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American CEOs have been trying to avoid talking about how tariffs will impact their business for a while, but this earning season something is starting to change.
After months and months and months of US calling companies and CEOs saying what do you think about tariffs? What do you think about tariffs, we're seeing them have to actually start making decisions for tariffs.
Shelley Banjo oversees Bloomberg's business coverage for the Americas, and as she sifted through a recent flurry of reports from Q one, one thing became clear. The time for ignoring Trump's trade war is over.
What we are seeing now with this earning season is that they have to quantify. Okay, this is going to be our projected hit to our profits, to our sales, what have you to the tariffs. Here are some of the business decisions we're starting to make.
One of the most sobering projections came from General Motors, which just lowered its earning, saying it could suffer as much as a five billion dollar hit from auto tariffs.
That is the largest sum that we've seen quantified yet among companies.
But Shelley says not every company is approaching these economic headwinds with the same level of urgency. Because there's no one playbook for how to respond to tariff whiplash, I.
Had to sort of figure out, Okay, how are these companies waiting through it since no one's really telling them what to do. Came up with these sort of three scenarios from what we've seen people doing so far.
Scenario one, ride the tariffs out.
So there's a bucket of companies that are like, we still don't know, it's too soon to tell.
Scenario two adapt to a new normal.
Companies that are we know that there's going to be a tariff hit, but we think we can rejigger our business to be able to absorb it. So that means let me furlough employees or cut staff, or hold up on buybacks.
And then there's scenario three, the unerual motors route.
Then there's this third bucket of companies, which are sort of a holy you know what moment.
As earning season forces some companies to get real with their shareholders and the public about the impacts of tariffs. Just what picture are they painting for their future and what could that mean for their bottom line. I'm Sarah Holder, and this is the big take from Bloomberg News today on the show, what corporate earnings are revealing about how companies plan to weather the trade war and what it
will mean for supply chains, stocks and prices. Bloomberg Shelly Banjo says, looking at these three buckets of business reactions to tariffs can serve as a guide to understanding how US companies are navigating uncertainty, shifting their strategies, and communicating their path forward. The first bucket are these companies that say they won't see much of any effect from tariffs. They're kind of waiting and seeing, but they might be
a little bit more insulated. What businesses are we talking about there?
So pharma is a big question mark right now because so far they've been spared from a lot of tariffs. There's a separate sort of investigation that they're looking into that are going to be sector specific tariffs on pharma two thirty two tariffs. They're trying to figure out is this going to impact pharma? So right now it is sort of defensible for a company like Pfizer to say
we're not exactly sure what's going to happen. That being said, a lot of their competitors have come out and said, well, we think it's going to impact us by X one hundred million dollars. At the very least, they're giving investors some sort of indication of how and when and why this would hit.
Would you say that this first bucket of companies is being pollyanna ish about their expectations for how tariffs will affect.
Then I think it was the norm a few weeks ago to say, we don't know this is going to exclude tariff impacts because we just had a lot less information. Now that we have a little bit more information, it becomes a little less defensible to model out because some of the decisions that you're making now for the remainder of the year, you really have to make them now, not having a full picture. Trump is going to change
his mind probably or change things. So this whole idea of we have to wait and see because Trump could change his mind is a defensible argument. But if you are running a big, multinational global business, it sort of seems a little pollantage to say, well, we're just going to wait and see what happens.
Okay, so let's talk about the second bucket, which are the companies that will face some teriff related challenges but might ultimately be able to work around them.
So some of the companies that came out and said that recently this week was Coca Cola, Aultria, the cigarette maker. These companies said, you know what, we fully realized that tariffs are here. They are baked into our forecast, they're baked into our outlooks. But we think we're still going to be able to absorb them as long as they stay the way they are, because we'll move things around. These particular companies didn't get into some of the specifics,
but different CEOs that I've spoken to. So there are multiple levers you can pull. You hold your capex, for example, like you don't build that factory that you're going to build. You maybe put a pause on share buybacks. We saw that with General Motors this week, or you put a hiring freeze, you don't go into new business lines. There are going to be companies who are going to have to cut a lot deeper, and that's going to end
up hurting those companies. But there's a sort of bucket of companies that are saying, so far this is manageable. It's not going to be great. We're not going to grow for SAE like as much as we would love to, but we're still going to be able to be okay.
Thinking about adaptations. Government data released yesterday showed a surge in imports from companies that are looking to take advantage of the president's ninety day pause. Is that something you're seeing in terms of how companies are working around these tariffs, preparing now for or future pain.
