Trump’s Turnaround on Tariffs Heightens Uncertainty for Companies

Sometimes events come along to remind companies and the people who invest in them that the assumptions underpinning their plans are tenuous. In his 2003 book “A Mathematician Plays the Stock Market,” Temple University professor John Allen Paulos summed up that reality based on his own experience as an investor. “Uncertainty is the only certainty there is,” he wrote, “and knowing how to live with insecurity is the only security.”

The developments in recent weeks surrounding President Donald Trump’s on-again, off-again policy on tariffs is providing corporations with a stark reminder that the future is inherently unknowable. Not surprisingly, issuers are taking different approaches in responding to the ever-changing landscape.

Some issuers began voicing concerns regarding Trump’s potential use of tariffs shortly after he took office for a second time. Now, the global trade war is upending corporate guidance. Delta Air Lines Inc., for instance, pulled back its full-year financial projections last week. The decision represented “a stark sign of the turmoil rippling across corporate America” as a result of the tariffs, according to Bloomberg. “With the level of uncertainty we’re seeing and the amount of changes happening on a daily basis in global trade, it’s very difficult to predict what policies may look like over the course of the year,” Delta chief executive Ed Bastian told Bloomberg.

Conversely, retail powerhouse Walmart isn’t backing off its forecasts. The Arkansas-based chain of big-box stores is also committing to “keeping prices as low as we can,” said CEO Doug McMillon. This is a notable stance given Walmart’s position as the nation’s biggest importer of containerized goods, especially considering key tariff target China produces roughly 60% of what Walmart brings in from abroad. Note that Trump is moving forward with levying substantial tariffs on goods imported from China, despite putting a 90-day pause on his planned hikes in general.

In a commentary published last week, attorneys at Bryan Cave Leighton Paisner LLP advised that companies should also consider how to address the escalating tariff anxiety in the disclosures of risk factors and management discussion and analysis in their quarterly filings. BCLP highlighted a range of issues that companies should account for in their disclosures. For instance, can they mitigate the impact of tariffs on their costs by turning to alternative suppliers and manufacturers? In its most recent 10-Q, PriceSmart Inc., an American operator of warehouse clubs in Central America, raised that possibility, noting, “We may also choose to re-route merchandise directly from the country of origin directly to the markets where we have warehouse clubs to bypass the impact of U.S. tariffs.”

Adding to the complexity for issuers, it’s worth noting that the Securities and Exchange Commission takes the position that couching risks as hypotheticals in disclosures can mislead end-users if those risks have occurred in the past. Regarding Form 10-Q filings, that means the depiction of a risk previously presented as a hypothetical in a prior Form 10-K filing should be updated prior to filing the new 10-Q if that risk has materialized.

All of this raises a significant question for companies: If Trump has paused the tariffs for 90 days, should they still be treated as hypothetical in disclosures?