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US-China trade war not hurting diaper maker Kimberly-Clark, CEO says

Key Points
  • Diapers, toilet paper and most of Kimberly-Clark's other products have become more expensive, but it's not because of the U.S.-China trade war, CEO Michael Hsu says.
  • "Generally, we haven't been that affected by [tariffs] because we mostly produce in our local markets for our local consumers," says Hsu.
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Full interview with Kimberly-Clark CEO on strength of consumer

Diapers, toilet paper and most of Kimberly-Clark's other products have become more expensive in the last year, but it's not because of the U.S.-China trade war, CEO Michael Hsu told CNBC on Thursday.

In fact, the company, which makes Huggies, Kleenex and Cottonelle, has largely avoided the impact of the tariffs despite their strains on a number of American companies, Hsu said on "Closing Bell."

"Generally, we haven't been that affected by [tariffs] because we mostly produce in our local markets for our local consumers," said Hsu, who took over as CEO in January.

Year-to-date, Kimberly Clark's stock is up 22.4% after a downward slide between March 2017 and April 2018. It closed down 1.5% on Thursday at 139.48.

Kimberly-Clark's local production has benefited the company amid the trade war not only because the company eludes tariffs but also because in China it isn't solely seen as an American company, Hsu explained.

"Our team believes that in a lot of ways the consumers know it's a U.S. brand but they perceive it local as well," Hsu said.

Additionally, after a few tough years following strong growth in China, Kimberly-Clark once again saw growth in the country in the second quarter, Hsu said. Local companies had offered strong competition. 

"Our team came back hard with really great innovation, and it's really working well this year in our premium tiers," Hsu said.

The reason the Dallas, Texas-based company increased prices on most of its products was a spike in commodity costs in 2018, Hsu.

Consumers didn't turn away after the increases, and with commodity costs moderating this year, "it's given us the opportunity to reinvest in some of our brands," Hsu said.

Analysts and others worried about a recession have been keeping their eye on consumer spending, which makes up about 70% of the U.S. economy.

The American consumer has generally withstood the global economic slowdown and the fallout from concerns that the U.S.-China trade war is worsening the situation.

But recently, there were signs a crack may be forming, with U.S. consumer sentiment showing its biggest monthly decline in August since 2012, according to the University of Michigan's latest survey.

Kimberly-Clark would be especially affected by declines, but Hsu said he continues to see strength from consumers.

"The U.S. consumer is very resilient," Hsu said.