| Have thoughts or feedback? Anything I missed this week? Email me at bsutherland7@bloomberg.net. To get Industrial Strength delivered directly to your inbox, sign up here. The loudest alarm bells on President Donald Trump’s tariff war are coming from the consumer side of the economy — for now. Much remains unknown about the ultimate impact of tariffs but major manufacturers are largely taking the upheaval in stride, with companies touting still-strong demand and vowing to offset the added costs with modest supply-chain tweaks and price increases. Those that cut their full-year outlook, such as fuel-pump maker Dover Corp., primarily did so to reflect a more cautious stance on the overall economy in the wake of tariffs, not because they’re seeing any evidence of a dropoff in bookings or waffling over investments. Some companies, including Honeywell International Inc., even expect to generate more profit than they did before Trump’s announcement of sweeping tariffs. Read More: CEOs' Tariff Predictions Are Already Wrong “I'm sure there’s some customers that are like, ‘What's happening with pricing?’ or ‘What's happening with tariffs?’ but there's still a lot of activity out there,” Trane Technologies Plc Chief Executive Officer Dave Regnery said in an interview. Trane expects revenue in its residential business to grow at a low-single digit percentage through the rest of the year, after a high-teens jump in the first quarter. But the company makes most of its money from selling to other businesses. The manufacturer expects tariffs to add as much as $275 million in costs this year, which it intends to offset as much as possible by trimming expenses and recalibrating its supply chain and shipping routes before raising prices to make up the remaining difference. Trane is confident enough in its ability to counteract the impact of Trump’s import taxes that it reaffirmed its earnings guidance for the full year and even said it’s tracking toward the high end of that range.  It’s a different story in the parts of the industrial economy that cater to consumers. Most major airlines have withdrawn their guidance for 2025, citing a pullback in travel demand and concerns about a possible recession as tariffs weigh on consumer confidence. Power-tool maker Stanley Black & Decker Inc. estimated a gross tariff impact of $1.7 billion on an annualized basis and expects a roughly 15% haircut to its earnings this year, although that assumes its price increases won’t dampen demand beyond the point at which the company can contain the damage through cost cuts. Church & Dwight Co., the maker of Arm and Hammer detergent, cut its growth forecast for the year as rising costs force consumers to seek out cheaper alternatives. That echoed similar slowdown warnings from Procter & Gamble Co. and Colgate-Palmolive Co., which reported a 3% drop in sales in the first quarter in part because consumers were trading down from premium toothpaste. Read More: Economic Warning Signs Get Harder to Ignore “We find the overall tone of industrials reporting this quarter to be surprisingly positive in the face of these headwinds,” Melius Research analyst Rob Wertheimer wrote in a note. Still, “consumers are growing more worried by the month.” The industrial economy bore the brunt of Trump’s first trade war in 2018 and 2019, when levies were largely focused on raw materials and $250 billion of mostly manufacturing-related Chinese imports. The spike in costs and the uncertainty unleashed by the levies pushed the industrial sector into a mild recession, but the consumer sector was largely spared from the tariff volleying between the US and China. People stayed employed and kept on shopping, so the economy just kept chugging along. Amazon.com Inc. added $72 billion in market value in a single day in January 2020 because of robust holiday spending; It just happened to be the same day that Caterpillar Inc. warned sales of its heavy machinery would decline for a second straight year. The pandemic hit about a month later, scrambling everyone’s forecasts. Read More: Trump’s Tariffs Hindered US Growth Before, and Threaten to Again The latest barrage of tariff actions is much broader, though, threatening everything from baseball bats to toys, cars, shoes and baby strollers. Carmakers felt the pressure of Trump’s first trade war but that was nothing compared to this time. While Trump this week signed a pair of directives that prevent levies for imported metals and vehicles from compounding on the same parts and establish an offset mechanism for US-made cars, those tweaks will only help at the margins. General Motors Co. on Thursday lowered its full-year profit outlook, just two days after suspending guidance, warning of as much as a $5 billion hit from Trump’s tariffs. With so much of the US economy dependent on consumer spending, this is a much riskier dynamic and tees up the possibility that this weakness spreads much more quickly than it did last time around. It’s possible there could be a decoupling of the industrial economy from the consumer side, with the former faring better than the latter, Trane CEO Regnery said. For example, Trane’s next-generation