- The US-China trade war has taken a toll on multinational companies’ bottom lines and has injected an element of uncertainty into business planning.
- An analysis of executives’ comments from quarterly conference calls, conversations with investors and analysts, and a recent open letter to President Trump highlight the sheer breadth of the trade war’s impact.
- Visit Markets Insider’s homepage for more stories.
The impact of the trade war between the US and China can be summarized by a comment last week from Stanley Black & Decker CEO James Loree.
“So it’s been a great 20 years of shareholder value creation,” he said in a presentation with analysts at an industry conference. “But last year, not so great.”
The industrial-tools-and-hardware company took a $370 million hit from US-imposed tariffs, foreign-exchange headwinds, and cost inflation in 2018, Loree said. The stock dropped 29%.
Stanley Black & Decker’s CFO said during the company’s first-quarter conference call that its tools and storage segment was hit from a similar mix of currency headwinds, tariffs, and commodity inflation.
And in an interview with The Wall Street Journal earlier this month, Stanley Black & Decker said it planned to move production of its Craftsman wrenches back to the US from China as tariffs have raised the cost of imports.
“If we knew that the tariffs were going to be permanent, we would make sweeping changes to the supply chain,” Loree told the outlet.
The company’s experience in managing the US-China trade war is emblematic of a broader set of difficulties companies across sectors – from retail to technology – face as retaliatory rhetoric has ratcheted up this month.
Trade talks between Beijing and Washington have all but stalled. The US government’s Huawei ban exacerbated tensions and sparked worries of an all-out technology “cold war.”
Read more: It’s been more than a year since the US-China trade war started. Here’s a timeline of everything that’s happened so far.
Corporate management teams are increasingly assessing the financial impact of tariffs, with some changing the way they do business as a result of the newly imposed duties, according to an analysis from Yardeni Research.
Some are trimming their profit outlooks, or searching for new suppliers, the firm’s broad analysis found.
“Some companies are hoping their suppliers will absorb the cost of tariffs,” Ed Yardeni, the firm’s president, said in a May 23 note to clients. “And when all else fails, a few companies are reducing their full-year forecasts.”
And while the first-quarter earnings season proved strong by several measures, the threat of further tariffs “is a huge wild card,” John Lynch, the chief investment strategist at LPL Financial, said in a report out this week.
Below is a selection of commentary from companies in the retail, technology, and industrial sectors about how they are being impacted by the trade war – and the impact on their customers, too:
Kena Betancur/Getty Images
Macy’s is working closely with suppliers “on the potential impact to our shared customers,” CEO Jeff Gennette said during the company’s first-quarter earnings call.
“We feel like we’re going to be able to come up with solutions that work best for us and our brand partners,” he said.
But Yardeni Research isn’t convinced Macy’s can fully mitigate the impact of tariffs this year, particularly with its China exposure.
“Reading between the lines, it sounds like Macy’s is hoping some of its suppliers will eat at least part of the expected price increases due to tariffs, some of the price increase will be borne by Macy’s, and prices paid by consumers may rise on certain non-commodity items,” the firm said.
Business Insider/Jessica Tyler
Michelle Gass, the company’s CEO, said earlier this week on the company’s first-quarter earnings call that it is “planning the year more conservatively” due to the “soft” start.
The company cut its full-year earnings forecast, partly due to the recently hiked tariffs on its China-sourced home and accessories products, Yardeni Research pointed out.
“Our team is working hard to mitigate the impact of the tariffs while we seek to remain competitive by putting our customers first,” Gass said.
“A significant portion of the products that we purchase, including the portion purchased from domestic suppliers, as well as most of our private brand merchandise, is manufactured abroad,” Foot Locker said in its 2018 annual report released in April.
“We may be affected by potential changes in international trade agreements or tariffs, such as new tariffs imposed on certain Chinese-made goods imported into the US,” the company said, before suggesting China or other countries may then retaliate with their own measures.
Earlier this week, Foot Locker and other shoe companies like Crocs, Nike, and Adidas wrote a letter to President Donald Trump, urging him to consider the “catastrophic” impact that tariffs on Chinese goods would have on American customers.
Read more: Nike, Adidas, and more than 170 other shoe companies warned of the trade war’s ‘catastrophic’ impact on Americans in a scathing letter to Trump
AP Photo/Nati Harnik
Sales in the US and Canada are expected to be flat to up 5% for this year, Cory Reed, the president of Deere’s worldwide agriculture and turf division, said on the company’s second-quarter earnings call last week.
“However, as near-term fundamentals have weakened, we anticipate large ag industry sales ton be on the lower end of that range, with Canadian demand turning negative due to adverse weather and currency fluctuations and further complicated by tariffs on certain crops such as canola and lentils,” he added.
Nvidia is one of several chipmakers that has said its business has seen minimal impact from the US-China trade war.
“There is relatively little direct impact on us from the tariffs on China imports,” CEO Jensen Huang said during the company’s annual shareholder meeting earlier this week.
Still, he noted that “most” of the company’s partners have moved – or are moving – their impacted assembly work to regions like Taiwan and Mexico.
“But the tariff war is obviously not good for anybody, and we hope the US and Chinese governments look for solutions that is wise and leads to fair trades, which is important to all of us,” he said.
“I think my own view is that China and the US have this unavoidable mutuality where China only wins if the US wins and the US only wins if China wins, and the world only wins if China and the US win,” CEO Tim Cook said during the company’s second-quarter earnings call earlier this month.
Cook added: “I’m a big believer that the two countries together can both win and grow the pie, not just allocate it differently. And so that’s our focus, and I’m optimistic that – I don’t know every play by play that will happen, but over time, I think that view will prevail.”
Read more: Apple sounds the alarm on a slowdown in China