Since June 1, 43% of Fortune 500 executives raised or addressed concerns over the impact of tariffs and trade policy tensions in earnings calls, according to analysis conducted by the U.S. Chamber of Commerce. The data add to mounting evidence that tariffs pose a growing concern for American businesses and present a major threat to growth and the longest economic expansion in U.S. history.
Using natural language processing to map patterns in language, the analysis collected data from 422 earnings calls held by companies in the Fortune 500 from June 1-Aug. 24, 2019. The study found that 139 companies, (33%) specifically discussed the impact of tariffs, with total mentions on earnings calls exceeding 650. Similarly, 118 companies (28%) specifically discussed the impact of trade policy tensions, with total mentions on earnings calls exceeding 380.
Fortune 500 companies produce two-thirds of the U.S. GDP, generating $13.7 trillion in revenue and employing 28.7 million Americans. This means that almost half of the largest U.S. businesses are expressing concern at the wave of tariffs imposed on imports from multiple countries.
Taking a deeper dive into the data, the study found manufacturing and industrial firms mentioned tariffs most frequently, with 64% of calls mentioning tariffs, followed by retailers (58%) and technology firms (43%). The study shows that leaders in industries that are key to American growth and prosperity are becoming more concerned with how they will deal with the impact of tariffs on their workers, partners and customers. In a Chamber study from earlier this year, 47% of Fortune 500 manufacturing and industrial firms, 61% of retail companies, and 30% of tech companies mentioned tariffs in earnings calls.
Why does this matter? Because tariffs imposed on imports from our biggest trading partners (especially China) may be reaching a tipping point where they have a serious impact on companies, consumers, and the wider economy. According to new figures from the Federal Reserve, uncertainty over trade policy is likely to reduce U.S. economic output by more than 1%.
Recently, the U.S. and China have engaged in escalating rounds of tariffs including:
- July 6, 2018: The U.S. imposed 25% tariffs on $34 billion of imports of Chinese goods (a collection of goods dubbed list 1), and China immediately retaliated with tariffs on U.S. exports in the same amount.
- August, 23, 2018: The U.S. imposed 25% tariffs on $16 billion of imports of Chinese goods (list 2), and China immediately retaliated with tariffs on U.S. exports in the same amount.
- September 24, 2018: The U.S. imposed 10% tariffs on approximately $200 billion worth of Chinese goods (list 3), including many everyday consumer products like electronics and housewares. China again retaliated with tariffs on another $60 billion of American-made products.
- June 1, 2019: The U.S. increased tariffs on approximately $200 billion worth of Chinese goods from 10% to 25% (list 3).
On September 1, 2019: The U.S. imposed tariffs of 10% on approximately $112 billion of imports from China (list 4a), most of which are consumer goods. China again retaliated, principally by hiking tariff rates on approximately $75 billion of U.S. exports. The White House has indicated plans to increase tariff rates by 5% on many of these imports on October 1 and to impose a 15% tariff on virtually all imports from China that have not yet been subjected to these new tariffs (list 4b) on December 15.
And perhaps the effects of these tariffs are already beginning to show: U.S. consumer sentiment slumped to the lowest level of Trump’s presidency in August at 89.8, down from 92.1 and 98.4 in July, according to the University of Michigan’s Index of Consumer Sentiment. The university added that tariffs played a significant role in the downturn in consumers’ outlook:
The recent decline is due to negative references to tariffs, which were spontaneously mentioned by one-in-three consumers…The data indicate that the erosion of consumer confidence due to tariff policies is now well underway.
And that’s not very surprising when you consider the impact of the trade war on U.S. consumers. JP Morgan has estimated that the tit-for-tat tariff war with China will cost the average American family $1,000 per year as additional waves of tariffs kick in this fall.
But it doesn’t have to be this way, as U.S. Chamber CEO Tom Donohue pointed out, the U.S. and China can – and should – return to the negotiating table and withdraw any tariffs that have taken effect (or that are about to). Such a move would, “eliminate the uncertainty, rebuild business confidence and keep this economy working for all Americans,” Donohue said.
And that’s something that would benefit not just CEOs of Fortune 500 companies, but millions of hard-working Americans across the country. It’s not too late, but time is of the essence. Let’s hope the trade diplomats sit down immediately and work together to take tariffs off the table for good.