Since January 2018, the U.S. administration has imposed a series of tariff policies (U.S. Tariff Policies) that potentially have a wide range of consequences to domestic and international trade and the capital markets. In a period marked by increased globalization and international trade, the uncertainties brought about by aggressive tariff policies are leaving companies and investors wary of the direct and indirect consequences of such measures. As U.S. Tariff Policies continue to evolve, and as uncertainty looms, companies must disclose the effects of these policies on their businesses. This article identifies disclosures related to U.S. Tariff Policies that offer more detailed discussions on the actual and potential effects for the particular registrants and concludes with recommendations on how to enhance disclosures relating to the effects of U.S. Tariff Policies. The company name, its industry, and the type of filing are also provided in each sample disclosure for reference.
In January 2018, the U.S. administration imposed tariffs on solar panels produced outside of the United States, adversely affecting renewable energy companies. Shortly thereafter, the Office of the U.S. Trade Representative (USTR) announced tariffs on foreign washing machines. In March 2018, President Trump signed an order imposing a 25% tariff on steel and a 10% tariff on aluminum imports. As a consequence of the steel and aluminum tariffs, some economists and business leaders have warned of job losses, impacts on industrial competitiveness, and higher costs for businesses and consumers. For example, Coca-Cola and Pepsi have reported U.S. tariffs as a factor leading to increased costs of the product for consumers. President Trump has hiked tariffs on goods and services primarily from China, Canada, Mexico, and the European Union (EU), prompting a wave of retaliation that has the potential to negatively impact American exports of everything from pork and soybeans to Levi's jeans. Some U.S. Tariff Policies have and may continue to incite "tariff wars" between the United States and various countries throughout the world, which may negatively impact shipping and trading products within and outside of the United States.
As of April 2019, the U.S. administration has imposed three rounds of tariffs on Chinese goods, totaling over $250 billion with duties ranging from 10%–25%. The U.S. administration has threatened to levy an additional $267 billion worth of Chinese goods that would cover virtually all Chinese imports. In August 2018, President Trump authorized double tariffs on aluminum and steel against Turkey. By year end 2018, the U.S. administration imposed tariffs that affect approximately 12% of total U.S. imports. The U.S. administration delayed the March 1, 2019 deadline that would raise tariffs from 10%–25% on $200 billion worth of Chinese goods. Most recently, in April 2019, President Trump threatened to tariff all cars made in Mexico and sold in the United States at 25%. Similarly, as of April 2019, President Trump continues to threaten to enact tariffs up to 25% against EU cars and auto parts.
As of April 2019, China imposed retaliatory tariffs on approximately $110 billion in U.S. goods targeting important industries such as agriculture. In June 2018, the European Commission imposed tariffs on approximately $3.5 billion worth of U.S. goods and reported in January 2019, that they are prepared to tariff over $23 billion worth of U.S. goods should the U.S. follow through with its threatened tariffs against EU cars and auto parts. In July 2018, Mexico and Canada imposed over $3 billion and $13 billion, respectively, in levies on U.S. exports. As of April 2019, Mexico and Canada threaten not to ratify the United States-Mexico-Canada Agreement (USMCA) until Mexican and Canadian steel and aluminum tariffs are lifted. Although the present U.S. administration reasons that U.S. Tariff Policies are necessary to protect manufacturers in the United States, these policies can exacerbate trade tensions with other nations and prompt retaliatory trade measures. For a discussion of the effects of certain policies of the current U.S. administration in other contexts, see Market Trends 2017/18: High Yield Debt Offerings — Market Outlook, Clean and Renewable Energy Industry Practice Guide — Regulatory Trends, and Market Trends 2017/18: Mezzanine Financing — Market Outlook.
Disclosures on U.S. Tariff Policies Contained in the Risk Factors Section
Item 503(c) (17 C.F.R. § 229.503) of Regulation S-K requires that a registrant provide a description of the material risks that impact a business and how these risks affect the registrant or an investment in the securities being offered by the registrant. The disclosure should be written in plain English and should not be generic. For further information, see Top 10 Practice Tips: Risk Factors.
Below are some examples of U.S. Tariff Policies disclosures contained in the Risk Factor section of offering documents and periodic filings:
- "If significant tariffs
or other restrictions are placed on Chinese imports or any related
counter-measures are taken by China, our revenue and results of
operations may be materially harmed.
