Global Quant_ Tariff Impact on Earnings

Summary of Key Points from the Conference Call Industry Overview - The analysis focuses on the impact of tariffs on global earnings, particularly in the context of the ongoing trade tensions initiated by the Trump administration. The sectors most affected include manufacturing, specifically autos, tech hardware, and capital goods [1][6][57]. Core Insights and Arguments - Tariff Impact on Earnings: The direct impact of US tariffs on global earnings is estimated to be around 1% of global EPS, with a 10% effective tariff rate and a 30% absorption rate [5][47]. - Sector Sensitivity: Autos are projected to experience the highest earnings impact, estimated at 5.3%, followed by tech hardware at 4.5% [55][58]. Other manufacturing sectors may see impacts ranging from 1% to 2% [55]. - Regional Exposure: Latin America and Asia Pacific excluding Japan (APxJ) are expected to face the most significant EPS impacts, with Latin America seeing a potential decline of about 2% and APxJ around 1.7% under the same tariff conditions [45][52]. - US Tariff Rates: The US weighted tariff rate was 1.4% in 2017, increased to 3% in 2021, and is projected to be below 2.5% by 2023. Future tariffs are likely to target China, the EU, Mexico, and Vietnam due to their significant trade deficits with the US [2][20]. Additional Important Insights - Global Sales Composition: Approximately 37% of global sales are from manufactured goods, with about 13% potentially exposed to US tariffs. The exposure is highest for companies in the APxJ region [4][36]. - Counter-Tariff Dynamics: The analysis primarily focuses on US tariffs, as counter-tariffs from other countries are more challenging to quantify. The expectation is that tariffs will lead to a series of retaliatory measures, further complicating the trade landscape [36][43]. - Long-term Trade Trends: The report suggests that the current trade tensions may lead to a deglobalization trend, with protectionist policies becoming more prevalent across developed markets [20][31]. Conclusion - The analysis indicates that while the direct impact of tariffs on global earnings may be relatively small, the effects will be asymmetric across different sectors and regions. The sentiment and broader economic implications of these tariffs could drive market performance in the near term [45][58].