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Tariffs Casting Uncertainty on Texas Manufacturers

Posted by Kevin Harris, CPA on Aug 26, 2019 8:14:00 AM

In 2018, Goldin Peiser & Peiser published an e-book that examined the effects that U.S. and retaliatory tariffs would have on the manufacturing industry. At that time, we didn’t know whether the president’s threats were a negotiating tactic, or whether the world was headed for a trade war. With heated trade talks and frequently changing tariffs in the news, what is the outlook for manufacturers one year later?

Just recently, the president announced that a proposed 10 percent tariff on Chinese goods was being delayed to December 15, so as not to damper holiday sales of electronics and toys. However, this news certainly doesn’t appease trade war concerns. Manufacturers, who have already been affected, are carefully monitoring every shift in tariff news, including on and off again tariff threats on Mexican goods.

Recent history is a good indicator. In 2018, the U.S. imposed a 25 percent tariff on steel and 10 percent on aluminum products from China, and other nations instituted tariffs of their own. Roughly 41 percent of manufacturing executives nationwide said that the tariffs had a negative impact. Ford Motor Company stated that the steel and aluminum tariffs deprived it of about $1 billion in profits, while Harley Davidson pegged its losses at close to $48 million.

Texas Manufacturers Feel the Sting

Businesses across the Lone Star State are reporting much lower profit margins since tariffs against China went into effect, and capital spending is down. As the nation’s leading importer of steel and aluminum, Texas manufacturers rely on global supply chains to obtain raw materials.

According to a June 2019 survey of Texas manufacturing activity by the Dallas Federal Reserve, 29 percent of companies reported a decrease in profit margins due to the tariffs at the end of June 2019.

Overall, 58 percent of the 115 Texas manufacturing firms participating in the Dallas Fed survey reported that U.S. and foreign tariffs have had no impact on their companies, while 28 percent responded that tariffs are hurting their bottom lines. However, when asked to project results for the next two years, almost 40 percent of respondents expect a negative impact, compared to 29 percent counting on zero impact.

Business activity in the region hit a three-year low in June. More than 40 percent of Texas manufacturers said tariffs have increased uncertainty about the business decisions they are making. 

Looking Ahead

This air of uncertainty could have other far-reaching effects, including lower customer demand, delays in projects, and reduced capital spending. In turn, these factors could wreak havoc on manufacturing employment. To this end, the Texas unemployment rate hit a record low mark of 3.5 percent in May, but manufacturing employment actually declined 0.7 percent. Manufacturers may be more reluctant to hire workers without a positive outlook for the near future.

With trade talks in flux, it can be difficult for manufacturers to plan for the short- and long-term future. Goldin, Peiser & Peiser will continue to monitor trade negotiations and keep you updated through our blogs. We work with manufacturers on strategic tax planning, which includes tax credit and incentive programs that can better position your company for growth and profitability.

For information about planning for your manufacturing business, or other questions you may have for our Manufacturing and Distribution Services Group, please contact Kevin Harris at (214) 635-2473.

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.

Topics: Manufacturing, tariffs, Taxes