High tariffs proposed by Trump could wipe out corporate profits

• Of course, companies won't sit idly by and let that happen — those costs will likely be passed along to American consumers.

Catch up fast: Trump said last month on Truth Social he'd put 25% tariffs on all goods coming from Canada and Mexico — the two largest U.S. trading partners — as soon as he takes office.

• That's on top of tariffs of 60% or more on goods from China, and 10-20% tariffs on imports from the rest of the world.

Zoom out: These measures could increase the amount of money businesses pay in tariffs by more than 400%, per a data analysis that PWC conducts for clients using company-specific data from U.S. Customs.

Zoom in: The modeling looks at worst-case scenarios. When Trump says all goods will be tariffed, companies take that seriously, says Chris Desmond, a PWC principal for customs and international trade.

• But some issues could be hammered out before tariffs take effect, like whether they apply to the country of origin or not. (For example: If you import avocados from Mexico that were grown in South America, would the importer have to pay higher Mexico tariff?)
• "That's messy," Desmond says. "There's a need for guidance."

Behind the scenes, the Trump team is telling corporate consultants that there's no budging the president-elect on his tariff stance, the Wall Street Journal reported.

• Still, many executives are huffing "hope-ium," believing Trump wouldn't want to hurt U.S. businesses, as the New York Times reported.

PWC's model finds tariff increases are often larger than an importer's annual profits across a range of industries including autos, retailers, communications equipment-makers, and companies that import fruits and vegetables.

• That's leading companies to question if they can change their supply chain strategies to adjust or pass costs to consumers, Desmond says.

What they're saying: "This is one of the biggest events in my career to impact so many U.S. multinational companies that deal with property imports," he says.

Reality check: It's certainly possible some firms that import goods may absorb these costs and accept lower profit margins, but many have already said they will pass the increased costs through.

Flashback: Not only do companies pass through tariff costs to consumers, sometimes they take the opportunity to raise prices on other goods, too.

• After the 2018 tariffs on washing machines hit, the price of dryers — which weren't tariffed — went up too, per research published in the American Economic Review in 2020.

Even if companies can preserve their margins by raising prices, there are other issues weighing on executives.

• Firms with China exposure saw their stock market valuation cut by $1.7 trillion when Trump announced new Chinese tariffs in 2018, per a study from the New York Fed.

The bottom line: There's a lot of uncertainty out there, but it's a safe bet that companies won't just sit by and let their profits disappear.