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Donald Trump, surrounded by business leaders and administration officials, prepares to sign a memorandum on intellectual property tariffs
Reuters/Jonathan Ernst
Talk of the town.
THE T-WORD

The word that every exec is talking about this week

By Eshe Nelson & Jason Karaian

Whether or not the burgeoning trade war between the US and China—also featuring Europe, Mexico, and Canada—is hurting the “real” economy yet, the business world is worried. Shares in industrial companies and some entire stock markets, have shuddered. Instead of stepping back from the brink, Donald Trump recently threatened to impose tariffs on all of China’s exports to the US.

Tariff talk has been a recurring theme in corporate earnings calls of late. The number of quarterly earnings calls mentioning the word “tariff” spiked in the second quarter, doubling from the same period last year, according to Sentieo.

With few signs of a truce in sight, expect to hear a lot more about tariffs this week, when the earnings season begins in earnest. About 30% of S&P 500 companies have reported their second quarter earnings so far. This week alone, 40% of companies will be reporting, with almost 70 blue-chip firms publishing their results on Wednesday (July 25).

Last week, General Electric’s CEO John Flannery said that his company wasn’t yet feeling a major financial impact from tariffs, but as a company “built for fair and open trade” he said trade policy generated a lot of debate within the company. “We have a massively global business in every sense, both with the customers, supply chains, everything,” he told analysts on a call.

Other companies, such as toolmaker Stanley Black & Decker, said that long-term planning has become more difficult as a result of tariffs. “We don’t know what the lifespan of these tariffs is going to be, a couple of months, a couple of years, forever, who knows?” said CEO James Loree. Finding new suppliers and rejigging supply chains is costly and risky, he added.

Tariffs are casting a dark cloud over what would otherwise be a strong earnings season. Per-share profits for S&P 500 firms are expected to be up 20% compared with a year ago, thanks in part to the tax cuts signed into law last year. But the companies that have benefitted from Trump’s tax cuts now have to contend with his trade war.

JPMorgan, the US’s largest bank, has garnered massive profits thanks to tax cuts, but today CEO Jamie Dimon warned that tariffs could derail the US’s economic upturn. “If you do another $200 billion of tariffs and this national security thing about cars, I think that you’re getting pretty close to reversing some of the benefits you’ve seen in the economy,” he told CNN.