“Fake” Tariff News: Is Corporate America Concerned with Trade Wars?

Abstract

The effect a trade war would have on corporate America is a widely disputed hot topic. On one hand, the trade dispute may discourage abusive trade practices by foreign companies; on the other, it may hurt American exporters, raise costs for manufacturers, and interrupt companies’ supply chains. We shed some light on this question by examining the language of earnings call transcripts in the April-August 2018 period, the earliest voluntary disclosure by US companies to communicate their views on this topic to investors. We find that the tone of the conference calls in which companies mention trade tariffs is more negative than a matched control sample. We also find that investors do not share in the pessimism expressed by call participants, and actually reward tariff talk with higher but more volatile stock returns.

TOPICS: Fundamental equity analysis, legal/regulatory/public policy, performance measurement