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.
Leaderboard
Lucy To was named CFO of SAB Biotherapeutics (Nasdaq: SABS), effective Aug. 12. She will succeed former CFO Michael King, who left the company in June to accept a role as CEO of a private oncology company. Prior to joining SAB, To was a managing director in Wells Fargo’s healthcare investment banking group and also had stints at Deutsche Bank, Intercept Pharmaceuticals, and Citigroup.
Brian J. Bertaux was appointed CFO of Hudson Technologies (Nasdaq: HDSN), a refrigerant services company, effective immediately. He succeeds Nat Krishnamurti, who is leaving the company to pursue other endeavors, the company said. Bertaux arrives from Brown Haven Homes, a designer and builder of custom homes in the Southeastern United States, where he was CFO. He previously spent 20 years at Trex, a manufacturer of composite decking and railing.
Big Deal
Global private equity fundraising is on pace to decline by roughly 20% in 2024 from last year’s total of $919.27 billion, according to a report from S&P Global Market Intelligence. Launch in the first half of the year totaled $365.75 billion, down 47% from the same period last year.
Fund closures are also down, with 704 reported in the first half of 2024 compared to the full-year total of 2,590 in 2023. U.S firms have accounted for six of the 10 top closures this year, though Sweden’s EQT Partners is in pole position thanks to its EQT X fund, which closed on $23.6 billion and was oversubscribed by $536 million.
Going deeper
“New Boeing CEO Kelly Ortberg abruptly left the game 4 years ago—but some think this ‘engineering visionary’ could chart a new path,” is a new report by Fortune’s Shawn Tully. The 64-year-old Ortberg, who retired as CEO of aerospace giant Rockwell Collins five years ago, was somewhat of a surprise choice. Boeing, however, got the outsider it wanted to lead a repair of the company’s wounded culture and reputation.
Overheard
“The Fed is being extra cautious because they want to make sure inflation has indeed turned the corner, but that could be costly in terms of risking an unnecessary deterioration in the labor market.”
— Oscar Muñoz, chief U.S. macro strategist at TD Securities, said in a note to investors after the Federal Reserve kept interest rates flat Wednesday, Fortune reported.
