The trade dispute between the US and China triggered by President Donald Trump is set to escalate over the rest of the year, damaging global growth, an influential ratings agency will warn today.
Companies from across US industry yesterday warned of tariff hits to profits as car makers plotted their response to the threat of further levies which some observers believe would represent an act of trade war.
The Trump administrations threatened tariffs could increase the value of goods covered by tariffs to $886bn (£674bn) globally, equivalent to five per cent of world imports and five times higher than tariffs currently in effect, Moodys Investor Service will say in analysis published today.
Overall trade restrictions could knock 0.25 percentage points from US real GDP growth in 2019, while China could see growth reduced by as much as 0.5 percentage points according to the firms baseline scenario.
Read more: Trade war threatens £265bn blow to global economy
Tariffs on car imports are “one of the biggest downside risks” to forecasts which already predict a big impact on the US economy, said Elena Duggar, associate managing director at Moodys. Tariffs are “negative for almost every auto sector group”, Moodys will say.
Nations with large car manufacturing sectors, including Germany, Canada, and Japan, are gathering today in Geneva to discuss their response to the US, according to Reuters. The Trump administration is currently investigating car imports on security grounds, with a decision expected before the February deadline.
Among car makers, German firm BMW this week said it will increase prices of its sports utility vehicles (SUVs) by up to seven per cent to account for higher costs.
Mercedes Benz manufacturer Daimler raised prices for SUVs in China, according to Reuters, while Chinese-owned Volvo has previously warned that it has shifted production for the US to Europe from China.
Read more: Car nations mull meeting without US to discuss threat of tariffs
Trump has made reducing the USs trade deficits through tariffs a key economic policy, ignoring howls of protest from industry and even from within his own Republican party.
Firms involved in cross-border trade have already started to count the costs and adjust operating models.
American industrial machine giant Caterpillar today became the latest to reveal the extent of losses from tariffs. Costs will increase in the second half of the year by between $100m and $200m, the firm said in its second-quarter update, adding that it “expects supply chain challenges to continue to pressure freight costs”.
US meat processor Tyson Foods reduced its profits outlook, blaming uncertainty on trade and the impact of tariffs in raising domestic and export prices.
“The combination of changing global trade policies here and abroad, and the uncertainty of any resolution, have created a challenging market environment,” said Tom Hayes, the firms chief executive.
Iconic US motorcycle firm Harley Davidson today announced it will develop bikes with smaller engines in a bid to improve international sales. The Wisconsin manufacturer has previously drawn the ire of Trump after announcing it would move jobs abroad to escape tariffs.
Read more: 'Tariffs are the greatest!' Trump goads EU ahead of Juncker meeting
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