CEO Confidence Falls On Growing Trade War Worries

The growing threat of a US multi-front trade war with China, Mexico, Canada and the European Union eroded CEO Confidence in the outlook for the American economy to a near-low for the year.

While Chief Executive’s most recent survey of 272 U.S. business leaders finds confidence in current business conditions holding relatively steady—at 7.54 out of 10 compared to 7.48 last month—their outlook for the next 12 months is once again faltering.

While an index of 7.19 remains “very good” on our scale of 1-10, it marks a dip from May’s 7.29 to the lows of March and April when tariffs announcements and the beginning of trade agreement renegotiations sent the markets plummeting.

CEOs tell us the retrenchment is once again attributable to economic uncertainty on the global scene, as well as back-and-forth trade negotiations with major allies who are now pushing back and threatening to retaliate.

On Friday, US announced plans to impose steep 25% tariffs on 50 billion in Chinese goods, sparking a tit-for-tat announcement from China that they would do the same, focusing on agricultural, seafood and energy products. Earlier in the day, President Donald Trump threatened he would increase US tariffs if China made good on its threats.

The escalation will almost certainly do further damage to CEO sentiment. Asked to explain his six-out-of-10 outlook for the US economy, the chairman of a mid-market media corporation was blunt: “Volatility. Trade wars, anti-globalism, populist surge and mid-term elections are tamping down an otherwise buoyant environment.”

“We can’t count on the good times to continue with the political things going on,” echoed a mid-sized transportation company executive who downgraded his outlook from a rating of nine out of 10 to a six when looking towards the future.

Still, the majority of those we polled continue to anticipate growth in revenues (84%), profits (73%), capex (63%) and workforce (59%) over the next 12 months.

While it is important to note the marked decrease in optimism in all four areas year-to-date, the numbers remain positive on a year-over-year basis.

Despite the gathering clouds, Andrew Ly, President and CEO of Ly Brothers Corporation, a manufacturer and distributor of bakery products, says he expects growth of 10% to 20% across the board, thanks to a growing economy and low employment.

David A. Dexter, president and CEO of Sonora Quest Laboratories, agrees, saying he also anticipates growth and credits higher GDP and consumer confidence, along with low interest rates and unemployment as the main drivers for his positive outlook.

Jim Nelson, president and chief operating officer of Parr Instrument Company, a manufacturer of laboratory instruments and apparatus in Illinois, says that while American businesses are benefiting from a reduced tax burden, fewer regulations and the repatriation of cash, the wild card justifying his rating of eight is the current tariff and trade rhetoric. In fact, 17% of our respondents listed trade or tariffs as major deterrents to otherwise-stable economic resilience.

Once again, manufacturing, construction, energy and financial services CEOs all have a strong confidence in future business conditions, compared to other sectors where business leaders are beginning to show restraint and, in some cases, pull back.

Manufacturing CEOs tell us their high level of confidence stems from a growing economy in which they are experiencing strong demand, a robust sales pipeline and an increase in new business, in addition to the combined effects of the corporate tax cuts and rollback of many regulations, which some say will truly be felt starting in the third quarter of 2018.

In wholesale/distribution and high-tech, both of which tend to rely on trade, CEOs are feeling the burden of the tough talk on tariffs and showing concern over the future. “There is still much uncertainty in the business environment,” commented the CEO of a mid-market wholesale corporation. “Given global dynamics and our company’s reliance on Chinese-produced products, it makes it difficult to be overly optimistic about near-term forecasts.”

About the CEO Confidence Index

The CEO Confidence Index is America’s largest monthly survey of chief executives. Each month, Chief Executive surveys CEOs across corporate America, at organizations of all types and sizes, to compile our CEO Confidence Index data.

Read more: CEO Confidence Rebounds in May, But Labor Is a Growing Concern