The U.S.’s trade war with Canada, China, Mexico — and now the European Union, at least when it comes to booze — isn’t just going to hit your wallet. It’s going to hit corporate America, too.
Every American business is going to have to deal with them.
If you’re not sure what a tariff is — and you’d certainly be forgiven for going “Wait what the what?” — tariffs are a tax imposed by a government on imported goods. President Donald Trump has been brandishing them as a weapon against both allies and enemies. Our allies and enemies have retaliated with their own tariffs as well, which makes it significantly harder for U.S. companies to compete on the global stage.
In short order, what this means is, when companies bring products into the country, they pay the tariff to the government. Whether it’s an imported piece of fruit or a locally assembled car using foreign steel, the tariff cost is factored into the final price consumers pay before sales tax.
It’s a financial pain you’re going to feel and there are no signs of it slowing down — unless Trump backs off on imposing them (which he’s done twice now).
According to New York Times reporting, when it comes to China in particular, American companies are shouldering much of the tariff burden.
Now, one justification for tariffs is that they shield domestic businesses from foreign competitors that offer lower prices. Alexander Hamilton advocated for tariffs, and other trade protections, believing they would help U.S. industries grow stronger and more competitive.
You can probably guess that this didn’t really pan out.
Research from UC Davis shows tariffs did not boost U.S. business productivity. Quite the opposite.
A study on U.S. tariffs from 1870 to 1909 found that a 10% increase in tariffs led to a decline in domestic productivity by 25% to 35%.
Tariffs impact the national economy as well, largely due to the current state of the global economy.
Some of the biggest companies that could take a beating are:
Apple
California-based Apple is worth a wild $3.2 trillion.
Nvidia
Nvidia — whose graphics cards power both my computer as well as AI models — is a $2.96 trillion company headquartered in California.
Microsoft
Apple’s tech nemesis, Microsoft, may not be at the top of the list in Washington state, but it’s no slouch with a value at $2.89 trillion.
Alphabet
Alphabet, which you probably know better simply as Google, is based out of (you guessed it) California and it’s worth just north of $2 trillion.
Amazon
We all know Jeff Bezos’s California-based baby, Amazon. It’s valued at $2.08 trillion.
Tesla
Tesla isn’t just a massive California-based company valued at $778 billion, it’s also got a spot in the White House via Trump’s choice to have Elon Musk head the Department of Government Efficiency.
Stocks can take a hit, too
According to David Kostin, chief U.S. equity strategist at Goldman Sachs Research, each five-percentage-point rise in U.S. tariff rates is estimated to lower S&P 500 earnings per share by approximately 1-2%, as outlined in their report.
If the recently proposed U.S. tariffs — a 25% tariff on imports from Mexico and Canada (with an additional 10% on Canadian energy imports) and a 10% tariff on imports from China — are sustained, Goldman Sachs Research predicts a reduction in their S&P 500 EPS forecasts by about 2-3%.
Kostin said that if companies decide to absorb the increased input costs, profit margins will be pinched.
Alternatively, if businesses pass on the higher costs to customers, they may see a drop in sales volumes. Some firms may attempt to push suppliers to absorb part of the tariff costs through lower prices.
Goldman Sachs’s foreign exchange analysts suggested tariffs could strengthen the value of the dollar. A stronger dollar could further harm S&P 500 earnings, given that 28% of their revenues come from outside the U.S., even though less than 1% comes directly from Mexico and Canada.
A 10% increase in the trade-weighted dollar could reduce S&P 500 EPS by around 2%.
During Trump’s previous term, the S&P 500 saw a 5% cumulative decline on days when tariffs were announced in 2018 and 2019. On days when other countries imposed retaliatory tariffs, the index fell by an additional 7%.
That’s not great news for your bank account or American companies.
