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How companies are making customers pay for Trump’s trade war
[NEW YORK] US President Donald Trump's trade war is making life uncomfortable for some large American corporations, but they have found a way to lessen the pain: Pass it on to customers.
The Trump administration's tariffs have pushed up the prices of steel and aluminum and have raised costs for companies that make everything from cars and tractors to dishwashers. These companies face a choice. They can bear the higher costs themselves and report weaker profits, which might crater their stocks. Or they can charge more for their products, in effect making their customers bear much of the financial burden of the tariffs, at least for a while.
Many firms are opting for the latter.
As companies report second-quarter earnings, they are going out of their way to let their shareholders know that it is customers who are paying.
Caterpillar, while reporting record profits Monday, predicted that tariffs would add as much US$200 million to its costs in the second half of this year. The company added, however, that it would try to partly offset the hit by increasing the prices of its products. Whirlpool, which uses steel and aluminum in its dishwashers and washing machines, said it had hoisted its prices this year. Coca-Cola said last week that it had increased prices in the United States in part because of tariff-related cost increases.
"It's been very hard for companies to pass costs through to prices for many years," said Ed Yardeni, chief investment strategist at Yardeni Research. "The thing about tariffs is that they make a very good excuse: Blame it on Trump."
The impact of the tariffs, and who bears their brunt, could have big implications for the wider economy. The tariffs are raising expenses at a time when companies are paying more for other materials and labor. If most of these costs are passed on to consumers, inflation, rising after being dormant for years, could accelerate. What is more, since the metals tariffs have been in effect only since the start of June, their full impact has not been felt.
Some companies can't foist higher prices on their customers because of the risk to their sales. General Motors, for instance, slashed its profits forecast last week in part because of higher steel prices.