Trade Wars and Tariffs Test Equity Investing Research

How can global equity investors incorporate the impact of tariffs into fundamental analysis of companies?

Trade wars are in the headlines again, with the US imposing new tariffs on an array of Chinese products. Policy moves like this create headaches for investors seeking to develop return forecasts based on a company’s long-term outlook and require special consideration in research processes.

President Joe Biden announced on May 14 that the US will raise tariffs affecting about $18 billion of imported Chinese goods, including electric vehicles (EVs) and solar cells. The move was a sign of escalating trade tensions between the world’s two largest economies, and a tangible example of geopolitical risk driven by deglobalization.

Tariffs change the relative cost of products, which influences supply and demand and can have a big effect on a business. Since policy decisions are often difficult to predict, investment analysts may struggle to plug them into financial forecasts. But we can map out some principles and parameters to constructively gauge the evolving environment.