Trump Risks Throwing Manufacturers Offline

(Bloomberg Opinion) -- President Donald Trump has called his administration a “well-oiled machine.” U.S. manufacturers keep getting caught in it.

Shares of manufacturers initially popped when President Donald Trump was elected in 2016 on optimism that he would push through favorable tax cuts, improve access to foreign markets and back a large-scale infrastructure overhaul. These companies did get tax cuts, but they also got an onslaught of tariffs that seem to be as un-killable as cockroaches. That's created macroeconomic and supply-chain uncertainty that makes it impossible to make wise investment decisions, and endangered a sales recovery that for some companies is still only a few years old.

At last week's Electrical Products Group Conference, CEOs spent a notable amount of time answering questions about the impact of a possible recession and how they're preparing for that. After a tepid start to the year, many companies – particularly those with exposure to the weak spots of automotives, electronics and China – had been banking on a second-half recovery in sales and profits. The more Trump does to ratchet up trade tensions across the globe, the more unrealistic that seems.

Trump announced this week that he would slap tariffs as high as 25% on Mexican goods until the country stanches the flow of illegal immigrants into the U.S. This comes just two weeks after the administration agreed to remove steel and aluminum tariffs on the country as it pushes Congress to ratify its renegotiated version of the North American Free Trade Agreement. The White House insists this latest round of tariffs is separate from that deal, an obtuse argument that neglects the fact that levies would seem to violate its terms. Meanwhile, the same day Trump rolled back those metals tariffs, he also agreed to stay a decision on taxing European auto imports. That truce looks similarly tenuous, with the EU dismissing calls to voluntarily restrain exports. Trump's recent visit to Japan ended with more jabs at Democratic presidential candidate Joe Biden than progress toward a trade deal with that country. And now China is threatening to blacklist “unreliable” American entities and has prepared a plan to restrict exports of rare earths in retaliation for Trump's efforts to knee-cap Huawei Technologies Co. and the escalation of tariffs on $200 billion of goods.

In sum, the U.S. continues to pick trade fights with just about everyone, including key American allies that should instead be partners in the fight for greater market access and intellectual property protection in China. With very little to show for those goals, it increasingly feels like the tariffs themselves are the point and that Trump will use this blunt tool for just about anything.

That's a painful reality for industrial companies whose supply chains zig-zag across the globe. Many like to talk about the benefits of localized manufacturing strategies where products bound for a certain country are made there. But that belies complex networks of part-sourcing and a separation of final assembly work from component manufacturing. Some industrial companies have committed to reworking their supply chains in light of the U.S.'s battle with China, but the recent reigniting of tensions with Mexico shows how challenging that can be. As an example, GoPro Inc. will start making most U.S.-bound cameras in Mexico to avoid the fallout from the China trade war. How's that plan working out?   

The automotive and agricultural industries will feel the most direct hit, magnifying an existing slump that's already eroded earnings at companies ranging from 3M Co. to Rockwell Automation Inc. to Deere & Co. For every car an American consumer buys in the U.S., a third of the value is created by Mexican workers and parts, as my colleagues Anjani Trivedi and David Fickling have noted. Mexico has said that it won't retaliate without first discussing the matter with the U.S. and seems eager to avoid a renewing of tensions, but Trump's actions may ultimately back the country into a corner and that could revive tariffs on American farm products.

The other concern for industrial companies as a group is that Trump's willingness to re-open freshly healed trade wounds seems likely to undermine China's confidence in the value of negotiating a trade deal with the U.S. What's the point, if America will just tear up the deal and slap tariffs on China the next time it suits? At the very least, the re-escalation of tensions with Mexico likely engenders too much mistrust for there to be some sort of sideline deal struck between Trump and China President Xi Jinping at next month's G-20 conference, as some investors had hoped.

Trump's plan to reinstate tariffs on Mexico has drawn a swift rebuke from Wall Street and from some in his own party including Republican Senator Chuck Grassley of Iowa, whose farmer constituents would likely feel the pain of a reopening of that trade war front most acutely. It may be that he's ultimately forced to back down. But the damage may already be done from the perspective of trust and the uncertainty this seemingly never-ending trade battle has unleashed.

To contact the editor responsible for this story: Beth Williams at

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

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