Definitely. We saw that with the car company, so they had a huge run up in car sales because think about that, it's a big ticket item. You've been thinking about it, You've been talking to your family about buying a car. You maybe visited a couple of car dealerships, so you think to yourself, Okay, if I'm going to buy a car in the next six months, now's the
time to do it before it gets more expensive. The issue we're running up against now with the cars is how much more inventory do you have left of that Tara free inventory when our company's going to start to raise the prices. We had one CEO of a company that makes consumer product goods that you can find in like a home depot or a target come in and say you know what, this year, the best sale might just be Mother's Day, which is not something you normally
think about. But if you think about the holidays, you know, many months from now, sure you might be ten to fifteen percent off, but if everyone's going to start to raise prices in the next couple of weeks, your cheapest price for that product might be right about now.
So are telling you, you know, we are now starting to adapt to this, We're starting to plan for this. But why weren't they planning for it before Trump even got elected? When he was talking about this constantly on the campaign trail.
Yeah, that's a good question that I've been asking. We had someone in this morning that said, well, nobody knew this was going to happen, And I said, well, nobody wanted maybe this to happen. But if you were listening to Trump on the campaign trail for many, many months, you knew this was going to happen. I think the issue is that it never felt certain. There wasn't like, Okay, this is what's going to happen. Here's the percentage rates, here are the countries that are going to be impacted.
It was always this very broad you know, we're going to bring manufacturing back to the US. We're going to give tariffs to everyone around the country, and you can't really manage a business unless you have the specifics around that. You did see companies even since Trump one point zero, building up their infrastructure and manufacturing in the US. A lot of pharma companies Johnson and Johnson, for example, Eli Lilly like bringing creating manufacturing capacity in the US over
the last few years. But I think a lot of CEOs were sort of waiting for specifics.
When we come back, Shelley and I dig into bucket number three, the companies that know for sure that the tariffs are going to be a big blow. We talk about how they plan to navigate those challenges and what those plans mean for investors and consumers Today. General Motors cut its profit outlook by billions of dollars after grappling
with the effects of auto tariffs on its business. It revised its outlook from as much as fifteen point seven billion dollars down to as little as ten billion dollars. The motorcycle maker Harley Davidson withdrew its forecast for twenty twenty five, saying tariffs could cost them as much as one hundred and seventy five million dollars this year. GM and Harley are examples of companies that can't take a
weight and see approach to tariffs. They're in that third bucket of businesses that Bloomberg Shelly Banjo has been tracking.
These companies are sort of seeing the rubbers hitting the road. We saw Craft Hignds saying we need to start managing our business for decline and consumer demand. And you saw Jet Blues saying not only are we shifting our business because of worsening economic demand and consumers, but that it's getting worse, like things are not good and they seem to be getting worse.
What other sectors and companies might be most impacted.
I think here the consumers really the problem, the ones that are really consumer focused. Because you're getting dinged by a lot of things. You're getting dinged by high prices, by how hard it is to move supply chains quickly enough. You don't have that customer base that is really locked in. I mean, consumers have so much choice that when it's cheaper somewhere else, I'm going to go somewhere else pretty easily. And so that's I think the biggest weakness see is
a lot of these consumer companies. So we saw companies' CEOs of Target, Walmart, others go up to the White House and sort of tell Donald Trump to his face, there will be empty shelves come holiday season if we don't get a little relief. So what a lot of them are asking for is could we have a little bit of a grace period to shift some of our production? Could we you know, can you work with us here? We want to move some of our production. We want
to move some of our manufacturing. But it's not something that can happen overnight. So that's sort of what they're asking Donald Trump in the administration.
For How long would that grace period have to be for them to really prepare?
It depends who you ask. I mean there are some people car factories, for example, who say, you know, it takes four or five years to build a plant. So there is one strategy of just waiting out the administration, right like you take pain for four years, rather than build a plant that you might not use. It's going to be higher cost. I mean, that is certainly a strategy that we've seen some companies talking about. Some of those weight and C strategies might actually be weighted out strategies,
but we don't. We don't really know for sure. Some companies have talked about we can move a whole bunch of production within six months between maybe China to India or China to Vietnam. It's much harder to move something from China to the US.
When you're looking at the earning reports and seeing companies sort of admit to themselves and to investors that tariffs are going to have a major hit on them, what kind of numbers are you seeing? What is the magnitude of that challenge?
