Fed’s “Beige Book” Highlights Widespread Concern over Tariffs

April 19, 2018

The Federal Reserve published its third “Beige Book” of 2018 this week. More formally called the “Summary of Commentary on Current Economic Conditions by Federal Reserve District,” this report contains qualitative information about economic conditions from businesses, economists, market experts, and other contacts across the 12 Federal Reserve Districts. Notably, the April 2018 report contains a number of concerns about the Trump administration’s newly imposed and proposed tariffs from contacts in industries including manufacturing, agriculture, and transportation.

A word search of the April report finds the word “tariff” 36 times—a quick search of the January and March Beige Books yields zero mention of tariffs, indicating rising importance of tariffs across the districts. The report summary notes that steel prices rose, sometimes dramatically, due to the new duties on steel.

Contacts in nine of the 12 districts commented directly on the impacts of tariffs, citing concerns related to rising prices, future uncertainty, investment decisions, and how to pass increased costs on to consumers. Here’s a sampling of the comments from those nine districts:

Boston

Two contacts brought up the proposed China tariffs and said they represent a major risk. One was a toy manufacturer who sources 75 percent of their production from China. The second said that punitive tariffs on Chinese aluminum had already had a big effect: “Thin gauge foil” is produced only in China and tariffs raised the price three-fold; the contact argued that “these tariffs are now killing high-paying American manufacturing jobs and businesses.”

Philadelphia

Of the 22 manufacturing firms that offered general comments, seven mentioned impacts from recent tariffs or proposed tariffs—most noted rising prices or anticipated rising prices; just one firm anticipated greater demand.

Cleveland

According to contacts, recently imposed tariffs have accelerated price appreciation of steel products, in some cases at double-digit rates. One steel manufacturer mentioned that customers are attempting to stock up as prices rise because of increased demand and tariffs on primary metals imports.

Richmond, Va.

Steel and aluminum prices rose sharply and were expected to rise further as a result of recently-imposed tariffs. Several ports noted some uncertainty about what effects the steel tariffs might have on trade.

Chicago

Manufacturers facing higher steel and aluminum costs because of the new tariffs expected to pass on about half of the increased costs to their customers on average.

Minneapolis

Multiple contacts reported dramatic increases in the prices for steel products, partly attributable to recently announced tariffs; a manufacturer of tractor trailers said they “can’t raise prices as fast as material costs.”

Kansas City, Mo.

The majority of contacts said potential steel and aluminum tariffs would have a low-to-medium impact on their drilling costs, and several have already experienced moderate increases in the cost of steel.

Dallas

Outlooks, while still optimistic, have become more uncertain due to new tariffs and trade concerns. Input cost pressures increased among energy, manufacturing, and construction firms, partly due to the announced tariffs on steel and aluminum. Upstream energy firms said the steel tariffs represent a worry, although some contacts said there shouldn’t be much of an impact on costs until 2019 when contracts roll over. Downstream energy contacts were still figuring out how much of their steel is subject to the new tariff and how that will affect their costs and investment decisions.

San Francisco

Contacts reported a jump in inflationary pressures for metals prices, partly due to the anticipation of tariffs and unrelated increases in raw material costs.

Economists generally agree that free trade increases the level of economic output and income, and conversely, that trade barriers reduce economic output and income. If additional tariffs and in-kind retaliatory actions continue to be taken, the uncertainty and harm to U.S. businesses and consumers will intensify over time.

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