MW Investors weigh billions in tariff damage to U.S. companies as Trump touts trade talks with U.K. and China

By Joy Wiltermuth

Investors are being told to expect billions of dollars in lost corporate profits due to new tariffs

Investors were hopeful that a new U.S.-U.K. deal could be an icebreaker in America's global trade standoff, but they were still bracing for fallout from President Donald Trump's tariff fight.

With first-quarter earnings season winding down, investors have already been told to expect billions of dollars in lost corporate profits due to new tariffs. The auto industry in particular has found itself in the crosshairs.

Ford Motor Co. $(F)$ said it expects a tariff hit of about $1.5 billion for the year, while General Motors Co. $(GM)$ put its estimate closer to $4 billion to $5 billion. Global shipping companies this week also sounded the alarm on a likely hit to growth.

"The tariff stress in areas like autos probably is going to continue," said Anthony Saglimbene, chief market strategist at Ameriprise. Still, details of Trump's first deal since he paused his sweeping April 2 tariffs sparked hope that it could be a blueprint for other countries to follow, he said, potentially keeping the highest tariffs at bay for many trade partners while also lessening the risk of corporate profitability stalling.

The darkened U.S. business outlook comes as the economy's surprising resilience has slowed and recession fears mount. It also contrasts with the pro-growth agenda many investors and industry executives were expecting from the Trump White House.

Investors are trying to handicap what higher tariffs now in place might mean for companies, stocks and bonds, given the trade standoff between the U.S. and China, the potential for snarled supply chains and the retaliatory tariffs that could still come.

"Some will play ball and take a friendly posture," Jeff Rosenkranz, a fixed-income portfolio manager at Shelton Capital Management, said of U.S. trade partners. "For others, it's quite the opposite. There isn't going to be one uniform reaction."

The U.K. and the U.S. on Thursday announced plans for a new bilateral trade deal, which includes a 10% tariff on imported British cars and aims to open up the U.K. to American agricultural products. U.S. carmarkers said they were disappointed with the agreement, because it would make it cheaper to import a British vehicle than one compliant with the existing U.S. free-trade agreement with Mexico and Canada and built with a substantial share of American parts.

At the end of the day, Rosenkranz said he expects tariffs to be higher than they were before, albeit below the maximum level that has been threatened. "But they are going to be higher, and that's going to be a drag," he said.

Read: Trump rolls out U.K. trade agreement. It's a relief - but deals with other countries are more crucial.

Capital is flowing

Before cargo-shipping activity dramatically slowed, U.S. companies pulled forward shipments from China in anticipation of tariffs, giving them some wiggle room on existing inventories.

Rosenkranz, who invests in corporate debt at Shelton, said the bite of tariffs had yet to be felt by many U.S. companies, because their built-up inventory was priced under old tariff regimes. But that's likely to change by the end of the second quarter or slightly later, he said, unless there are more positive developments on tariffs.

Trump said Friday that tariffs on China could be reduced as he touted plans for a weekend trade meeting with Beijing and the U.K. trade deal, which he said happened in part because "we blew up the whole system."

A lack of any significant progress on trade could mean many companies need to change their supply chains or potentially explore cutting costs and labor, Rosenkranz said. For now, however, many executives are still evaluating their options and planning but not taking much action.

Meanwhile, it helps that highly rated U.S. companies still have ample access to capital via the corporate bond market, with recent debt issuance seeing substantial demand from investors, following a brief pause in activity in the midst of the April tumult, said George Catrambone, head of fixed income at DWS Americas.

Issuance for U.S. investment-grade corporate bonds in May was $46 billion through May 8, or about one-third of the up to $150 billion monthly forecast from BofA Global. Investors recently have been able to lock in yields in the 5.5% to 6% range.

"The vibe check in the market is notably better," Catrambone said of the U.S.-U.K. trade announcement and the past few weeks of positive bond flows.

Still, he said, there has been "a higher cost of capital and a higher cost of doing business" for lower-quality borrowers, or companies with significant exposure to tariffs or weaker consumers.

Concerns remain

The Federal Reserve on Wednesday reiterated that it was in no rush to lower interest rates, given that the labor market remains robust and tariffs could put upward pressure on inflation.

Donald Calcagni, chief investment officer at Mercer Advisors, said the race was on to see whether inflation or unemployment increases first, rises the fastest and goes the highest.

"Our view is that inflation is going to win the race," he told MarketWatch, adding that he liked the central bank's decision not to lower rates in May. "As a professional investor, what I need the Fed to do is remain the adult in the room," he said.

Calcagni thinks the "sell America" trade unleased by Trump policies could remain in place for a long time, keeping downward pressure on the dollar DXY and other longstanding safe-haven U.S. assets.

With that backdrop, he said investors should be diversified, including beyond U.S. shores, in equities and bonds, as well as in real estate, where he sees a risk of non-U.S. investors that tend to fight over American trophy properties "taking their ball and going home."

The 10-year Treasury yield BX:TMUBMUSD10Y was edging lower Friday to about 4.36% after jumping 10 basis points Thursday, while the Dow DJIA, S&P 500 SPX and Nasdaq COMP were mostly looking at weekly losses.

As a silver lining, Calcagni said the tariff fallout could create opportunities. In particular, he likes timber, infrastructure and farmland, where he expects tariffs to push prices down.

Claudia Assis contributed.

-Joy Wiltermuth

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May 09, 2025 11:07 ET (15:07 GMT)

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