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U.S. Companies Greet Latest Trump Tweets With Concern and Confusion

By Heather Somerville and Tripp Mickle 

American businesses, from technology startups to large corporations, are displaying confusion and concern as they struggle to understand what President Trump's latest China messages mean for their operations.

President Trump tweeted Friday that he "hereby ordered" U.S. companies doing business in China to explore relocating operations. He also tweeted late Friday afternoon that he would raise existing and planned tariffs on Chinese goods by 5 percentage points.

On Sunday, after Mr. Trump suggested at the Group of Seven meeting in France that he had second thoughts about ramping up the trade war with China, the White House said the president had been misinterpreted and that he regrets not raising tariffs higher.

After a tumultuous week for trade negotiations, top administration officials said the president didn't order U.S. companies to leave China and has no plans to invoke emergency powers to force them to relocate their operations.

"Everyone is running their business thinking: 'This is life as we know it'," said an adviser to chief executives of several large U.S. companies with significant China operations. Executives are unlikely to view the president's tweets as an edict, said the adviser who declined to be identified. Rather, they are more likely to see it as yet another salvo in the continuing tussle over trade policy and "evidence things are getting hotter now."

"This is bonkers," Aaron Levie, chief executive of cloud computing company Box Inc., tweeted in response to President Trump's call for companies to look for alternatives to China. Mr. Levie has previously spoken out against Trump policies, although Box doesn't have significant exposure to China.

Businesses crave predictability so they can make informed decisions and plan for the future. Many companies that depend on Chinese manufacturers and consumers have already shifted supply chains out of the country and taken other steps to reduce their exposure to China. And while Mr. Trump's tweets are unlikely to trigger immediate changes, more uncertainty is unwelcome.

"Continued escalation and rhetoric are harmful to American businesses, workers and farmers," said Tom Linebarger, chief executive of Cummins Inc., which makes diesel engines. Cummins pays a tariff on components it imports from its own plants in China for engines assembled at U.S. factories by American workers. The tariffs amount to a tax paid by Cummins' customers, he said.

The Chinese market has been a boon for aviation from Boeing Co. to U.S. producers of smaller aircraft, including Robinson Helicopter Co. Robinson exports 60% of its helicopters and has seen a reduction in sales due to tariffs, said Kurt Robinson, its president and chairman.

"Any tariffs are harmful to the U.S. aviation industry," Mr. Robinson said.

Boeing declined to comment on Mr. Trump's tweets. The airplane maker has previously said it is counting on China to make up nearly a fifth of global jet deliveries in the next 20 years.

In 2018, Boeing opened a plant in China to install seats and do other completion work on some planes that are built in the U.S. Dennis Muilenburg, Boeing's chief executive officer, has said the facility in China isn't a direct threat to American jobs and is an essential part of doing business in the country.

Technology companies are entwined with Chinese parts makers. The Consumer Technology Association, a trade group representing more than 2,200 U.S. consumer tech companies, panned additional tariffs and pointed to the stock market decline on Friday as evidence that the trade war was stoking fears of a global recession.

Stocks, government bond yields and commodities fell on Friday as anxiety over trade relations with China roiled financial markets.

"The president is right to fight against China's forced technology transfers and IP theft, but tariffs are taxes on Americans, putting us on the wrong economic path and compromising our global leadership," said Gary Shapiro, president and CEO of the Consumer Technology Association. He called the tariffs "a great economic mistake."

Tech startups building hardware are in a particularly difficult situation. From electric scooter services to robotics businesses, many of them get crucial components from China. For them, Mr. Trump's demand to stop doing business in China seemed impossible.

"There is no other easily identifiable supplier or manufacturer for a lot of parts," said Eric Klein, a partner at venture-capital firm Lemnos, which invests in hardware startups. Shifting production out of China would be a complex process that would entail re-engineering production facilities, requiring a company to halt or slow production for months, he said.

"It would be financially devastating to a startup that isn't sitting on a pile of capital," said Mr. Klein. "The smaller the company, the more fragile their economic state is and changes like this are massively disruptive."

American Fire Glass Inc., which sells crushed glass used in fireplaces and fire pits, will pay roughly $150,000 in tariffs this year, up from $9,000 two years ago, said CEO Matt Doll, and payments could total as much as $500,000 in 2020 if higher tariffs remain in effect for the full year.

Some materials his company needs aren't in North America, and he has only found them in China, Mr. Doll said. To counter the additional cost, American Fire Glass raised its prices and saw sales slip, and cut its workforce to 27 employees from 34 people last year, he said.

Even larger manufacturers are feeling the pinch. China tariffs are already a drag on Apple Inc.'s stock price, said Daniel Ives, an analyst at Wedbush. "This remains a nightmare that will not go away for investors," he said.

Apple has explored shifting some of its production out of China, but it would take the iPhone maker years to cut ties with Chinese suppliers. Apple declined to comment.

In June Broadcom Inc. reduced its annual sales forecast by $2 billion partly because of a U.S. ban on exports to Chinese telecom company Huawei Technologies Co. Qualcomm Inc., which is a major supplier to Chinese smartphone makers, recently reduced its forecast for global smartphone sales by 100 million units.

--Alison Sider, Ruth Simon and Bob Tita contributed to this article.

 

(END) Dow Jones Newswires

August 25, 2019 16:38 ET (20:38 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.