WHEN WILL TARIFFS BITE–AND HOW HARD?
Three months ago, the Middle Market Indicator documented a leap
in concerns about the costs of trade—tariffs in particular—from data
collected just after the U.S. taxed steel and aluminum imports from
Canada, Mexico, and the EU. An escalating series of levies and
counter-levies followed between June and early September, when we
collected 3Q data. Since the survey date, the United States, Canada,
and Mexico have shaken hands on a revised free-trade agreement,
while the U.S. and China have shaken fists with tariff hikes on $260
billion worth of goods.
It takes about six months for tariffs to work their way from sales to
shipments to shelves, according to Grant Thornton chief economist
Diane Swonk, so their full effects won’t be clear until well into 2019.
By a two-to-one margin, middle market executives say tariffs will hurt
their business. A third say profits will suffer, and more than half will
raise prices. The worst affected companies are in the core middle
market, with annual revenues between $50 and $100 million. These
are companies big enough to participate in global markets, but in
all likelihood not big enough to have overseas operations that might
allow them to avoid tariffs by shifting production from one side of a
border to another. (For a discussion of industry and other effects, see Perspectives)
