If you’re accustomed to adding avocado to your fast-food burritos, prepare to get caught in the crossfire of the looming trade war with Mexico.
The president is pushing to enact tariffs on Mexican goods to motivate the United States’ neighbor to the south to “immediately do its fair share to stop the use of its territory as a conduit for illegal immigration.” What that would entail on Mexico’s part is unclear, but regardless, the White House is giving the country until June 10 to do it. After that, the U.S. will impose a 5% tariff on Mexican imports, with gradual increases over time.
On Monday, the chief financial officer of Chipotle Mexican Grill revealed that the burrito purveyor’s costs could rise by roughly $15 million this year due to avocado tariffs. That could translate into a price hike in the neighborhood of a nickel per burrito, according to Chipotle CFO Jack Hartung.
The tariffs would hit all Mexican imports, so we’re talking about more than condiments. The U.S. imported $346.5 billion in goods in 2018 from Mexico, second only to China among U.S. trading partners. Naturally, the financial world is starting to inquire about how companies are preparing to deal with the potential fallout from the tariffs.
A day after Trump’s May 30 announcement, for example, executives with Big Lots Stores Inc. had to address the tariffs topic with analysts on the retailer’s quarterly earnings call. Their comments about the Mexican tariffs were – understandably – vague, maintaining that the effect on the company’s imports would be “low.” Similarly, Illinois-based Navistar International Corp., which manufactures commercial and military trucks, diesel engines and buses, said in a quarterly earnings announcement on June 4 it may need to adjust its 2019 guidance once more is known about the tariffs.
Another retailer, Boot Barn, got proactive with its 8-K filed on June 4. The Western clothing and lifestyle brand snuck an appendix into its filing, featuring graphics that detail its exposure to tariffs targeting goods from China and Mexico.
Meanwhile, Rexnord Corp., a mechanical components manufacturer headquartered in Milwaukee, Wisconsin, said in June 3 disclosure it doesn’t anticipate the tariffs will have a significant impact on its costs. Noting that executives are expecting the tariffs to be a topic of conversation in upcoming meetings with analysts and investors, Rexnord “believes that its contingency plans substantially offset any incremental costs related to the implementation of this tariff structure at both the announced initial level and if the tariffs were to escalate,” according to the 8-K filing.
Other companies stand to face more severe consequences. For instance, Skyworks Solutions topped a list from Goldman Sachs of the companies most likely to get pinched by the tariffs. Nearly 40% of the semiconductor manufacturer’s assets are located in Mexico, Goldman Sachs reported.
Of course, Trump’s plan for Mexico doesn’t seem to have much support in Washington outside of 1600 Pennsylvania Avenue. After a meeting with Trump administration officials this week, a parade of GOP lawmakers in the Senate spoke out against the tariffs.
We can’t know whether Trump will back down. Until he does, however, public companies should get a handle on the potential impact of tariffs on their business, and be prepared to communicate that information to analysts.