heating and cooling equipment helps cut down on wasted energy, saving costs and benefiting the environment, and that’s an attractive proposition no matter what the economic climate is, he said. “I don't see that slowing down,” Regnery said. Manufacturers also learned a few things from the last trade war. Most of them have been working ever since to reduce their reliance on Chinese imports and to build more backup options into their supply chains. Executives might have been scrambling to respond the first time around but they now know precisely what products they can get only from China and where they can pivot. They’ve also gotten nimbler about raising prices and are being more thoughtful about how they go about this, preferring to cut costs or make procurement tweaks first. Melius Research analyst Scott Davis estimates that with those mitigation efforts, industrial manufacturers might only need to ask their customers to pay 2% more to offset the impact of tariffs. That kind of inflation “quite frankly, isn’t obnoxious compared to the usual 1% trendline” of price increases most manufacturers push through in a normal year, Davis wrote in a note this week. “There is positive survivor bias here on steroids — only the strong survive, the weak get eaten,” Davis said of manufacturers. “That still doesn’t make us feel better about rising risks out there, particularly for 2026 projects. Note that industrials are usually the last sector to see macro shifts.” Read More: Tariff Playbook Calls for Price Increases In practice, while certain companies might rise above the economic fray, it’s extremely difficult for the manufacturing sector writ large to avoid getting dragged down by a slump in consumer spending. In 2024, factory output accounted for only about 10% of total US gross domestic product, according to data from the Department of Commerce. It’s also important to remember that the large public companies that host earnings calls are in a much better position to weather the impact of tariffs than the small and medium-sized manufacturers that represent a much larger overall percentage of the industrial economy. Those are the companies that will feel the squeeze of manufacturers’ price increases.  Predictions of a manufacturing super-cycle that would allow the sector to transcend normal business rhythms were a popular talking point in 2022 and 2023. The idea was that the rejiggering of far-flung supply chains, a generational shift away from gas-guzzling cars and a bazooka of government funds aimed at encouraging clean energy, semiconductor and infrastructure investment provided structural reasons for US factory and construction spending to surge beyond what might normally be dictated by macroeconomic ebbs and flows. That didn’t happen. Many companies found themselves battling through an inventory glut instead. And there seems to be no plan to fire back up the government stimulus machine any time soon.
“'Toothpaste orders down, industrial equipment orders up' may not be sustainable,” Barclays Plc analyst Julian Mitchell wrote in a note, referencing the decline in Colgate’s sales. Purchases of heavy duty machinery and factory equipment are ultimately discretionary and can be deferred. It seems likely that companies will need to pull back on that kind of spending if consumers are cutting back on things like toothpaste — “which presumably most investors would classify as somewhat ‘non-discretionary,’” he wrote.  | | | “Nobody wants to pay the additional cost… These so-called tariffs are import duties. So it's the importer that has to pay the import duties.” — Guillaume Faury, CEO of Airbus SE Faury made the comments this week on Airbus’ earnings call amid a brewing standoff between airlines, planemakers and suppliers over who ultimately pays the cost of tariffs. Trump’s sweeping levies have upended a 45-year-old trade agreement that largely allowed the aerospace industry to operate without taxes on its supply chain, sparking concerns that jet production and deliveries could be paralyzed as companies try to figure out how to operate in this new paradigm. Read More: Plane Supply Chain Veers Toward Paralysis
Airbus imports some components and materials into its aircraft manufacturing facility in Mobile, Alabama, and will be responsible for paying tariffs on those goods, Faury said. But when the company exports parts or finished airplanes from Europe into the US for airlines and jet lessors, “that's an import for the customers — and they're also not very much willing to pay tariffs, but it's on them,” he said. The comments come after the CEOs of Delta Air Lines Inc. and American Airlines Group Inc. vowed not to swallow extra costs on Airbus planes because of tariffs. Ryanair Holdings Plc, meanwhile, would consider canceling orders for 330 Boeing Co. jets and buy from other companies instead if tariffs significantly increase prices, CEO Michael O’Leary wrote in a letter to US Representative Raja Krishnamoorthi, a Democrat from Illinois. Chinese planemaker Comac — whose jets aren’t yet approved by regulators to fly in Europe or the US — could eventually be an option if its planes offer a better value, O’Leary said.
