WASHINGTON, D.C. December 6, 2024 (Reuters) — Corporate chieftains know a trade war is coming, but they are unable to prepare for it. The countries, products and tariff rates that Donald Trump intends to target change by the day, sometimes even the hour. Dry runs during the U.S. president-elect’s first term in office are the best playbooks available for now. This time, however, probably will be different.
Chief executives, who routinely gripe about uncertainty, are now faced with an abundance of it in their supply chains. Trump keeps abruptly revising his trade-related threats. On the campaign trail, he vowed broad 20% rates, with 60% on Chinese goods. The blanket approach has morphed into a 25% levy on Mexico and Canada unless they beef up border security and combat drug trafficking. A 100% tariff on Brazil, South Africa and other BRICS nations would punish any move away from the U.S. dollar.
It’s easy to interpret such mercurial policymaking as a mere negotiating ploy. For example, Trump already has proclaimed victory following a chat with Mexican President Claudia Sheinbaum. Small wonder that businesses are optimistically grasping at such examples as reasons to stay calm. Trump tries to “provoke strong reactions,” the president of Canada’s association of auto parts manufacturers said recently.
Contingency plans are nevertheless being drafted, with some confidence drawn from past experiences. Dick’s Sporting Goods Chief Financial Officer Navdeep Gupta told investors last month that the retailer learned from 2018-2019 tariffs to reduce its manufacturing exposure to China. Hewlett Packard built factories around the world “to respond to changes in the geopolitical environment.” Apparel maker Guess also has moved some production out of China, but it cautioned that it will need to seek more alternative sources if Trump doubles down.
Exposure to Canada and Mexico will be tougher to mitigate. Corie Barry, who runs electronics chain Best Buy, warned that customers would bear the brunt of new taxes on imported components. Produce distributors said duties will increase fresh fruit and vegetable prices. Carmakers are particularly concerned, given the roughly $100 billion of parts and 4 million vehicles brought to the United States from Canada and Mexico, according to Wolfe Research.
Not every company can be like Bath and Body Works, which has moved 85% of its manufacturing to a cluster of factories in Ohio. Even so, the $8 billion soap and candles vendor signaled that it is only “relatively well-positioned” for tariffs. In that case, everyone else would be wise to brace for the worst.
CONTEXT NEWS
U.S. President-elect Donald Trump said on Nov. 25 that he would impose large tariffs on Canada, Mexico and China, three of the country’s top trade partners. Following a call with Mexican President Claudia Sheinbaum, Trump suggested that his proposed 25% tariff on imports could be rescinded in exchange for cooperation on migration issues. Canadian Prime Minister Justin Trudeau flew to Trump’s club in Florida on Nov. 30 to discuss trade and migration.
