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It’s not only major U.S. companies with stocks included the Dow Jones Industrial Average that are feeling the effects of the U.S. – China trade war.
Less than half mid-size American businesses expect their sales and profits to increase next year.
And 72% blame President Trump’s international trade policies for their difficulties, according to a survey of 550 companies by Umpqua bank based in Portland, Oregon.
More than 70% of middle-market companies are uncertain about the future of their business due to the US – China trade dispute, with nearly 20% reporting high levels of uncertainty.
Mid-size businesses are defined as those with between $10 – $500 million in sales which employ 44 million people contributing about $6 trillion or nearly a third of U.S. economic output.
As a result about half of the companies surveyed said they are looking to diversify their supply chains away from China to other parts of Asia, and about 20 percent are trying to find more customers in Europe, Latin America, and other parts of Asia.
For example, Lifestyle Solutions, a furniture company in California, that sources in China has been focusing on purchasing from Vietnam and Malaysia to avoid the tariff of 25% with help from Umpqua bank.
However, most middle market companies see still buoyant U.S. consumer confidence and growing demand sustaining their businesses, but only 13% believe that the economy will benefit from the U.S. trade dispute with China.
“The global economy is changing rapidly and China’s 20 year run is giving way to Europe, Southeast Asia, Latin America, the Middle East and even Africa as our middle market survey points out,” said Umqua chief banking officer, Tory Nixon.
“The fact remains that tariffs and trade negotiations, while headline-grabbing, are simply accelerating the growth of these new, emerging markets which are primed for growth with consumers eager for U.S. goods and services and strong manufacturing and distribution capabilities.”
The survey was conducted in October by DHM Research in conjunction with Umpqua Bank
Only 48% of the American mid-size companies surveyed are predicting rising revenues or profits next year and only 31% believe that economic conditions have improved in the past year.
Looking ahead, the business services industry is the most positive with 52% expecting US economic conditions to improve.
Read: U.S. economy’s huge service sector slows again in November, ISM finds
The manufacturing sector is the most negative with just 39% expecting economic conditions to improve, while 29% expect conditions to worsen.
The survey was conducted while the U.S. is experiencing the longest stretch of continuous economic growth in its history. July marked the 121st straight month of GDP growth. And the national unemployment rate is 3.6%, a level that the US hasn’t experienced in fifty years. The benchmark S&P 500 index stock SPX, +0.71% , Dow Jones DJIA, +0.72% and Nasdaq COMP, +0.61% are all at or near record highs.
However, while still low, unemployment is rising in some Midwestern states, such as Minnesota, Wisconsin and Michigan, according to the survey of mid-size companies.
Read: U.S. private sector job growth slows down sharply in November: ADP
The US – China trade dispute has affected how middle-market companies approach international business, with 62% of middle market companies experiencing some impact, while 38% have not.
Companies most affected by the trade dispute tend to be in the Northeast (72%), and in manufacturing (81%), wholesale (78%), retail (75%).
Companies least affected by the trade dispute tend to be located in the U.S. South (52%), have annual revenues of less than $50 million (61%), and in the healthcare (67%), finance (46%), and construction sectors (45%).
Trade affected companies have looked for new markets (18%), delayed expansion into international markets (22%), and been more conservative about business expansion generally (22%).
The manufacturing sector has been most impacted by the trade dispute. As a result, 33% are looking for new markets and 33% say the dispute has delayed international expansion.
Nationally surveys by the U.S. Institute for Supply Management have show the US manufacturing sector in a recession this year.
Read: U.S. manufacturing sector slumps further in November: ISM
Companies are adopting a variety of strategies to mitigate the risks presented by the US-China trade dispute. Some 26% plan to diversify their supply chains, 27% are stockpiling inventory, and 32% are exercising additional caution with investments and expansions.
Another example is Summit Premium Tree Nuts in California which now faces up to 50% tariff selling almonds to China whereas Australian competitors face zero tariffs selling to China. However, its president Dale Darling has been able to increase sales to India, Europe and the Middle East instead.
There is little evidence in the survey that the trade dispute will results in “re-shoring” operations though. Only 3% of middle-market firms report that plan to move operations back to the United States.
Among companies looking for new markets, more than half (54%) are exploring Europe, 43% are interested in Latin America, and 29% the Asian Pacific. This compares to 37% that are looking at domestic U.S. markets.
See also: What a ‘no-deal’ U.S.-China trade scenario would mean for stocks and bonds