So right now it is not as big as one would think. I mean, so far, we saw GM come out with the biggest number yet at five billion dollars. Before that, we had seen things like two hundred million, five hundred million, eight hundred and fifty million, depending on the company. As earning season plays out, we're going to start to get even more specificity from the Trump administration on the tariffs, and then we'll start to see the different impacts. And all of these are projections, So what
we'll get next quarter is what actually happened. The more worrisome sign, though, is this hit to innovation. We talked to a couple of companies that said, well, we're not going to launch a new product this year because it's too dangerous, it's too risky, and it takes a lot of money, and we don't even know if we're going to get it produced in the place that we want
to make it. So at that point, you're stopping companies from actually coming out to even launch new things, which come Christmas time is going to mean that a lot of the hot new items won't actually even be there.
Less investment and innovation could also mean lost jobs. Private sector numbers released this week by ADP showed a sharp slowdown and hiring, and that unease could also show up in tomorrow's jobs report, which will be the first to reflect President Trump's Liberation Day tariffs.
When you're talking to companies, all of a sudden, job postings are disappearing, they're not filling those jobs. With the big companies, you have a seen huge layoff numbers. Yet with a lot of the smaller companies, like the one I was saying about with the innovation, they were saying, well, we don't really need a new product development team right now if everything is is paused. And so I said
to that CEO, Well, are you furlowing them? They're like, we're just going to fire them because we'll bring them back when we can. But right now there's nothing for them to.
Do, so they're making sort of short term decisions that might have long term impacts exactly based on the current uncertainty. What are the warning signs for investors? Is there sort of a canary in the coal mine in these earning reports that they're looking at right now?
So this question has been very interesting to me. The first couple of companies that came out and said tariffs are going to impact us and here's how and here's why, a lot of them, we saw their stocks go up. And then companies that said we can't quantify the impacts of our tariffs, we saw the stocks go down. And I asked my porters what is going on, and we spoke to a number of investors, a number of analysts that are saying, at this moment, CEOs are actually getting
rewarded for their honesty. They're saying, we are going to manage this business as if there was a recession coming. At Bastian, the Delta CEO was one of the first CEOs to stand up and say I don't know if there's a recession. We might not know if there's a recession, but I'm going to manage the business as if there is a recession coming. I'm going to betten down the hatches, reduce my costs, really be careful about any sort of
hiring or anything like that, and stock what up. And I think this idea of investors and analysts rewarding these CEOs and actually taking this seriously and actually managing their business for the time that we're in rather than managing the business for what they hope might happen.
Is there going to be a point at which the Trump administration needs to take some action to help out some of these companies and these sectors.
Well, I think you're seeing that now. So this week you saw the auto parts tariffs exhibit and Donald Trump coming out and saying, Okay, we see you auto companies. We see you're trying your moving production, You're stopping production in different parts of the country, Like we're going to give you a break on these auto parts that really will cripple you. So I think you sort of have these companies doing this calculus saying, we know we're not
going to win everything. What can we ask for what is a manageable thing to push for?
Is there a point at which the negotiating power might switch and companies might have more power to ask for more of what they want from the Trump administration.
I mean, that's the question, right, is that it wasn't the media, it wasn't Trump's advisors, it wasn't a number of different factions that sort of had him rethink is tariffs. It was the market. So is the market sort of this last big force that Trump takes seriously? So if we get to a point where the stock market continues to go down, where consumers stop buying, where jobs start dropping, where there's nothing else that you can really argue with, then you know, maybe that's when we start to see
some more of those concessions. I don't think we're there yet at that point, but you know, you are seeing like these different negotiations happening, and then that makes it even harder to predict what's going on because then you can't even count on that. You know, you can't even count on these big tariffs that are impacting because if they're going to be switched and reversed anyway, you don't want to build a new plant. If you're not going to have to.
This is the Big Take from Bloomberg News. I'm Sarah Holder. This episode was produced by Alex tie. It was edited by Patty Hirsh, Aaron Edwards, and Patherine Larkin. It was fact checked by Audreynatapia and Rachel Lewis Krisky and mixed in sound designed by Alex Sugura. Our senior producer is Naomi Shavin. Our senior editor is Elizabeth Ponso. Our deputy executive producer is Julia Weaver. Our executive producer is Nicole
Beemster Boor. Sage Bauman is Bloomberg's head of Podcasts. If you liked this episode, make sure to subscribe and review The Big Take or where you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow