Experts say uncertainty surrounding tariffs and U.S. trade policy is casting a shadow over Indiana’s manufacturing-heavy economy, raising concerns about potential economic softening in the quarters ahead as businesses remain in limbo.

With an Aug. 1 deadline approaching next week, the White House has said that a wave of country-specific tariffs will take effect unless countries reach trade agreements with the United States in the coming days.

So far, the White House says it has reached trade agreements with the United Kingdom, Japan, Vietnam and Indonesia, as well as a preliminary agreement with China. However, tariffs on imports from dozens of countries — including Canada, Mexico and European Union — remain uncertain.

“It’s definitely turbulent times right now,” said Steven Mohler, assistant professor of management at IU Columbus. “Probably the biggest topic for me is the uncertainty. The fact that tariffs are on, tariffs are off. We’re going to do this, that or the other. And uncertainty creates challenges for businesses to invest forward.”

“You don’t want to buy a lot of new trucks or tractor rigs,” Mohler added. “You don’t want to spend a lot on new (property, plant and equipment), because you’re not really sure where we’re heading, and a lot of what’s happened this year has just been causing a lot of uncertainty. So, companies are a little reticent to take on new projects.”

Nearly four months after President Donald Trump announced sweeping import tariffs on goods from more than 90 countries, U.S. trade policy remains in flux.

The latest drama began April 2 – “Liberation Day,” Trump called it — when the tariff-loving president announced a so-called baseline 10% import tax on everybody and what he called “reciprocal’’ levies of up to 50% on countries with which the United States runs trade deficits, The Associated Press reported.

The policy introduced a 10% baseline tariff on all imports and additional “reciprocal” tariffs of up to 50% on countries running trade surpluses with the U.S. However, just hours after they took effect on April 9, the reciprocal tariffs were suspended until July 9 for all countries except China. While the baseline tariffs remained in place, other global tariffs on steel, aluminum and automobiles also continued.

Trump later extended the deadline for negotiations again to Aug. 1 and tinkered with his threatened tariffs, leaving the global trading system pretty much where it stood four months ago — in a state of limbo as businesses delay decisions on investments, contracts and hiring because they don’t know what the rules will be.

“There’s a high degree of uncertainty, I would say,” said Andreas Hauskrecht, an economist and clinical professor of business economics and public policy at the IU Kelley School of Business. “A high degree of uncertainty, because things are changing again and again and again.”

“We also see concerns in the labor market,” Hauskrecht added. “We have to be careful with monthly labor market data, but what we have seen over the last two months is that the labor market growth is slowing down. …What contributed to labor market growth over the last two months was mostly federal and state public jobs. It was not private market. The private job market has already stalled over the last two months, and so what we see is a problematic mixture of slowing down economic activity.”

Navigating uncertainty

If Trump’s proposed tariffs take effect, economists warn that other countries could retaliate with duties on U.S. exports — driving up costs for overseas buyers and dampening demand for American-made goods. Such a move would likely impact Bartholomew County’s economy, which is heavily reliant on exports and closely tied to the automotive sector, particularly engine and component manufacturing.

Exports account for roughly 29% of Bartholomew County’s gross domestic product — the county’s output of goods and services — with Canada and Mexico accounting for nearly 90% of those shipments, according to the most recent government data. Machinery, including engines, and transportation equipment, such as vehicle parts, make up about 94% of the area’s exports.

Cummins Inc., which is headquartered in Columbus and is the largest employer in the area, characterized global markets as “essential” for its business and said a unilateral tariff approach could risk reducing growth for American manufacturers.

At the same time, the company said it is “encouraged by conversations between the United States and some of our largest trading partners.”

Cummins designs, manufactures and distributes a wide range of power solutions, including diesel and natural gas engines, electric and hybrid powertrains, power generation systems, among other products.

“Global markets are essential to American companies, including ours,” a company spokesperson told The Republic. “We are working with the new administration on policies that boost U.S. manufacturing and global competitiveness. However, a unilateral tariff approach risks higher supply chain costs, retaliatory tariffs, reduced competitiveness and lost sales, potentially reversing growth and disadvantaging American manufacturers against global competitors. We are supportive of the administration’s efforts to level the playing field for U.S. manufacturers and are encouraged by conversations between the United States and some of our largest trading partners.”

For its part, Toyota Material Handling North America, which is headquartered in Columbus and manufactures forklifts, said it is “closely monitoring” the evolving global trade environment.

“Like many organizations, we are closely monitoring the global trade landscape, including the potential impact of tariffs,” company spokesman Justin Albers told The Republic. “Our priority remains supporting our customers, dealers and associates as we navigate this evolving trade environment.”

Broad-based slowdown?

