(Reuters) - Tariffs featured heavily in the Federal Reserve’s latest “Beige Book,” a summary of the state of U.S. business across the central bank’s 12 regional districts, with respondents describing the trade spat as creating effects such as “panic buying” and a “rush to purchase metals.”
The July Beige Book, at 32 pages, includes 31 instances of the words “tariff” or “tariffs.” Nearly all of the Fed’s regional districts made reference to tariffs in their individual reports.
In several of the Fed’s districts, business contacts noted that tariffs on steel and aluminum, which went into effect in March, had contributed to rising input costs. Several of them said that much of those costs have not been passed on to consumers, resulting in lower profit margins. One can manufacturer in Maryland said he anticipated losing business outright to foreign competitors unburdened by steel tariffs.
Mentions of tariffs surged in the April Beige Book, which featured 36 such references as U.S. companies grappled with the effects of 25 percent duties on imported steel and aluminum announced in March. The May Beige Book included 22 references to tariffs.
In Beige Books over the preceding two decades, tariffs had been mentioned only 20 times. Before April, tariffs had not been mentioned more than twice in a single Beige Book going back to October 1996, the furthest back the Fed catalogs the full reports on its website. The Beige Book is published eight times a year.
The words “tariff” or “tariffs” have now appeared 93 times in the Beige Book since Republican Donald Trump became president in January 2017. Under his predecessor, Democrat Barack Obama, they were mentioned twice.
Tariffs made 14 appearances in Beige Books issued during Republican George W. Bush’s term. Bush imposed tariffs on imported steel in the spring of 2002 and lifted them at the end of 2003, and most of the references to duties appeared around that period.
The following are selected passages from the newest Beige Book attributed to business contacts in Fed districts around the country:
“Most respondents reported modest increases in prices. Although contacts were concerned about the effect of tariffs, none of our contacts reported any material impact so far.”
“A number of manufacturing contacts remarked that tariffs have raised their costs. Moreover, uncertainty about future trade policy was cited as a major concern, particularly in parts of upstate New York, where there is substantial trade with Canada.”
“One machinery manufacturer noted that the effects of the steel tariffs have been chaotic to its supply chain – disrupting planned orders, increasing prices, and prompting some panic buying.”
“Manufacturers and builders commented widely that import tariffs were lifting steel and aluminum prices. In some cases, manufacturers noted a rush to purchase metals in anticipation of additional price increases.”
“Most manufacturers expected that continued economic growth would lead to stronger customer demand in the near term. However, one auto-related manufacturer expected import tariffs to lead to weaker sales because of the consequent increase in prices.”
“Manufacturers also expressed concern about the potential adverse effects of rising trade tensions. For example, a District foam manufacturer reported growth in business but growing costs of raw materials resulting from tariffs. Additionally, a Maryland can manufacturer said he could not get the quality of steel needed domestically and anticipated losing business to foreign competitors who are not faced with steel tariffs.”
“Expectations of rising costs related to tariffs continued to contribute to vendor price increases for commodities. The Atlanta Fed’s Business Inflation Expectations survey showed year-over-year unit costs were up 2.0 percent in June. Looking ahead, survey respondents indicated that they expect unit costs to rise 2.1 percent over the next twelve months.”
“Contacts in the agricultural sector noted heightened price volatility related to uncertainty over U.S. and foreign tariff policies.”
“Tariffs and trade restrictions have had a mixed effect on prices. U.S.-imposed tariffs have raised the prices of steel and aluminum, increasing input costs for several business contacts. Those contacts in construction lamented that rising prices pressured the industry before this tariff-induced inflation of metal costs. In contrast, proposed tariffs by China have led to an overall downturn in agricultural commodity prices, particularly the price of soybeans. These lower agricultural commodity prices have been passed on to food retailers, who reported that lower food prices have more than offset increased freight costs.”
“Manufacturing contacts reported that steep increases continued in aluminum and steel material input costs in reaction to tariff announcements.”
“Input costs increased among energy, manufacturing, and construction firms, in part due to rising freight costs and the new tariffs on steel, aluminum, and lumber.”
“While outlooks overall remained positive, rising interest rates and the newly imposed tariffs were negatively impacting some retailers’ expectations.”
“A few contacts in manufacturing attributed recent inflationary pressures for metal products and declines in the duration of price guarantees to the implementation of tariffs.”
Reporting by April Joyner; additional reporting by Dan Burns; Editing by James Dalgleish