Good morning. Geoff Colvin here, sitting in for Sheryl. Amid all the uncertainties swirling around the November elections, odds are strong that CFOs will face intensifying trade wars no matter who wins, as I explain in a recent article.
Brace for broader, higher tariffs—a hidden tax that imposes extra costs on consumers or businesses or both. After 70 years of U.S. negotiations with other countries that reduced U.S. tariffs to their lowest levels ever, President Donald Trump in 2018 imposed aggressive new tariffs on products from Argentina, Brazil, Canada, China, the European Union, India, Mexico, and South Korea. Most of those countries quickly launched retaliatory tariffs against the U.S. A study by researchers at several universities found that in the first year or so, U.S. consumers and firms that bought imports lost $51 billion.
While Joe Biden changed many of Trump’s policies when he became president, he has barely touched Trump’s tariffs, keeping nearly all of those he inherited and adding many more. They include new or increased tariffs on Chinese steel, aluminum, semiconductors, electric vehicles, batteries, solar cells, and more. Now U.S. protectionism, which was nearly extinct by 2017, is growing again, with bipartisan support.
Vice President Kamala Harris, the presumptive Democratic presidential nominee, has not enunciated a trade policy, but nothing so far suggests she would veer from Biden’s stance. Trump’s policy is far more severe. He has proposed a 60% tariff on all Chinese imports and a universal 10% tariff on imports from all countries—radically high and broad tariffs not seen in decades. Goldman Sachs estimates Trump’s program would raise inflation by 1.1 percentage points and reduce GDP growth by a half point, a significant drop when GDP has most recently been growing at an annual rate of 2.8%. The Peterson Institute for International Economics calculates that Trump’s tariffs would cost a middle-income U.S. household $1,700 a year.
For CFOs across industries, the Trump tariffs could be traumatic. In 2023, the effective U.S. tariff rate (total tariffs paid as a share of imported merchandise value) was 2.4%. Goldman Sachs chief economist Jan Hatzius calculates that Trump’s tariffs would increase the rate to 18.4%, a level last seen during the Smoot-Hawley tariff in the Great Depression.
If the Democratic candidate wins, tariffs are unlikely to rise so high but still seem more likely to rise than to fall. Strategizing for these scenarios, including the effects of inevitable retaliatory tariffs, is PhD-level finance. A starting to-do list:
Bring in dedicated policy expertise. Theodore Bunzel, head of Lazard Geopolitical Advisory at the Lazard financial advisory and asset management firm, tells Fortune, “We’re seeing a lot of companies designating a chief policy officer or chief geopolitical officer.”
Do realistic scenario planning. In addition to gaming out presidential and congressional election possibilities, imagine relevant geopolitical events. What would your business do if a conflict—think Gaza or Ukraine—suddenly widens? What if a major U.S. ally shifts its majority party, as the U.K. and France did recently?
Accept that trade lobbying doesn’t work as it used to. Pleas for commercial protection based on national security will be received more favorably than traditional arguments based on economics.
Run the numbers. How would Trump’s proposed tariffs, and possible tariffs imposed by the Democratic candidate, affect your company and industry? What retaliatory tariffs would hurt you most or least?
For nations, escalating a trade war is easy. De-escalating one is not—which means that CFOs, on top of everything else they do, must now become foreign policy experts.
Geoff Colvin
Geoffrey.Colvin@fortune.com
The following sections of CFO Daily were curated by Greg McKenna.
