Get the DealBook newsletter to make sense of major business and policy headlines — and the power-brokers who shape them.__________
United States corporations are sending in the first reports from the front lines of President Trump’s trade war, and in some cases, investors don’t like what they’re seeing.
Alcoa, the 130-year-old aluminum producer, said on Wednesday that the Trump administration’s aluminum tariffs, imposed at the beginning of June, were adding to its costs. That, in part, prompted the company to lower an earnings forecast. Alcoa’s shares slid 13 percent on Thursday.
The company’s second-quarter results on Wednesday, as well as comments by Alcoa executives on a conference call, revealed new information about how the steel and aluminum tariffs were hurting the very companies they were intended to protect.
About half of Alcoa’s sales are booked in the United States, but a smaller share of its assets are in the country. The Trump administration’s tariffs hit Alcoa when it sells aluminum produced in its overseas plants, predominantly those in Canada, to customers in the United States.
On a call on Wednesday to discuss second-quarter earnings, Alcoa's chief financial officer, William F. Oplinger, said the aluminum tariffs, which the Trump administration set at 10 percent, would increase Alcoa’s costs as much as $14 million a month. Alcoa’s total hit this year could total around $100 million.
That’s about 12 percent of the $822 million in pretax profits that Alcoa made in the first half of the year It’s sizable, but not a crippling blow.
But the tariffs also come at a time when other factors are weighing on Alcoa’s business.
The company on Wednesday reduced by $500 million its 2018 forecast for adjusted earnings before interest, taxes, depreciation and amortization, a profit measure that excludes several expenses. The estimated hit from the tariffs accounts for around 20 percent of that reduction, but the company also blamed the lowered forecast on changes in market prices, higher energy costs and operational issues.
The tariffs have also helped Alcoa and other producers by pushing the overall price of aluminum up in the United States. But it’s not clear whether the increase will be sustained. Buyers rushing to purchase aluminum before the tariffs were imposed may have helped drive prices higher.
Proponents of Mr. Trump’s tariffs on metals hope they will lead to more production by steel and aluminum producers in the United States. No longer having to compete so fiercely with subsidized foreign producers, American producers may be able to invest more and expand. One way that may happen is if producers fire up dormant operations. But Alcoa’s chief executive, Roy C. Harvey, said on Wednesday that, if all inoperative facilities at American producers were revived, the United States would still need to import the “vast majority” of its aluminum needs.
