Since January 2018, the present 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 on U.S. Tariff Policies moving forward. 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. Perhaps most notably, 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, in July 2018, Coca- Cola reported U.S. tariffs as a factor leading to increased costs of the product. President Trump has hiked tariffs on goods and services from China, Canada, Mexico, and Europe, 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 may incite "tariff wars" between the United States and various countries throughout the world, which may negatively impact shipping and trading products within and outside the United States.
On March 22, 2018, President Trump signed a memorandum instructing the USTR to impose tariffs on $50 billion worth of Chinese goods. By April 2018, the USTR published a list of over 1,300 Chinese goods that would be subject to levies, including, but not limited to, televisions, weapons, satellites, aircraft parts, and batteries. By July 2018, the first tranche of tariffs on $34 billion worth of Chinese goods took effect. Thereafter, the present U.S. administration threatened to levy an additional $200 billion of Chinese goods. Similarly, in July 2018, President Trump threatened to enact tariffs against European Union (EU) cars. Most recently, in August 2018, President Trump authorized double tariffs on aluminum and steel against Turkey.
As a response, in August 2018, the Chinese government announced up to 25% tariffs on $16 billion worth of U.S. goods that went into effect August 23, 2018. China listed over 5,000 products that would be levied, including meat, coffee, alcohol, minerals, chemicals, furniture, and auto parts. Similarly, the European Commission proposed retaliatory tariffs on imports of U.S. steel, apparel, textile, footwear, corn, and bourbon. In July 2018, Mexico and Canada imposed over $3 billion and $13 billion, respectively, in levies on U.S. exports. 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. The disclosure should be written in plain English and should not be generic. For further information, see Market Trends 2016/17: Risk Factors, Risk Factor Drafting for a Registration Statement, and 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.
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. The Trump Administration has signaled that it may alter trade agreements and terms between China and the United States, including limiting trade with China and/or imposing a tariff on imports from China. In March 2018, President Trump imposed a 25% tariff on steel imports and a 10% tariff on aluminum imports and announced additional tariffs on goods imported from China specifically, as well as certain other countries. The materials subject to these tariffs to date do not impact our raw material costs. However, if further tariffs are imposed on a broader range of imports, or if further retaliatory trade measures are taken by China or other countries in response to additional tariffs, we may be required to raise our prices, which may result in the loss of customers and harm our reputation and operating performance." Sonos Inc., Form S-1 filed July 6, 2018 (SIC 3651—Household Audio & Video Equipment)
- "New tariffs on
steel imports could result in increased steel prices and adversely
affect our results of operations.
On March 1, 2018, President Trump announced his administration's intention to place a 25% tariff on imports of steel into the United States. Although the parameters and timing of any such tariff are not known as of the date of this filing, such a tariff, if enacted, could result in both increased steel prices and a decreased available supply of steel. We may not be able to pass such price increases on to our customers and may not be able to secure adequate alternative sources of steel on a timely basis. Either of these occurrences could adversely affect our results of operations and financial condition." NCI Building Systems Inc., Form 10-Q filed June 7, 2018 (SIC 3448—Prefabricated Metal Buildings & Components)
- "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.
"Recent activity by the Trump administration has 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 424B4 filed June 15, 2018 (SIC 4213—Trucking (Except Local))
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Originally published in Lexis Nexis
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