Trump's Proposed Tariffs May Put The Stock Market Through A New Test
Since the 2024 election results came out, President-elect Donald Trump has posted on Truth Social that he will assess wide ranging new tariffs on Mexico, China, and China on day one in office. This is part of his effort to boost American manufacturing. According to his posts, Canada and Mexico will suffer a 25% levy on all exports to the U.S. with China being subjected to another 10% tariff rate "above any additional tariffs," per Morningstar.
While this news strengthened the dollar, the results for stocks were mixed. Chief U.S. Market Strategist Dave Sekera of Morningstar warned that "the most significant wild card on the table for 2025 will be the potential implementation of tariffs." The way they are applied will have "significant implications on corporate margins and stock valuations," as Morningstar reported.
It is not yet certain what form this next round of Trump tariffs will take. Getting around them could be costly for corporations heavily exposed to China, Canada, and Mexico, leading to a new test for the stock market. Some companies are already reacting and taking defensive measures.
Initial corporate reactions to tariff threat
Even before incoming President Donald Trump's tariff announcements corporate earnings calls were already marked by concerns about the effects such tariffs might cause. Per Morningstar, CFO Jeffrey Howie of Williams Sonoma warned analysts in November that "We have a wide range of mitigation options, and in fact, everything is on the table." These efforts could include supply chain adjustments, price hikes, and over-stocking inventory ahead of new levies.
The promised new tariffs would cause importers to have higher costs. Importing company choices are to absorb them or pass the costs on to consumers with higher pricing. Many earnings calls have indicated that corporations are preparing to stick consumers with the bill. CEO Donald Allan Jr. of Stanley Black & Decker warned, "We are going to be proactive in pricing going forward," according to the Morningstar article.
Other corporate heads agreed with these sentiments. CFO Matteo Anversa of Logitech shared that "Ultimately, price is always an option" when discussing company strategies to lessen the bottom line impacts of tariffs. Meanwhile CFO Brandon Sink of Lowe's shared with analysts his belief that any tariffs will "certainly add product costs." CFO Jamere Jackson of AutoZone echoed the sentiments that tariffs will probably "bring some inflation into the industry, whether we like it or not," per Morningstar.
Companies that may be affected by tariffs are taking measures
Some companies will find the promised tariffs to be more harmful to their operations. A publisher of research for the Federal Reserve Bank of New York, Liberty Street Economics investigated the first Trump term tariffs. Liberty Street found that prior Trump tariffs caused a decisively negative effect on U.S. stocks that had exposure to nations who were the subject of those tariffs, per Motley Fool.
The companies most likely to run afoul of these tariffs are already taking measures to protect against them. William Sonoma revealed that the company only sources a quarter of its products from China now versus the half of imports that they obtained there several years ago. Much of their manufacturing is now located in the United States. Howie shared that "We're prepared to reduce our exposure to China further if tariffs increase."
Other impacted corporate leaders echoed these sentiments. CEO Christopher Hufnagel of Wolverine World Wide told analysts that "Exposure to China is down dramatically from where we were just a couple of years ago, in that mid-teens range." Meanwhile CEO Robert Kay of Lifetime Brands shared on an earnings call that "We have taken defensive operational measures and increased inventory levels to protect against the potential for increased tariffs post-election," as Morningstar reported.