“Trade wars are good, and easy to win.”
That’s the message you got if you read the President’s Twitter account back on March 2, shortly after the administration announced new tariffs on steel and aluminum. If you tuned into CNBC the same day, you saw the Secretary of Commerce of the United States, Wilbur Ross, use a can of Campbell’s Soup to illustrate what he characterized as tiny price increases on consumer goods that could come from the tariffs. The administration had a clear message on its trade policy: don’t worry about it.
The messages that public companies are putting in their 10Ks and 10Qs, however, are quite different. In the last quarter, they have increasingly cited the administration’s trade policies and the threat of a trade war as risk factors with a material effect on their business. And that was before things turned even uglier on the trade front in the last two weeks.
The assurances that the administration issued three months ago did little to quell long standing opposition of U.S. corporate interests to tariffs. Powerful trade organizations—most prominently, the U.S. Chamber of Commerce—rebuked Trump’s protectionist instincts in the buildup to the announcement. And recently, a number of filings with the SEC indicate that publicly traded companies already feel squeezed by the tariffs. For these companies, the threat to their businesses of a trade war with China or other nations has become such a real prospect that they felt it necessary to disclose it in their public filings.
Take G III Apparel Group Ltd. In its 10K filing from April 2, the clothing company made the preliminary point that retaliatory tariffs imposed by China and other countries could have a chain reaction. “The resulting trade war,” it noted, “could have a significant adverse effect on world trade and the world economy.” Specifically, G III stated that if apparel imports from China were to get caught in the crossfire of a trade war, the company would be forced to “increase prices to our customers or, if unable to do so, result in lowering our gross margin on products sold.” It concluded that: “Tariffs on apparel imported from China could have a material adverse effect on our business and results of operations.
There’s also Avista Corp. In its 10Q filed on May 2, the energy company put it simply: “Import tariffs and/or other mandates imposed by the current presidential administration could potentially lead to a trade war with other foreign governments, and could significantly increase the prices on raw materials that are critical to our business, such as steel poles or wires.”
Pittsburgh-based Allegheny Technologies, which manufactures specialty materials and components, revealed in a 10Q filed on May 1 that it is involved in a joint venture slated to use steel imported from Indonesia. The imposition of a 25 percent tariff on imported steel now puts the project at risk, according to the company. Additionally, Allegheny Technologies posited that a trade war with foreign governments could hurt demand for its products and weaken consumers and suppliers.
Notably, those filings all took place prior to the administration’s decision, in late May, to impose the metal tariffs on close allies of the U.S.—Canada, Mexico, and the EU—which had been candidates for exemptions. This has caused further breaks between the administration and right-leaning groups. Conservative kingmakers Charles and David Koch are gearing up for a multimillion-dollar assault on the tariffs that will include lobbying, media blitzes and grassroots campaigns.
Meanwhile, count on talk of trade wars to become even more prominent in filings in the months to come.