INVESTORS BRACE FOR TARIFF FALLOUT
SAN FRANCISCO: Tariffs are starting to bite big manufacturers and Wall Street could get another bout of caution and uncertainty from major industrial companies when a swath of reports comes in over this week.
Investors are worried about the impact on earnings should the United States’ trade war with China and other major trading partners escalate. Deutsche Bank last motnh estimated that an escalation of the dispute to include US$200 billion (RM812.5 billion) of imports would hit earnings growth by one to 1.5 per cent.
“If today’s political rhetoric intensifies and translates into actual protectionist policies, it will be a negative for all businesses in the US and abroad, including ours,” Hamid Moghadam, chief executive of supply chain management company Prologis, warned on a conference call on Tuesday.
Manufacturers across the country are concerned about Washington’s recent trade policies, with some saying that uncertainty related to tariffs was already hitting them, according to anecdotes collected by the US Federal Reserve in its Beige Book, released on Wednesday.
That is starting to show up in early reports by companies. Earnings from Honeywell International, General Electric (GE) and Stanley Black & Decker show companies facing higher costs due to already enacted tariffs, and uncertainty about tariffs on as much as US$500 billion in Chinese goods threatened by Trump.
GE said it expects tariffs on its imports from China to raise its costs by up to US$400 million and Alcoa said the tariffs led to an extra US$15 million in costs.
Second-quarter corporate earnings seasons kicks into gear starting today, with results on tap from companies including Corning, Ford Motor, 3M Co and Boeing , which has fallen nearly two per cent since the start of March.
The US in March said it would impose tariffs on steel and aluminium, and on July 1, Washington and Beijing applied tariffs on US$34 billion worth of each other ’s goods. Trump has threatened additional tariffs, possibly targeting more than US$500 billion worth of Chinese goods — roughly the total amount of US imports from China last year.
Since March 1, S&P 500 industrials have fallen nearly three per cent, reflecting the sector’s dependence on international commerce. The S&P 1500 steel index has lost one per cent since March 1, as investors worry that a slowdown in global demand could offset US steelmakers’ benefits from tariffs against their foreign competitors.
Many of the roughly 180 S&P 500 companies reporting their results this week are not directly exposed to China, but they may still have reasons for concern.
“There are companies that might not be significantly impacted by tariffs from a cost perspective, but from the uncertainty around it,” said Kurt Brunner, a portfolio manager at Swarthmore Group in Philadelphia, Pennsylvania. “They could see customers holding off on spending because they don’t know what is going to happen.”
Harley-Davidson, which said last month it would move some of its motorcycle production abroad as a result of the European Union’s retaliatory tariffs, will report its results tomorrow.
Qualcomm, reporting on Wednesday, depends on China for two-thirds of its revenue. The US chipmaker is also facing a drawn-out wait for Chinese regulators to approve its US$44 billion takeover of NXP Semiconductors, a delay widely seen as connected to the trade conflict.
A strong US economy and deep corporate tax cuts have fuelled a five per cent increase in the S&P 500 this year, even as Wall Street worries about the tariffs’ impact.