Corporate Executives Analyze Trump's Tariff Promises

By Niket Nishant, Shivansh Tiwary and Manya Saini
(Reuters) – Corporate executives are cautiously awaiting President-elect Donald Trump's proposed heavy tariffs on imports beginning in January, with rising inflation concerns at the forefront.

Major U.S. corporations conveyed worries about tariffs during recent investor events, including after Trump’s Nov. 5 victory over Vice President Kamala Harris. Walmart, the largest U.S. retailer, indicated that heightened tariffs could lead to increased prices for consumers already facing inflationary pressures. A company spokesperson emphasized their concerns about potential cost increases due to the implementation of tariffs.

Trump's emphasis on tariffs, which represent a small portion of U.S. tax revenue, is central to his economic strategy. Numerous executives have been addressing tariff-related questions as they explore diversifying their supply chains, especially away from China, the primary focus of Trump’s tariffs.

Since early September, executives from nearly 200 companies in the S&P 1500 Composite index have discussed tariffs during earnings calls, a significant increase compared to previous election periods. Lowe's CFO Brandon Sink highlighted that roughly 40% of their cost of goods is sourced internationally, impacting product costs.

Trump has proposed 60% tariffs on China and universal tariffs of 10% or more to reduce the U.S. trade deficit. Oxford Economics calculated that a 60% tariff on China could raise U.S. inflation by 0.7 percentage points, while overall tariffs might cause a 0.3-point increase. Gradual implementation is expected, though analysts worry about sudden price shifts.

Possible Sector Effects

Sectors with the highest imports to the U.S. include electronics, transportation, chemicals, and minerals. Taiwan, integral to the U.S. semiconductor industry, faced Trump’s criticisms pre-election, with claims it should contribute to U.S. defense against China’s dominance.

Tariffs could increase costs for various products like clothing, furniture, and travel goods, especially those relying on China as a supplier, according to the National Retail Federation. CFO Patrick Hallinan of Stanley Black & Decker indicated that current tariffs cost the company about $100 million annually, a figure anticipated to double if Trump’s proposals are enacted.

Despite the impending tariffs, companies have been transitioning production away from China since Trump’s previous term, a trend supported by recent legislation aimed at strengthening U.S. manufacturing. The U.S. goods imports from China peaked in 2018 at $538.5 billion and decreased to $433.3 billion by September.

Many businesses appear more adaptable post-COVID-19 pandemic, following extensive labor strikes and key waterway disruptions. Tapestry CFO Scott Roe noted that companies have faced numerous challenges, leading them to become more adept at managing such changes.