For now, this back-and-forth may just be a negotiating tactic. Every aerospace manufacturer is going through the exercise of trying to find ways to reduce the effect of tariffs, including taking advantage of duty drawbacks and foreign trade zones, reducing costs, tweaking supply chains — and then ultimately raising prices to make up the difference, General Electric Co. CEO Larry Culp said in an interview. “This is an industry where people will say things in public ahead of private conversations,” he said. “What we have seen thus far is largely business as usual.” And airplanes have a unique benefit when it comes to tariffs: They can fly. Delta flew a new Airbus A350 plane through Japan this week to avoid US import taxes, redeploying a playbook it used during Trump’s first trade war. Tariffs typically apply to new jets, and planes are classified as used once they have flown for any reason other than testing and delivery. So if airlines can take possession of their jets elsewhere, they can skirt tariffs, even if the planes ultimately are flown in the US.
“We’re looking at opportunities to export to somewhere else than the US, especially for airlines who have international operations,” Faury said. “We are finding arrangements with several customers, with their network, their partners on how to deal with the situation.” Deals, Activists and Corporate Governance | JetBlue Airways Corp. said it expects to make an announcement this quarter about a new domestic partnership after previous efforts to form a marketing alliance with American Airlines and acquire Spirit Airlines were squashed by antitrust regulators. The tie-up — which Reuters reported is with United Airlines Holdings Inc., citing sources familiar with the matter — would aim to give JetBlue passengers access to a bigger network of travel destinations. It’s not clear how regulators would view JetBlue’s third attempt to team up with another airline. But considering Spirit went bankrupt after the Biden administration blocked its sale to JetBlue and JetBlue itself is on track for its sixth straight year of losses, consolidation might be necessary to stabilize the industry. “If United pulls this off, we would view it as a major competitive coup,” TD Cowen analysts Tom Fitzgerald and Helane Becker wrote in a note. American Airlines separately said it ended talks with JetBlue about reviving their alliance and filed a lawsuit to recoup losses from the unwinding of that deal. Spirit AeroSystems Holdings Inc. — no relation to Spirit the airline — has reached an agreement for Airbus to take over manufacturing work related to fuselages and wings for its A350 and A220 jets. Some details are still being worked out but it’s an important step forward for Spirit’s efforts to carve up its assets between Airbus and Boeing, which has agreed to acquire the remainder of the company for $4.7 billion. Spirit will pay Airbus $439 million to take over production at sites in North Carolina, Morocco, Ireland, France and Scotland. The planemaker will also provide Spirit with $200 million of credit lines, the latest of many financial lifelines that Airbus and Boeing have had to throw the supplier’s way to help keep it afloat.
Boeing faces less risk of becoming a junk-bond issuer as S&P Global Ratings said it’s no longer actively considering cutting the company’s credit rating. Boeing raised more than $20 billion through an equity sale last year and last month agreed to sell a package of digital assets to Thoma Bravo for $10.6 billion. Those deals have provided Boeing more liquidity as it works through production challenges triggered by last year’s midair blowout on an Alaska Airlines jet and a prolonged strike by factory workers. “The company has capacity to generate significant cash flow after next year if operational performance improves, including increasing aircraft production at consistently higher rates and maintaining consistently higher quality levels,” S&P said in a statement. The ratings firm maintained a negative outlook on Boeing to reflect the risk of a slower-than-expected recovery in aircraft production and deliveries. - Made-in-USA wheelbarrows once touted by Trump now come from China
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