Banks' commercial clients face whiplash over Trump tariffs

Mats Andersson/Bloomberg

Companies that are exposed to supply-chain challenges are having to maintain constant communication with their banks amid tariff policy uncertainty, as dialogue has shifted from business-as-usual to strategizing for the decision of the day.

President Donald Trump's rhetoric around tariffs — and specifically levies against China, Mexico and Canada — has taken Wall Street for a ride as investors grapple with how to hedge their bets against potential inflation.

Most companies that stand to be impacted by such tariffs started working on backup plans with their financial institutions months ago, or longer. Still, the frequent policy flip-flopping means bankers are talking with corporate and commercial clients about solutions on a daily basis.

On Tuesday, Trump introduced a policy that would double tariffs on Canadian metal imports. He walked that plan back a few hours later, but a previously-announced 25% tariff on steel and aluminum from all countries will still take effect Wednesday.

In the last six weeks, Trump has increased tariffs on imports from China, Canada and Mexico — though along the way his policies against the border countries have been introduced, withdrawn, reupped and tweaked. Earlier this month, the U.S. instituted a 25% tariff against Mexico and Canada, but Trump later paused the policy for goods and services that are compliant with the United States-Mexico-Canada Agreement.

The stock market, including bank stocks, has taken a beating as uncertainty around tariff policy — and the potential for retaliatory tariffs — drives concern about inflation and supply-chain challenges.

Jeremy Jansen, managing director of supply chain finance at Wells Fargo , said conversations with clients about their supply chains have ramped in the last few months, especially on the import side. Still, despite the increasing discussion, he said actual invoices and transaction activity hasn't yet shifted much in comparison to the same time last year.

"There is a sense of calm just based on the fact we've been here before," Jansen said. "It's not the first time companies have had to think about the effects of inflation."

He added that there's hope that tariff actions against Mexico and Canada "won't be as aggressive as maybe have been talked about."

Abe Eshkenazi, CEO at the Association for Supply Chain Management, said that although tariffs aren't new, and his industry has faced disruptions since the beginning of the pandemic, the lack of clarity around recent policy has thrown a wrench in decision-making.

"The challenge that we have is that banking, financial companies do not do well with uncertainty," Eshkenazi said. "It's extremely difficult to plan, in terms of what you can expect, if you don't know what the rules of the game are. And right now, the rules of the game are changing almost on a daily basis."

Companies may not yet know where their goods will come from, or the costs — factors that put pressure on their financial situations, and their ability to provide products to consumers predictably, Eshkenazi said.

But bankers and industry participants contend that previous eras of chaos have made companies exposed to supply-chain problems stronger. The disruption from the pandemic and tariff policies during the prior Trump administration has helped the majority of companies prepare, Eshkenazi said. Most businesses have diversified their supply bases and increased cash and inventory buffers amid the waffling of the market.

Scott McLean, chief operating officer at Zions Bancorp. , said during an industry conference last week that small- and medium-sized businesses — the bulk of Zions' commercial clients — learned during the pandemic to get ahead by building inventory. He added that he thinks the tariffs will eventually be a tailwind for loan growth at Zions.

John Woods, chief financial officer at Citizens Financial Group , said at the same conference that clients have cleaned up their balance sheets over the last few years, and have launched expense campaigns to preserve their margins.

"They've been hardened to some of these uncertainties, and the resilience there, I think, is very good," Woods said.

As companies look for financial solutions to ease the potential pressure of tariffs, Wells Fargo's Jansen said he expects his bank to see more demand for supply-chain financing. The product can give U.S. retailers and manufacturers some flexibility in how they pay suppliers in order to preserve working capital, or offer U.S. suppliers liquidity if tariffs decrease demand or put pressure on costs.

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Traditional financial products, like import or export letters of credit that guarantee payment for supplies or goods, may also be an option for some Wells Fargo clients, Jansen said.

"Our products and services in the supply-chain space and in the trade space are here to help our clients with their working capital needs," Jansen said. "As costs increase, there will be a need for increased levels of working capital."

But Eshkenazi said that as lenders weigh whether corporate and commercial clients' operations can support their financial obligations, there could be friction with companies that don't yet know how they'll offset costs over the long term.

"[Banks] want to be sure that they're going to get their money back in a reasonable and consistent manner," Eshkenazi said. "If you're talking to a supplier who says, 'I'm not sure about my costs, I'm not sure about my suppliers and I'm not sure about my logistics,' it creates a tremendous amount of uncertainty. Not only for the company, but for the lender as well."