Trade tariffs mean companies will spend less on growing their business in 2019, says Fitch

in manufacturing •  6 years ago 

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Fitch is expecting a 0.8% decline in overall capex spending next year that may mark an inflection point in the current cycle

The trade war between the United States and EU is going to affect capital spending. This according to the ratings agency, Moody's.

The prediction is that capital spending will slow to 3% after experiencing a 6% growth in 2017. Further declines could take place in 2019 also. The agency predicts that the rate will go negative in that year, hitting -0.8%.

“The escalation of the US-China trade dispute and the notable absence of constructive negotiations point to a continuation of trade-related uncertainty for U.S. businesses through the second half of the year,” said Fitch Group Credit Officer for U.S. companies, Bill Warlick, lead author of the report.

This trade war created a great deal of uncertainty for many American companies. Harley Davidson already found itself in President Trump's crosshairs by voicing opposition after it determined that the tariff's would add $2,200 per motorcyle. The company came out and said that it would build a plant in the EU region to get around this.

General Motors is another company that might be forced to raise prices as component costs increase.

The maker of Jack Daniels also mentioned the uncertain nature of the environment. This is one of the companies that could see tariffs if the EU decides that it is going to reciprocate.

Across many industries, we are seeing the same thing play out. Electronics, applicances, and tobacco all face the possibility that they are going to have higher prices. This will ultimately hurt their competitiveness within the region against the local businesses.

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The Trump Tax Cut was designed to spur business investment. So far, the results tell a different story.

U.S. companies are on track to deliver $700 billion to $800 billion in buybacks in 2018, according to UBS in a recent note. Buybacks were up 53% in the first quarter, and announced buybacks are up 83% so far in 2018, as MarketWatch’s William Watts has reported.

Add in an expected $500 billion in dividends and companies will return more than $1 trillion to their shareholders.

At present, the economies on both sides of the Atlantic are faring well. Manufacturing is up for the year although the Eurozone has been slowing since January.

There could be further pressure in this sector if supply chains continue to slow. With labor contraints already in place, this could limit full production.

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Images from pixabay.com

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Stock buybacks are business investment. Dividends paid to investors will be reinvested. Investors will have a trillion dollars to invest, sounds good. I think the so called trade war will be over sooner rather than later, they need us more than we need them.

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