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Manufacturers See Widespread Price Increases From Tariffs

U.S. manufacturers expect tariffs to push prices upward over the next two years, according to a special tariff survey from the Purchasing Manager’s Index by IHS Markit.

In the survey, conducted in second half of October, 44 percent of respondents expect tariffs and trade wars to lead to higher domestic prices for their goods in the U.S. over the next two years. Only 3 percent expect selling prices to fall. Although companies of all sizes expect to see widespread domestic price hikes, larger firms anticipate the biggest impact.

Siân Jones, economist at IHS Markit, said a key finding of the panel of 800 U.S. manufacturing companies surrounded price pressures, with many pointing to tariffs as a key threat to future growth.

“Although input prices are expected to rise further, firms foresee greater opportunities to increase output charges to help alleviate pressures on margins,” Jones noted.

In addition, 11 percent said tariffs and other trade-war factors will lead them to reduce their output abroad and relocate production back to the U.S. Asked whether such measures will encourage the shift of more production abroad, 12 percent said it would. The expected transfer of production abroad was most pronounced among larger companies.

Among the positives, respondents noted expected boosts in domestic employment and, to a far lesser extent, planned investment spending.

Twice as many companies, or 15 percent, reported that they will increase their domestic payroll numbers over the next two years due to tariffs and trade war measures than the 7 percent that said they will cut their U.S.-based workforce.

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As to the impact in investments, 12 percent of the U.S. manufacturers said they expect to increase their planned investments over the next two years compared to 9 percent expecting to postpone or cancel existing investment plans.

The survey formed part of IHS Markit’s Business Outlook Survey conducted three times per year. The October survey found U.S. business confidence regarding the year ahead to have weakened compared to earlier in the year, though it’s still stronger than the global average.

Especially weak optimism was seen in Europe and China, with China dropping to its lowest since 2009. Meanwhile, U.S. producer prices were set to rise at the fastest pace in three years over the coming 12 months. But profit expectations dipped to the lowest since February 2017 and were often linked to the impact of tariffs and trade wars.

The survey revealed that tariffs, trade wars, supply problems, rising interest rates, higher prices, staff shortages and a slowing economy were the most commonly cited threats to the business outlook.