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“Tariffs are not good for trade,” UPS CEO Carol Tomé told investors and analysts today on a grim earnings call. Shares in the shipping giant fell by double digits on weak guidance ahead of the holiday shopping season.  

Tariffs are good for giving President Donald Trump a win over Europe (more on that later) and they’re good for raising money; they’re a tax after all, mostly paid by American consumers. But American businesses bear some costs too, and that’s draining their recent gains. —Tony Wagner, newsletter editor
Atmosphere at a factory.
Ryan Collerd/AFP via Getty Images
Tariffs are draining the benefits of American productivity growth
Next week, we’ll learn about second-quarter labor productivity. Today, let’s look at the risks to any growth we see.

Labor productivity measures how much stuff we make and do compared to how much time we spend making and doing it. Strong productivity growth helps businesses make more profits, which they can use to invest in equipment, hiring, raises, or price reductions — all of which can boost economic growth in the long run.

But right now, plenty of businesses across the country are dealing with a problem that’s whittling away at many of those economic benefits: the Trump administration’s tariffs.

Wolf Tooth Components is a manufacturer in Minnesota that makes bike parts, mostly out of aluminum. Co-owner Brendan Moore said over the last several years, the company’s been trying to boost output: It bought more aluminum milling machines, invested in more automation, and even moved workstations closer together.

“If there’s 30 or 40 steps from when a thing is a piece of aluminum to when we ship it, every one of those we’re scrutinizing to see where we can take a second out, or two seconds out, or combine steps,” Moore told Marketplace’s Justin Ho.

Moore said the goal is to make and sell more bike parts, rake in more profit, and use that money to develop new products, hire more workers, and expand.

But then came the Trump administration's tariffs. Moore said his aluminum costs spiked, along with the cost of the other imports he relies on.

“Certain components that aren’t made in the U.S. anymore. Say, for example, a small ball bearing,” Moore said.

As a result, Moore said that extra revenue he’s banked from all of those productivity improvements is being soaked up by the cost of tariffs.

“There’s less to re-invest, if you will, because (we’re) using some of that money to cover the extra costs we have right now,” Moore said.

Moore said he’s holding off on some new hires he wanted to make. The company also shelved plans to buy another building and expand operations.

“We’re investing in the things we need here and now, today, and maybe in the next coming months, but we’re not buying a piece of equipment that we think we’re going to need, or we’re pretty sure we’re going to need, in six months right now,” Moore said.

READ MORE


 
News you should know

Let’s do the numbers

  • Wall Street broke its winning streak today. The S&P 500 closed 0.3% lower, its first drop in six trading days. The Dow lost 0.5% and the Nasdaq fell 0.4%.

  • Markets seem unmoved by the $85 billion merger between Union Pacific and Norfolk Southern, which would create a coast-to-coast railroad. Regulatory approval could take a while.

  • New survey data shows Americans are feeling better about the economy than they were earlier in the year, but concerns about the job market linger.

  • A new study found Trump’s tariffs will increase parts for American factories too, by up to 4.5%.

More on trade

  • The latest round of trade negotiations between the U.S. and China ended without a deal to prevent sky-high tariffs between the world’s largest economies next month.

  • The Trump administration is setting new tariffs for the rest of the world Friday, Commerce Secretary Howard Lutnick said. The tax hike on goods from India could be as high as 25%. 

  • The EU can’t really commit to investing $600 billion in the U.S., much less buy $750 billion worth of American energy. Is Trump’s biggest trade victory built on empty promises?
QUOTE OF THE DAY
"If you're GM or Ford, you can earn quick cash by selling more of those big V8 powered SUVs and trucks, so I suspect that we will see the larger, less fuel efficient engines come back."
—  Sean Tucker, lead editor at Kelley Blue Book

The massive tax and spending bill passed by Congress this month changed the decades-old regulations on cars and trucks. The Corporate Average Fuel Economy standards impose a fine on automakers whose fleets can’t drive a certain number of miles per gallon of gas, but under the “One Big Beautiful Bill Act,” that fine is now zero dollars. 

Headshots of several Marketplace personalities with the event title:

Investor Exclusive Virtual Event!

Whether breaking down the true effect of the GOP's big tax cut on our personal economies — or how the math isn’t mathing when it comes to the national debt — Marketplace's Kai Ryssdal and Stacey Vanek Smith will talk with executive producer Nancy Farghalli in a live virtual event next week, answering your most pressing questions about government spending.

We’ll also hear from Marketplace Vice President and General Manager Neal Scarbrough about the implications of recent federal funding cuts for public media.

It's all happening July 30. Get the registration link for this event by donating today. Already an Investor? Check your inbox for an invitation.
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Final note
An update on yesterday’s shooting in New York

A man killed four people, including a Blackstone executive and a police officer, before turning the gun on himself yesterday. The Manhattan office building where the shooting took place also housed accounting firm KPMG and the NFL, along with Blackstone.

Police told the Wall Street Journal that the shooter, Shane Tamura, played high school football and left a suicide note asking for a chronic traumatic encephalopathy (CTE) diagnosis. “The league knowingly concealed the dangers to our brains to maximize profits,” the note reportedly said. 

A recent study found a third of former NFL players think they have CTE, which can only be confirmed after death. The NFL paid a billion-dollar settlement a decade ago over football’s connection with CTE, and brought concussions down to record lows last season with new protocols and gear. Years of intense criticism have done little to impact the NFL’s TV ratings. For more background on pro football and CTE, we recommend the PBS doc “League of Denial.” 

 
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