[. . .] In July 2018, the Trump Administration announced a list of thousands of categories of goods that currently face tariffs of 10% and will face tariffs of 25% beginning in March 2019. These tariffs currently affect our accessories products and we may be required to raise our prices on those products due to the tariffs, which may result in a loss of customers and harm our operating performance. If the existing tariffs are expanded or interpreted by a court or governmental agency to apply to any of our other products, we may be required to raise our prices on those products, which may result in the loss of customers and harm our reputation and operating performance." Sonos Inc., Form 10-Q filed February 7, 2019 (SIC 3651—Household Audio & Video Equipment)
- "Changes to trade
regulation, quotas, duties or tariffs, caused by the changing U.S.
and geopolitical environments or otherwise, may increase our costs
and materially adversely affect our business.
Actions by the Trump administration have led to the imposition of tariffs on certain imported steel and aluminum. The implementation of these tariffs, as well as the imposition of additional tariffs or quotas or changes to certain trade agreements, could, among other things, increase the costs of the materials used by our suppliers to produce new revenue equipment or increase the price of fuel. Such cost increases for our revenue equipment suppliers would likely be passed on to us, and to the extent fuel prices increase, we may not be able to fully recover such increases through rate increases or our fuel surcharge program, either of which could have a material adverse effect on our business." US Xpress Enterprises Inc., Form 10-K filed March 6, 2019 (SIC 4213—Trucking (Except Local))
- "A change in the
existing regulatory environment could negatively affect our
operations and financial performance.
In 2018, the United States imposed tariffs of 25% on primary steel imports and 10% on primary aluminum imports into the U.S. As consumers of steel and aluminum in some of our products, our costs base is exposed to the impact of this action, or similar actions, in our margins, and we could potentially lose market share to foreign competitors not subject to similar tariffs. Our financial condition, results of operations and cash flows may continue to be affected by these tariffs, or similar actions. Additionally, should a new trade agreement not occur which mitigates or neutralizes the impact of the tariffs, or similar actions, our financial condition, results of operations and cash flows may continue to be negatively impacted." Ampco Pittsburgh Corp., Form 10-K filed March 18, 2019 (SIC 3561—Pumps & Pumping Equipment)
- "INSW conducts its
operations internationally, which subjects it to changing economic,
political and governmental conditions abroad that may adversely
affect its business.
[. . .] There is currently significant uncertainty about the future relationship between the United States, China and other exporting countries, including with respect to trade policies, treaties, government regulations and tariffs. For example, on January 23, 2017, President Trump signed an executive order withdrawing the United States from the Trans-Pacific Partnership, a global trade agreement intended to include the United States, Canada, Mexico, Peru and a number of Asian countries. Further, President Trump has called for substantial changes to foreign trade policy with China and has recently raised, and has proposed to further raise in the future, tariffs on several Chinese goods in order to reverse what he perceives as unfair trade practices that have negatively impacted U.S. businesses. Increasing trade protectionism may cause an increase in the cost of goods exported from regions globally, particularly the Asia-Pacific region, the length of time required to transport goods and the risks associated with exporting goods. Such increases may significantly affect the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated costs." International Seaways, Inc., Form 10-K filed March 3, 2019 (SIC 4400—Water Transportation)
- "Enhanced United States
tax, tariff and import/ export restrictions, Chinese regulations or
other trade barriers may have a negative effect on global economic
conditions, financial markets and our business.
There is currently significant uncertainty about the future relationship between the United States and various other countries, most significantly China, with respect to trade policies, treaties, tariffs and taxes, including trade policies and tariffs regarding China. The current U.S. Administration has called for substantial changes to U.S. foreign trade policy with respect to China and other countries, including the possibility of imposing greater restrictions on international trade and significant increases in tariffs on goods imported into the United States. In 2018, the Office of the U.S. Trade Representative (the USTR) enacted tariffs on imports into the U.S. from China, including communications equipment products and components manufactured and imported from China. The tariff became effective on September 24, 2018, with an initial rate of 10% and was scheduled to increase from 10% to 25% on January 1, 2019; however, that increase has been delayed for 90 days pending trade negotiations between the U.S. and China. In addition, the tariffs may be increased in the future. It is expected that these tariffs will cause our costs to increase, which could narrow the profits we earn from sales of products requiring such materials. Furthermore, if tariffs, trade restrictions, or trade barriers are placed on products such as ours by foreign governments, especially China, the prices for our products may increase, which may result in the loss of customers and our business, financial condition and results of operations may be harmed." Arista Networks, Inc., Form 10-K filed February 15, 2019 (SIC 3576—Computer Communications Equipment)
- "Our business is subject
to risks related to the larger automotive ecosystem, including
interest rates, consumer demand, global supply chain challenges and
other macroeconomic issues.
