Opinion: Stop the trade war, businesses are shouting to Trump

U.S. manufacturing companies say business is booming. Orders are up, production is up, hiring is up. They have just one complaint: It’s getting harder and more expensive to get the materials they need, and Trump’s damn trade war isn’t helping a bit.

Two surveys of manufacturing company executives released Monday told the same story: The manufacturing sector is booming. However, with supply lines already stretched tight, the threat of a trade war is adding to the uncertainty about further increases in manufacturing output and employment.

The Institute for Supply Management’s manufacturing index rose to 60.2% in June from 58.7% in May. Almost all of the increase was due to longer supplier delivery times, which rose to the highest level since 2004.

It was the same story in Markit’s purchasing managers’ index, which slipped to 55.4 in June from 56.4 in May. Supplier delivery times were the longest in the nine-year history of the survey.

Arithmetically, an increase in supplier delivery times is a positive; it makes the manufacturing indexes rise as a signal of strong demand. But it’s not something anyone wants. It means higher prices, a buildup in back orders, and missed deadlines. Longer delivery times disrupt production all along the supply chain.

In the ISM and Markit purchasing managers’ surveys, many executives cited higher tariffs on steel and aluminum goods, as well as the threat of higher tariffs on other goods. In addition, transportation bottlenecks have disrupted the availability and the price of getting needed materials and supplies delivered on time.

The shortage of truck drivers hurts, but the tariffs seem to hurt more.

As one executive told the ISM: ““The uncertainty of U.S. tariffs and the Canada/Mexico/E.U. retaliatory tariffs continues to cloud strategic planning efforts. Contingency planning (for tariffs) is consuming large amounts of manpower that could be used for more productive projects.”

“The PMI for June rounds off the best quarter for manufacturing for almost four years, but also fires some warning shots about what lies ahead. As such, the second quarter could represent a peak in the production cycle,” said Chris Williamson, chief business economist for IHS Markit.

The economy is running up against its limits. Normally in this situation, companies would try to expand their capacity and seek supplies from more sources. But the trade war is artificially holding down supply just when capacity constraints are beginning to bite.

All this makes the Federal Reserve even more determined to raise interest rates to slow the economy down. Higher inflation is a real risk when supply chains are tight. Shortages and delays lead to higher prices and to slower growth, which is the opposite of what we want.

The message from the business community to Donald Trump is getting louder: Stop this trade war now.