CFOs Brace for Trade Tensions, More Tariffs After Election
October 27 2020 - 5:59AM
Dow Jones News
By Mark Maurer
Finance chiefs are closely tracking how U.S. trade policy could
change after the presidential election, potentially leading to
higher tariff-related costs and new restrictions on certain
products.
The winner of the election will have to navigate tensions with
China and Mexico as well as determine the course on trade tariffs
that can hurt a company's financial health, disrupting its cash
flow and supplies. Washington currently imposes tariffs on roughly
three-quarters of all products China sells to the U.S.
A second Trump administration is expected to continue using
tariffs to try to protect U.S. companies from foreign competition
and negotiate better trade agreements. President Trump in a second
term will also likely continue using unilateral tools such as new
tariffs to address trade concerns with China.
By contrast, Democratic challenger Joe Biden has said he intends
to consult with allies on a common approach toward China and won't
sign new trade deals until he gives the middle class an economic
boost, in part by creating jobs. The former vice president has also
said he would use tariffs, such as quotas on imports from countries
that fail to meet climate targets.
Some U.S. companies struggled during the roughly two-year
U.S.-China trade war as uncertainty around trade policy weighed on
their profits, sales and investments. Businesses sought to tighten
their inventories and adjust pricing to ease the impact of tariffs
on their goods. The Trump administration had said tariffs were
necessary to pressure China to change practices that were unfair to
U.S. companies, and that it pushed American companies to build or
source products domestically.
Major auto makers such as Ford Motor Co. and Tesla Inc. were hit
hard by the increase in tariffs in recent years because they make a
large volume of cars in the U.S. for export to China.
The U.S. and China in January signed a Phase One trade deal,
serving as a cease-fire in their trade war. Thanks to that deal,
Ford now faces some nominal tariffs on auto parts exported to China
and auto parts it makes there and imports into the U.S., but not at
the level of 2018, when China put a 40% tariff on U.S. car
imports.
The auto maker hopes a phase-two deal will resolve any remaining
issues between the countries, a Ford spokeswoman said. "The lower
we can get duties when it comes to exporting to other countries,
obviously, the better financially it is for Ford," the spokeswoman
said.
Ford doesn't import any furnished vehicles from China, unlike
some of its U.S. competitors, but its exports to China during the
trade talks were heavily impacted by the tariffs. Ford isn't
anticipating significant change in trade policy should Mr. Biden
win because he also has signaled his intent to be tough on China,
the company's spokeswoman said.
Motorcycle manufacturer Harley-Davidson Inc. last year shifted
production of certain models outside of the U.S. after the European
Union imposed tariffs on its vehicles in response to the Trump
administration imposing tariffs on steel and aluminum producers in
Europe and elsewhere. The Trump administration criticized
Harley-Davidson's move.
Trade tensions also remain with Mexico, even though the U.S. in
January signed a trade pact with the country. Mr. Trump has sought
talks with Mexico over concerns about imports of Mexican
strawberries and bell peppers.
Chipotle Mexican Grill Inc., which imports avocados from Mexico
and other countries, hopes new restrictions won't come into force
as they could increase the restaurant chain's costs and inhibit its
imports, Chief Financial Officer Jack Hartung said.
"That would be a bummer," Mr. Hartung said, adding he isn't sure
if that would be more likely to occur under Mr. Biden or Mr.
Trump.
Executives consider U.S.-China business relations and new trade
agreements to be top policy risks regardless of who wins the
election, according to an Oct. 13 survey of U.S. corporate
executives by professional-services firm PricewaterhouseCoopers.
But under a second Trump term, those risks ranked higher for
companies.
If Mr. Trump wins, 42% of respondents said their companies will
likely reduce investments in China, compared with 20% of
respondents who said that if Mr. Biden wins, the survey found.
Twenty-eight percent said they would likely increase investment in
China under Mr. Biden, compared with 15% under Mr. Trump.
Recent trade tensions have increased the likelihood that
companies will try to relocate overseas operations to reduce some
policy-related trade risk, said Scott McCandless, PwC's U.S. trade
policy leader. Manufacturers have, for example, been looking to
diversify their supply chains in Vietnam and other alternatives to
China to avoid U.S. tariffs, he said.
Write to Mark Maurer at mark.maurer@wsj.com
(END) Dow Jones Newswires
October 27, 2020 05:44 ET (09:44 GMT)
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