President-elect Donald Trump has been doubling down on tariffs, and various companies have been warning that such measures could eat into profits and the costs would be passed on to consumers.
In a post to Truth Social on Monday, Trump said he plans to impose broad new tariffs on Mexico, Canada, and China on his first day in office, calling them part of a crackdown on immigration and illegal drugs. He said Mexico and Canada would be subject to 25% levies on all products, while China would be subject to an additional 10% “above any additional tariffs.” The dollar rose on the back of the announcement, while stocks were mixed.
Before Trump’s announcement, company earnings calls were filled with warnings about the impact tariffs could have. “We have a wide range of mitigation options, and in fact, everything is on the table,” Williams Sonoma WSM CFO Jeffrey Howie told analysts last week. That includes price hikes, supply chain adjustments, and stocking up on inventory before any new levies are enacted.
What Do Tariffs Mean for American Companies?
On the campaign trail, the president-elect floated a new tariff of 60% or more on goods from China, as well as a blanket tariff of 10% or more on all imports into the United States. Trump argued that new taxes would help grow the US manufacturing industry and raise money to support government spending in other areas.
It’s unclear what form Trump’s second round of tariffs may take, but maneuvering around them could be expensive for companies in the short term.
“The most significant wild card on the table for 2025 will be the potential implementation of tariffs,“ says Dave Sekera, chief US market strategist for Morningstar. The details of how tariffs are applied—for what countries, for what products, the magnitude, and what products are excluded—will have ”significant implications on corporate margins and stock valuations,” he says.
It’s not a given that tariffs lead to higher inflation over the long term, but they do dent economic growth. “Higher tariffs unambiguously reduce real GDP,” Morningstar chief US economist Preston Caldwell wrote in his third-quarter outlook. “Whether that also manifests as higher inflation depends on a host of factors.”
Before Monday’s announcement, analysts at Goldman Sachs said they expect Trump’s proposed tariffs to push consumer prices higher and chip at disposable income. “The broader uncertainty of how much further the trade war might escalate is likely to weigh on business investment,” they added.
Here’s what companies have said about how they’d handle new tariffs under Trump 2.0.
Price Increases Are Top of Mind
One of the most immediate impacts of new tariffs would be higher costs for importers, who could either absorb them or pass them on to consumers through higher prices to protect bottom lines. Earnings calls this season demonstrate many companies are preparing to do the latter.
“We are going to be proactive in pricing going forward,” Stanley Black & Decker SWK CEO Donald Allan Jr. told analysts last week. Added CFO Patrick Hallinan: “We would extra price to be the lever that starts to buttress any tariff expense most quickly.”
Logitech LOGN CFO Matteo Anversa said “Ultimately, price is always an option” during a discussion of strategies the company could use to mitigate the effect of tariffs. Lowe’s LOW CFO Brandon Sink told analysts that tariffs would “certainly add product costs.” AutoZone AZO CFO Jamere Jackson said tariffs would likely “bring some inflation into the industry, whether we like it or not.”
On the other hand, discount retailer Ross Stores ROST hopes to keep prices steady to maintain a competitive edge. “Our focus in the case of a tariff increase would be to maintain a pricing umbrella vs. traditional retailers and offer the best values to the customer,” COO Michael Hartshorn said. “We will not be a leader in raising prices.”
Diversifying Supply Chains Away from China
Since China is a primary target of Trump’s proposed tariffs, companies across industries say they’re turning elsewhere.
Howie said William Sonoma now sources 25% of its goods from China, down from 50% a few years ago. He added that much of the firm’s manufacturing is also based in the US. “We’re prepared to reduce our exposure to China further if tariffs increase,” he said.
Allan echoed that view, telling analysts that Stanley Black & Decker would accelerate existing efforts to lessen its dependence on China should new tariffs be implemented.
“Exposure to China is down dramatically from where we were just a couple of years ago, in that mid-teens range,” Wolverine World Wide WWW CEO Christopher Hufnagel told analysts. Wolverine oversees several footwear brands, including Chaco, Merrell, Saucony, and Stride Rite. Hufnagel pointed to Vietnam, Bangladesh, and Indonesia as important areas.
Stockpiling Extra Inventory
Another way to cushion the impact of tariffs, at least in the short term, is to stock up on extra inventory before they take effect.
“We have taken defensive operational measures and increased inventory levels to protect against the potential for increased tariffs post-election,” Lifetime Brands LCUT CEO Robert Kay said on an earnings call earlier this month. He noted that during the last cycle of Trump tariffs, holding more inventory proved prudent, even though it came at the cost of cash and liquidity.
TJX TJX, the parent of discount chains TJ Maxx and Marshalls, is poised to take advantage of that phenomenon, given its business model of selling merchandise imported from other firms. “Manufacturers could bring in goods early,” CEO Ernie Herrman told analysts. “That could create even additional availability of goods at advantageous prices for us, because we can take advantage of that opportunistically.”
The Bottom Line for Investors: Too Soon to Tell
Amidst all these plans, companies are making it clear that the future remains unclear, and they’re emphasizing to investors that they plan to be flexible as the global trade landscape changes. It’s unclear what a new round of tariffs will look like, or whether they’ll even be implemented.
“There’s a lot of uncertainty regarding future policies on tariffs, and quite frankly, a daily or weekly tweet could change the tone on that,” said American Woodmark AMWD CEO M. Scott Culbreth in a Tuesday earnings call.
Sekera says tariffs won’t have uniform impacts across companies. “We expect a wide range of valuation outcomes, from relatively little to a lot.” Companies that import a large portion of their products could see their margins compress, while those with more domestic sourcing or those in areas that aren’t subject to tariffs may benefit compared with competitors. “Other companies with strong pricing power may quickly pass through those added costs, and assuming only a modest pullback in volume, they could see their earnings rise,” Sekera adds.
In a note to clients on Tuesday, Solita Marcelli, chief Americas investment officer at UBS Global Wealth Management, said that while threats of tariffs may trigger short-term volatility in the markets, the backdrop remains supportive for global stocks, especially in the US. “Within the US, the technology, utilities, and financial sectors are among those we see as attractive,” she wrote.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
