Companies start counting potential costs of Trump's tariffs
Any duties on goods imported from the three largest US trade partners will present a fresh challenge for companies already facing lacklustre demand
DIAGEO warned on Tuesday (Feb 4) of a US$200 million hit to its operating profits from US tariffs on Mexican and Canadian imports and German auto supplier ZF flagged price hikes, as companies start counting the likely costs of Donald Trump’s trade measures.
US President Trump said at the weekend he would impose 25 per cent tariffs on goods from Mexico and Canada and 10 per cent on China, but on Monday agreed to a 30-day delay for his neighbours.
Finance chief Nik Jhangiani said Diageo anticipates US$200 million would be wiped off operating profits for the financial year to June 30 if tariffs are enforced from March 1.
That estimate is among the first by a big global company during the fourth-quarter earnings season, as executives try to keep up with changing US trade policies that threaten to upend industries from autos to consumer goods to energy.
Earlier on Tuesday, China imposed targeted tariffs on imports from the United States and put several US companies, including Google, on notice for possible sanctions.
Trump’s tariffs and those retaliatory measures knocked European stocks, US stock futures and the dollar.
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Any duties on goods imported from the three largest US trade partners will present a fresh challenge for companies already facing lacklustre demand, particularly in China, and prolonged rises in labour and raw materials costs.
Jhangiani said Diageo has plans in place to mitigate the impact, although CEO Debra Crew said its early assessment does not take into account further escalations or retaliatory action.
“We feel today that we could cover around 40 per cent of that (US$200 million) before any pricing actions,” Jhangiani told a media call after the company scrapped its sales growth targets.
Diageo, the world’s leading spirits maker, generates around 45 per cent of sales in the United States, its biggest market, from products that must be made in either Mexico or Canada, such as Don Julio tequila and Crown Royal Canadian whisky.
Its shares were down 2.4 per cent after hitting their lowest since March 2020 in early European trade and dragged rivals Campari and Pernod Ricard lower too.
ZF, a major auto supplier exporting from Mexico to the United States, said on Monday it would have little choice but to pass at least some of the cost of tariffs onto consumers via higher prices.
Tariffs would cause “dramatic and immediate” financial fallout for US automakers and others manufacturing vehicles in Mexico and Canada to sell in the United States, said Sam Fiorani, vice president at research firm AutoForecast Solutions.
Adding to the gloomy outlook, global freight company DSV said on Tuesday duties threatened by Trump could curb demand slightly, potentially denting its earnings this year.
The CEO of Finland’s Nokian Tyres, Paolo Pompei, said the tariff announcements were causing uncertainty and that Nokian was creating a strategy to address them.
With Trump threatening to extend tariffs to the European Union, EU Commission President Ursula von der Leyen said on Tuesday the 27-country bloc will be ready for tough negotiations to protect its own interests.
EU diplomats say Brussels has a range of possible responses to any US action, but will wait to see the US president’s next move.
A broader, damaging trade conflict could reignite inflation and damage the global economy, the International Chamber of Commerce’s global policy director Andrew Wilson said.
“A tariff at 5-10 per cent in most supply chains or in many supply chains can be absorbed in some way ... But 25 per cent, it’s almost certain that some of that will be will be passed on,” he told Reuters.
“There are huge downside risks for the US and for the world if we get locked into a never-ending cycle of tariffs and further retaliation.” REUTERS
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