, with numerous other machinery companies being hurt as well.
Speaking with Fox News’ Trish Regan, American economist Arthur Laffer added his concern as to how the proposed tariffs might be bad news for the U.S. itself.
“Putting on tariffs only hurts us dramatically,” Laffer said, who had been a member of Ronald Reagan’s Economic Policy Advisory Board. “If you think about it, it makes no sense … High quality, low-cost imports is good for America. It’s not bad for America.”
Laffer stated that a major way foreign companies invest in America is by selling “more goods to us and buying less goods from us” in order to get the money to buy assets located in the U.S.
“That’s the trade deficit,” Laffer added. “With Reagan and the first five years of our term, we had a huge increase in the trade deficit because everyone was trying to invest in the United States.”
“So why do you think the president is doing this?” Regan asked.
“I hope he’s doing it for negotiation reasons,” Laffer said. “I have questioned his logic many, many times in my mind, and every time he’s fooled me and he’s done a much better job at negotiating and getting things done.”
Trump proposed applying tariffs of 25 percent on imported steel and 10 percent on aluminum — the former being a primary material used by both GM and Ford.
“Based on 2017 production mix, if the proposed tariff of 25% on imported steel translates into a similar magnitude of increase in steel prices,” analysts for Goldman Sachs stated.
“It would impact each firm by roughly $1 billion, representing 12% and 7% of their 2017 adjusted operating income, respectively,” they added.
Analysts added that the financial markets have expressed concern that the proposed tariffs could trigger a trade war, although both the Dow Jones Industrial Average and the S&P 500 index were effectively “bouncing back from earlier losses.”
Other machinery companies, such as Terex and Oshkosh, are expected to also see reduced profit margins, as both companies have less pricing power than Caterpillar or Deere.
“Our analysts believe strength of distribution and branding will be a key differentiating factor,” analysts stated.
An added concern regarding the proposed tariffs is the retaliation of foreign countries who are currently trading partners with the U.S., as companies who are more reliant on overseas revenue might get hit harder.
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