[. . .] tariffs were recently imposed on certain imports of steel and aluminum into the United States, as well as on, among other things, automobile parts from China. Substantial tariffs have also been proposed on the importation into the United States of European automobiles, which represent a material portion of the new vehicles sold in the United States. Each of these policies could materially increase the cost to U.S. consumers of new automobiles and thereby decrease the number of new vehicle sales in the United States, which could have a material adverse impact on our business, results of operations, financial condition and prospects." Truecar, Inc., Form 10-K filed March 1, 2019 (SIC 7370— Services—Computer Programming, Data Processing, Etc.)
- "Changes in trade
policies, including the imposition of additional tariffs, could
negatively impact our business, financial condition and results of
The current United States administration has signaled support for implementing, and in some instances, has already proposed or taken action with respect to, major changes to certain trade policies, such as the imposition of additional tariffs on imported products and the withdrawal from or renegotiation of certain trade agreements, including the North American Free Trade Agreement. On March 8, 2018, the President of the United States signed an order to impose a tariff of 25% on steel imported from certain countries. On July 1, 2018, Canada implemented retaliatory tariffs on certain U.S. imports, including steel. We anticipate that the tariff could result in an increase in our cost of sales in 2019 as compared to 2018, and we may not be able to pass any of the increases in raw material costs directly resulting from the tariff to our customers. On September 24, 2018, the United States implemented a tariff of 10% on a significant number of commodities originating from China, including certain chemicals utilized in our tracer diagnostics business. The tariffs were scheduled to increase to 25% on January 1, 2019 but the increase has been delayed pending ongoing trade negotiations between the two countries. If a trade resolution with China is not reached, the increased tariff would result in an increase in our cost of sales and we may not be able to pass any of the increases in raw material costs directly resulting from the tariff to our customers." NCS Multistage Holdings, Inc., Form 10-K filed March 8, 2019 (SIC 1389— Oil & Gas Field Services, Not Elsewhere Classified)
- "Tariffs could adversely
affect our business.
In March 8, 2018, President Trump signed a proclamation imposing a 25% tariff on all imported steel products for an indefinite amount of time under Section 232 of the Trade Expansion Act of 1962. In June 2018, Mexico imposed a 25% tariff on all steel products shipped from the U.S. to Mexico, and in July 2018, Canada imposed a 25% surtax on imports of U.S. steel products. These tariffs cover our primary raw material, hot rolled coil, as well as our finished steel pipe product. We routinely ship steel pipe into Canada. The tariffs may lead to project delays or cancellations while they are in place. In addition, our newly acquired location in San Luis Río Colorado, Mexico (SLRC) may also be negatively impacted. Historically, the raw material has been purchased in the U.S. and shipped to Mexico for manufacturing, and the finished product has been shipped from Mexico to the U.S. If we continue this practice, we will have a tariff on the purchased hot rolled coil as well as the finished steel pipe. We may not be able to pass these increased costs to our customers. We may not be able to develop sufficient steel suppliers outside of the U.S. that can supply SLRC at a competitive price. We also may not be able to develop a sufficient market outside of the U.S. for SLRC's finished products. This may lead us to shut down our SLRC facility, which could have an adverse effect on our business, financial position, results of operations, or cash flows." Northwest Pipe Co., Form 10-K filed March 15, 2019 (SIC 3317—Steel Pipe & Tubes)
- "Our operations are
subject to a number of risks that could harm our
[. . .] Additionally, the Trump Administration has recently instituted or proposed other changes in trade policies that include the negotiation or termination of trade agreements, including the North America Free Trade Agreement, or NAFTA, economic sanctions on individuals, corporations or countries, and other government regulations affecting trade between the US and other countries where we conduct our business. The Trump Administration has also negotiated a replacement trade deal for NAFTA with Mexico and Canada, known as the United States-Mexico-Canada Agreement, or USMCA, which still needs to be ratified by the respective government of each of the three countries. It may be time-consuming and expensive for us to alter our business operations in order to adapt to or comply with any such changes. If the United States were to withdraw from or materially modify NAFTA or other international trade agreements to which it is a party, or if tariffs were raised on the China-sourced products that we buy, our costs for such products could increase significantly, which in turn could have a material adverse effect on our business, financial condition and results of operations." Zoom Telephonics, Inc., Form 10-K filed April 1, 2019 (SIC 3661—Telephone & Telegraph Apparatus)
- "A reduction in exports
to Europe due to the imposition by the European Union of a tariff
on U.S. ethanol could have a negative effect on ethanol
The European Union imposed a tariff on ethanol which is produced in the United States and exported to Europe which has negatively impacted exports of ethanol to Europe. The tariff was scheduled to expire in 2018 but is currently under review. The decrease in exports to Europe has negatively impacted the market price of ethanol in the United States and our ability to profitability operate the ethanol plant." Highwater Ethanol, LLC, Form 10-K filed January 23, 2019 (SIC 2860—Industrial Organic Chemicals)
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