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From late August to late November, 43% of Fortune 500 companies raised concerns over the impact of tariffs and trade policy tensions on earnings calls, according to analysis conducted by the U.S. Chamber of Commerce. This is consistent with similar findings last quarter and shows that current and potential trade conflicts loom large in corporate boardrooms across the country.
The study also found that tariffs dominated these discussions, followed closely by trade tensions more generally:
- 30% of companies among the Fortune 500 specifically discussed the impact of tariffs on earnings calls.
- In total, 26% of companies among the Fortune 500 independently discussed the impact of trade tensions on business in earnings calls.
A total of 188 earnings calls in the Fortune 500 (or 43% of the 437 calls recorded between August 24 - November 24, the time period for earnings calls analyzed) addressed either the impact of ongoing trade tariffs or tensions on business performance.
In total, tariffs and trade tensions were referenced over 1,000 times across these earnings calls between analysts and executives: the term “tariff” was referenced 840 times and trade tensions were referenced 310 times. By sector, retail (69%), manufacturing and industrials (48%) and transportation and logistics (35%) firms were most likely to discuss tariffs. Calls in the manufacturing and industrials (49%), technology (33%), and finance (31%) sectors were most likely to bring up trade tensions.
“Based on the tariffs in place now, we’ve started to see some pressure on our margins from the goods we see directly sourced from China. This includes the merchandise that we are committed to and the changes in tariff legislation that was announced after our Q2 call,” Scott Goldenberg, chief financial officer for TJX, operator of T.J. Maxx, Marshalls and other retailers, said on one call. “For Q4, our guidance now includes the negative impact from these tariffs.”
Last week, the U.S. and China announced the terms of a Phase I trade agreement which will reduce some existing tariffs and put off additional new ones. It also saw China agree to expand market access for agriculture and other sectors while promising to strengthen IP protection and enforcement.
But negotiators should realize time is of the essence. The concern from large companies above is reflected in construction and manufacturing. In the fourth quarter, the U.S. Chamber of Commerce found that 40% of construction contractors said steel and aluminum tariffs would have a high impact on their business. And 32% of contractors said new material and equipment tariffs would have a big impact on their business. Small manufacturers’ confidence has recently fallen: they have become significantly more pessimistic about the national economy over the last two quarters.
How are corporations responding to the increased costs of doing business brought by tariffs? Companies essentially have a choice: absorb the costs themselves, pass them onto customers, or do a little bit of both.
According to one report, AutoZone Chief Executive William Rhodes said on an earnings call that as tariffs increase “we’ve been intentionally passing those costs along in tranches as we absorb those costs.”
Companies can also attempt to negotiate (or renegotiate) deals with their own suppliers in a bid to keep a lid on escalating costs. During another earnings call, Designer Brands Inc. Chief Executive Roger Rawlins said that his company (operator of DSW shoe stores) has negotiated agreements with its suppliers to minimize the impact of new tariffs.
“As we look ahead the unmitigated exposure to tariffs is incredibly meaningful to our business,” Rawlins said.
But this begs the question: Why is this being done at all? Tariffs are taxes, plain and simple. And bad taxes at that: tariffs hit consumers, workers, and the poor the most. That is key especially when economists are telling us that consumers are one of the unstoppable drivers behind the economy lately.
A quick look at recent data seems to bear this out. The University of Michigan’s latest survey found consumers in a good mood and November’s job numbers were strong. But optimism in the construction industry took a big hit this quarter, falling six points, the lowest score since the survey began in 2017. Small manufacturers are also less likely to plan to increase investments compared to other sectors. These could be outliers and are still strong readings overall, but the manufacturing and construction sectors with their longer planning horizons, could be signaling trouble ahead.
Hopefully, the Phase I U.S.-China deal will lay the foundation for a bigger Phase II deal in the new year. In a statement, the U.S. Chamber said that Phase II of the negotiations should address vital structural issues that impact American businesses ability to compete globally. Those issues include China’s massive subsidies, digital and data discrimination, and a range of outstanding forced technology transfer concerns.
“We urge the administration to keep its eyes on the prize,” U.S. Chamber Executive Vice President and Head of International Affairs Myron Brilliant said. “We call upon both governments to continue working diligently toward a final agreement within six months.”
U.S. Trade Representative Robert Lighthizer has not specified when these Phase II negotiations would begin, but companies’ concerns about tariffs show no sign of letting up. Here’s hoping trade negotiators come together in the new year and work to reduce trade tensions and rebuild certainty—for all businesses. That has the making for auspicious start to the year for everyone. Let’s hope they deliver!