The early holiday-quarter earnings reports reveal that many businesses are not adopting a wait-and-see approach to potential U.S. tariffs, despite previous claims. Instead, a significant number of companies are accelerating imports to mitigate the impact of potential trade restrictions.
Auto manufacturers like General Motors and Mercedes, along with producers of French cognac, Italian parmesan cheese, and sparkling wine, have all expedited shipments to the United States. This proactive approach extends to commodities as well, with increased purchases of steel, aluminum, and soybeans observed.
Patrick Lepperhoff, managing director at supply chain consultancy Inverto, confirms this trend: “We see companies currently front-loading their imports into the U.S.” He explains that businesses have modeled various tariff scenarios and opted to import larger volumes to ensure sufficient supply for a specific period.
Executives have openly discussed the challenges posed by the uncertain trade environment created by fluctuating tariff plans. These uncertainties spurred increased shipments even before the start of the current term, contributing to a record U.S. trade deficit of $122 billion in December, driven by a 4% rise in goods imports and a 4.5% drop in exports.
Retailers are also taking proactive measures. Brieane Olson, CEO of PacSun, a casual clothing retailer for teens and young adults, confirmed that the company brought forward a portion of its first-quarter sales as part of its contingency planning. PacSun has also established a dedicated “tariff taskforce” that convenes bi-weekly to address these issues with suppliers. Olson emphasizes the company’s commitment to assisting its suppliers and vendors in navigating the potential tariff challenges.
The scope of potential tariffs remains broad, ranging from possible fees of 100% to 200% on cars from Mexico to universal tariffs on all imported goods. A significant test will be the potential introduction of duties on imports from Canada and Mexico, key trade partners. The U.S. imported approximately $844 billion worth of goods from these two countries in 2024, representing about 28% of total imports.
Early preparations have already benefited some companies. German chemical company Lanxess reported better-than-expected fourth-quarter profits due to advanced purchases by U.S. customers. Italian Parmigiano Reggiano cheese producers have also increased shipments to the U.S., hoping to secure exemptions for their premium products.
The surge in U.S. imports is evident in the significant increase in 20-foot container imports during November and December, reaching the highest levels since 2021. Steel traders in Tampa and Houston preemptively purchased steel from South Korea, Japan, and Turkey in anticipation of tariffs, leading to warehousing and port bottlenecks.
Alcoa CEO William Oplinger highlighted the potential disruption to supply chains, stating the possibility of rerouting supply from Canadian smelters to Europe, a move that would negatively impact customers.
The automotive sector is particularly vulnerable due to its significant manufacturing presence in Canada and Mexico, established after the 1994 North American Free Trade Agreement. GM accelerated shipments from these facilities in the fourth quarter. GM CFO Paul Jacobson underscored the advantage of delivering goods before tariffs are implemented.
Toyota, whose Tacoma pickup trucks sold in the U.S. are entirely sourced from Mexico, might consider shifting production to its San Antonio, Texas plant if tariffs are imposed. With nearly 40% of S&P 500 earnings originating overseas, sectors with high foreign exposure, such as tech, consumer discretionary goods, and industrials, are actively discussing supply chain adjustments and reshoring.
However, not all companies are front-loading orders. MGA Entertainment, a privately-held toy maker, has not increased shipments due to the seasonal nature of the toy business and the high cost of storing excess inventory. CEO Isaac Larian explains that the constantly changing nature of the toy market makes large inventory purchases in anticipation of duties impractical.
The beverage industry faces similar challenges with declining sales and past experiences with preemptive stockpiling that resulted in excess inventory when anticipated tariffs were not implemented. Rob Buono, president of Old Bridge Cellars, recounts a significant investment in champagne stock in 2019 based on tariff threats that ultimately did not materialize. This experience has made him cautious, and he would only consider increasing purchases if tariffs are confirmed. Fortunately, the excess champagne inventory was cleared during the COVID-19 pandemic due to supply chain disruptions.
In conclusion, while uncertainty surrounding potential U.S. tariffs persists, many businesses are actively mitigating risks by front-loading imports. This proactive approach reflects the complex challenges companies face in navigating the evolving global trade landscape. The ultimate impact of these tariffs and the long-term adjustments businesses will make remain to be seen.