At the same time, some warning signs have emerged that the North American trucking industry may be hitting the brakes amid the economic uncertainty, experts said.

Any slowdown in the trucking industry could have implications for Bartholomew County’s economy, which is heavily rooted in automotive manufacturing, including for heavy- and medium-duty trucks, experts said.

Trucks remain the dominant method of freight transport in the United States by weight, hauling everything from grain to gravel. They also move the majority of high-value goods including food, electronics and vehicles, according to federal data. As of 2023, imports made up 40% of the freight tonnage transported by truck within the country.

A downturn in freight activity could dampen demand for new trucks and fleet upgrades, potentially leading to reduced orders for engines and components produced by local manufacturers, experts said.

In February, Columbus-based ACT Research was projecting that North American production of Class 8 trucks would slightly exceed 300,000 units this year, company officials said. That estimate had been revised downward to approximately 255,000 units — a decline of around 15% — by early May.

Class 8 trucks are often referred to as heavy-duty trucks and include vehicles such as big rigs, dump trucks, cement trucks, among others.

As of this past week, that forecast had not changed much, sitting at around 252,000 units, said Ken Vieth, partner and president of ACT Research.

“While we expect the economy will remain positive, we do expect that as goods inflation rises because of tariffs, we’re going to see consumers substitute spending on goods with spending on services,” Vieth said. “And that’s going to create a slowdown in the goods economy. Goods are what you put in the backs of trucks and trailers and where a lot of local products go.”

“We do expect inflation to be fairly strong in the coming months, and that’s going to impact consumer spending on goods,” Vieth added.

However, the Class 8 market is a “microcosm for all commercial vehicles,” Vieth said. “We’re seeing a downturn in medium duty,” he said. “We’re seeing a downturn in semi-trailer. …I think we still see a kind of a broad-based slowdown.”

North American production of Class 8 trucks was around 72,400 units during the second quarter, Vieth said. Original equipment manufacturers are reporting that their build plan for the third quarter is 57,000 units — a 21% production cut on a quarter-over-quarter basis.

“We’ve been seeing orders coming down pretty hard since the beginning of the year,” Vieth said. “Backlogs of unbuilt orders have followed suit. So, we are right on the cusp of a very hard tap on the brakes by the industry.”

At the same time, vehicle inventories are high, raising concerns that manufacturers may pull back production once U.S. trade policy become more certain.

“Vehicle inventories definitely concern me,” Mohler said. “…It looks like automotive and vehicle inventories are high. …If we get clarity on government policy, then what you would expect is the manufacturers will start to reduce output, bring inventories down. If they built inventories in January, February, March — the first quarter — in anticipation of the tariffs … manufacturers very much could reduce their output, pull back on production to get their inventories back in line.”

Second quarter results

Over the past couple weeks, some of Cummins’ biggest customers reported declines in revenue and drops in sales and orders for trucks in North America during the second quarter of the year.

On Tuesday, PACCAR Inc., a Washington-based truckmaker that manufactures light-, medium- and heavy-duty trucks under the Kenworth, Peterbilt and DAF nameplates, reported a 14% decline in sales and revenue during the April-June quarter, as well as a 35% decrease in earned net income.

“The North American truck market is being affected by economic conditions, the uncertain impact of tariffs and a soft truckload market,” PACCAR CEO Preston Feight said in a statement with the results.

Feight told financial analysts on Tuesday that “we think that the amount of tariff impact will — and the current structure increase in (the third quarter),” but “we anticipate the North American market will strengthen as tariff policies become certain.”

“It could also be affected by the current Aug. 1 statements around what new tariffs might be affected and what rates they’ll be at,” Feight said.

Cummins described PACCAR in its most recent annual report as “our largest customer, accounting for 16% of our consolidated net sales in 2024.”

“PACCAR is our only customer accounting for more than 10% of our net sales in 2024,” Cummins states in its annual report. “The loss of this customer or a significant decline in the production level of PACCAR vehicles that use our engines would have an adverse effect on our results of operations and financial condition.”

Stellantis — which makes, among other things, RAM trucks with Cummins diesel engines manufactured in Bartholomew County — reported that it incurred around $350 million in tariffs during the first half of the year, describing the costs as the “early effects of U.S. tariffs.”

Additionally, Stellantis’ North American sales slumped during Q2, down 25% “due to factors including the reduced manufacture and shipments of imported vehicles, most impacted by tariffs.”

Daimler Truck reported a 20% decline in truck sales in North America during Q2.

Cummins is expected to release its second quarter results on Aug. 5.

“The economy is already cooling down,” Hauskrecht said. “The labor market is already cooling down, and a continuation of this uncertainty will contribute to a further negative impact on economic activity.”
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