Impact of Tariffs on Your Industry Vulnerability

Impact of Tariffs on Your Industry Vulnerability

The long-term effects of President Trump’s tariffs have been mixed across various sectors, with notable economic costs and varied corporate responses.

Economic Growth and Labor Market

According to recent studies, the long-term impact on U.S. GDP has been reduced by approximately 0.4%, with persistent negative effects on the labor market, such as increased unemployment and lower payroll employment.

Sectoral Impacts

U.S. manufacturing has expanded by approximately 2.1% due to tariffs, as they incentivize some domestic production. However, this gain is offset by declines in construction (-3.6%) and agriculture (-0.8%), highlighting the trade-offs tariffs create within the economy. Specific companies, particularly in goods-producing and consumer-facing sectors such as automakers, have issued profit warnings or revised forecasts due to tariffs. Management commentary commonly reveals ongoing uncertainty about tariffs’ impacts on revenues and margins.

Corporate Adjustments

To mitigate tariff costs, companies have been taking steps like adjusting supply chains to source inputs differently or domestically, implementing cost-cutting measures, planning price hikes for consumers to pass through tariff-related expenses, and scaling back promotions and other discretionary expenses.

Consumer Impact

Over time, consumers can expect higher prices as companies seek to pass on tariff-related expenses. Multinational corporations have sometimes spread cost increases globally, softening U.S.-only price hikes, though data shows a significant rise in customs duties collected domestically, suggesting most tariff costs currently fall on U.S. companies and consumers.

Uncertainty Effects

The business environment under these tariffs has been marked by uncertainty, leading to delayed investment and hiring decisions, compounding economic strain on workers and households. Public surveys reflect this complexity, with a majority of Americans viewing the tariffs as having mostly negative long-term effects on the country’s economy and personal finances, though partisan views differ.

Sectoral Performance

The S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average have made new all-time closing highs since the introduction of Trump’s tariffs. However, sectoral performance has been more varied. The Health Care Select Sector SPDR Fund (XLV) is the only one of the 11 S&P 500 sector ETFs with a negative return since April 7, anchored by beleaguered UNH. On the other hand, the Industrials Select Sector SPDR Fund (XLI) is up 27.9% since April 7, while the Consumer Discretionary Select SPDR ETF is up 19.9%. The Real Estate Select Sector SPDR Fund (XLRE) has posted a total return of 9.6% since April 7, third-worst among the 11 official sectors.

Notable Examples

Some companies, like Ford Motor, have reported significant losses due to tariffs. Ford reported its first quarterly loss in two years due to an $800 million tariff hit. On the other hand, 3M (MMM) has revised its full-year per-share impact of tariffs from a range of 20 cents to 40 cents to a net total impact of 10 cents. Microsoft (MSFT) continues to benefit from strong AI-driven revenue growth in its Azure cloud platform, with its stock up 46.7% since April 7 and recently becoming the second company ever to surpass the $4 trillion market-cap threshold.

Financial Sector and Beyond

JPMorgan Chase (JPM) and other financial stocks will reflect the macroeconomic impact of tariffs, but not so much any specific cost or price pressures. Efforts to offset potential negative impacts include controlling costs, managing prices, supply chain adjustments, and cost-cutting moves such as scaled-back promotions and price hikes. However, some companies, like DuPont (DD) and Apple (AAPL), face significant tariff-related costs, with DuPont expecting a tariff-related hit of only $20 million, or 4 cents per share, down from 10 cents per share, and Apple facing $1.1 billion in additional costs during the current quarter.

Communication Services Stocks

Communication services stocks such as Alphabet, Meta Platforms, and Netflix that see greater shares of revenue from advertising and subscriptions are likely to be more resilient in a rising-tariffs environment.

In summary, the long-term impact of Trump’s tariffs has been nuanced and sector-specific, with companies actively adapting but still facing significant challenges and an uncertain outlook.

1. In the face of ongoing tariff-related expenses, corporations like DuPont and Apple, with significant tariff-related costs, are adjusting their supply chains and implementing cost-cutting measures to mitigate their financial impact.
2. While the financial sector, such as JPMorgan Chase, will reflect the broad macroeconomic impact of tariffs, communication services stocks, like Alphabet, Meta Platforms, and Netflix, with a greater share of revenue from advertising and subscriptions, tend to be more resilient in a rising-tariffs environment.

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