ARI SHAPIRO, HOST:
American industries have spent several months adjusting their business practices to deal with these tariffs, and numbers are just starting to come in that show us the real impact of the trade war on U.S. companies. Bloomberg reporter Andrew Mayeda has been following this and joins us now. Thanks for coming into the studio.
ANDREW MAYEDA: Thanks for having me.
SHAPIRO: There are a lot of factors that go into a company's bottom line. So how much can you actually tell right now about what these tariffs are doing to American companies?
MAYEDA: I think there's no question that it's having an impact. We are starting to see companies report the effect on their earnings. A big one was Apple. They said that they're selling less iPhones in China. Caterpillar said that this was having an impact. This is a company that makes construction equipment, the yellow stuff that you see at construction sites - NVIDIA, Intel. So there's no question that this is rippling across the U.S. economy.
SHAPIRO: So you gave a couple examples, like Apple and Caterpillar, of American companies that aren't selling as much in China. What about companies that use raw materials imported from China to manufacture in the United States? Are we seeing issues there?
MAYEDA: Yeah. Probably the best example would be Harley-Davidson. Recently they reported lower-than-expected results. Their profit was hit by tariffs. But it's not just the China tariffs in that case. It's also global tariffs imposed on steel and aluminum by the Trump administration.
SHAPIRO: When you look at the scale of the impact, is this more along the lines of an annoyance and inconvenience, or is it a real economic impact, something that could lead to slower economic growth, maybe even a recession down the line? How severe is it?
MAYEDA: If you actually look at the big-picture forecasts of the impact - for example, the IMF says that if we have a worst-case trade scenario, the global economy is going to be less than 1 percent smaller than what it otherwise would've been. That is not catastrophic. I think what people are concerned about is that there's some type of confidence shock. That is to say that, you know, businesses start investing less. Consumers start spending less. And it gets into this negative feedback loop where reducing confidence leads to slower growth.
And you're right. We are in about the 10th year of a global expansion. We're nearing the end of the economic cycle. Investors are on edge. I mean, the music will end at some point, and we will have a recession. And if we have a serious, bruising trade war, that will not be good for the global economy.
SHAPIRO: Is this affecting small businesses in a similar way to the giants - you know, the Apple, Caterpillar, Harleys of the world?
MAYEDA: Yeah, absolutely. There are companies in the U.S. that are on the edge right now. Big companies like Apple, like Caterpillar - they can shift their supply chains. They can move their supply chain from China to Malaysia or Vietnam. A smaller company doesn't have that flexibility, right? So if their input costs are rising, things can get very bad very quickly for some of these companies.
SHAPIRO: Can you give us an example of one of those small businesses that's really feeling this?
MAYEDA: Well, we talked to a company that makes weather stations. So these are stations that people set up in their backyard. And this company is trying to decide how it can get around these tariffs. They can't just move their supply chain around Asia. This CEO that we talked to is actually considering potentially moving production to Mexico. So that's the exact opposite thing that President Trump wants.
SHAPIRO: Are you seeing a pattern in the way that companies are adapting to this?
MAYEDA: I think that they're kind of running through a menu of options. One of the options, as I mentioned, is to move your supply chain to a place like Malaysia or Vietnam. There's no question that that is happening. Some companies are actually engaged in what's called tariff engineering. So if I have a certain good that is hit by tariffs, as it stands now, I could slightly change the way that the good is manufactured so it is actually not covered by tariffs. And there's no question, as the president is actually hoping for, that some companies are reshoring to the United States.
SHAPIRO: We're talking about tariffs that have been in place for several months. But if the U.S. and China don't reach a deal, tariffs are scheduled to rise even more on March 1. What are companies saying they'll do then?
MAYEDA: Yeah, I think that if there is no deal to end the trade war, then I think that, you know, we're just going to see kind of this ongoing grind of hitting bottom lines. We're going to see, I think, probably the stock market take a hit. I think that if there is a total collapse of talks, if we were to see Liu He walk out of the White House today in a storm...
SHAPIRO: The Chinese negotiator.
MAYEDA: Yes, that's right, yeah. That would not be a good scenario, and I would expect stocks to sell off quite sharply from that.
SHAPIRO: That's Bloomberg reporter Andrew Mayeda, who covers global economics. Thanks so much.
MAYEDA: Thanks for having me. Transcript provided by NPR, Copyright NPR.