<\/p>\n
Companies face direct effects on supply chains, indirect impact from weaker growth.<\/p>\n
The prospect of higher U.S. tariffs will weigh on corporate revenues and profits worldwide, although the impact will vary by sector and region, says Fitch Ratings.<\/p>\n
In a report released on Monday, the rating agency examines the possible impact of higher tariffs on imports to the U.S. from its major trading partners \u2014 including Canada, Mexico, Europe and China \u2014 which finds that most sectors will face pressure on their revenue growth and profitability, as a result.<\/p>\n
\u201cDirect implications will mostly depend on the level of trade exposure, while the second-order effect of a weakening world economy will have broader consequences,\u201d it noted.<\/p>\n
The global sectors facing the largest effects include the auto industry, tech hardware and chemicals sectors, given their \u201cinternational exposure, significant cross-market trade activity or intricate supply chains,\u201d the report noted.<\/p>\n
For instance, both European and U.S. auto manufacturers, \u201cwill face supply-chain risk due to their reliance on imports from Mexico and Canada, and slower economic growth is likely to affect new vehicle sales,\u201d it said.<\/p>\n
As a result, Fitch has cut its assumptions for light vehicle sales this year by 300,000 units for both the U.S. and Europe, it said.<\/p>\n
North American homebuilders are also highly exposed to the tariff increases, as they face higher input costs (lumber and drywall) that will be tough to pass along to consumers, given declining consumer confidence and the lack of affordability in the sector.<\/p>\n
\u201cNatural resources will be indirectly affected by slower economic growth, while metals and mining companies may be challenged by increased competition in non-U.S. markets as exports are diverted away from the U.S.,\u201d it said.<\/p>\n
At the same time, tech companies based in Europe and Asia that export a large share of their products to the U.S. will also come under pressure from higher supply chain costs and the difficulty of finding markets to absorb excess inventories.<\/p>\n
\u201cA full decoupling of U.S.-China technology trade is unlikely due to the intricacy of sector supply chains and China\u2019s dominance in critical components, such as circuit boards, displays and touch screens, as well as in chemical processing and rare earth elements used in high-tech devices, including smartphones, computers and electric vehicles,\u201d the report said.<\/p>\n
And, while some U.S. tech companies sought to bring production closer to home in the wake of the pandemic, this largely resulted in a shift to Mexico in recent years, which has now exposed them to new tariff-related costs, it noted.<\/p>\n
China also plays a central role in the chemicals sector\u2019s global supply chain, which will limit the ability of U.S. companies to diversify to other suppliers, the report said \u2014 while weak domestic demand will limit China\u2019s ability to absorb additional supply in its market.<\/p>\n
\u201cSpecialty chemical supply chains are particularly dependent on China, which is often the sole supplier of key raw materials and building block chemicals for active pharmaceutical ingredients,\u201d it said.<\/p>\n
For numerous other sectors, including sectors that are reliant on consumer confidence and spending \u2014 such as retail, travel (airlines, lodging), restaurants and alcohol \u2014 the impact of tariffs are expected to be \u201cmedium,\u201d Fitch said.<\/p>\n
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