PwC’s US Tariff Industry Analysis – Energy, Utilities, and Resources

In brief

What happened?

Since taking office on January 20, President Trump has introduced several policies and executive orders. On his first day in office, he issued the America First Trade Policy, which launched an investigation into unfair trade practices, expected to conclude on April 1. A key component of this investigation, "Unfair and Unbalanced Trade," targets countries with significant annual trade deficits in goods, potentially subjecting them to country-specific tariffs. This includes several European Union nations (e.g., Germany, Ireland, and Italy), Asian jurisdictions (e.g., Vietnam, Japan, and Taiwan), and other global trade partners. A review of unfair trade practices by other countries and a consultation with respect to the United States-Mexico-Canada Agreement (USMCA) also are key components of the investigation.

Additionally, on February 13, President Trump introduced the Fair and Reciprocal Plan, designed to evaluate and impose reciprocal tariffs on countries that enforce higher duties/tariffs on US goods, including through a value-added tax or other non-tariff barriers. The European Union, India, and Japan have been identified as potential targets due to their tariff policies on American products.

Both the America First Trade Policy and the Fair and Reciprocal Plan are expected to have their investigations completed by April 1 with potential new tariffs as soon as April 2. 

Why is it relevant?

Importers and purchasers across all sectors, including the Energy, Utilities, and Resources industry, should assess the impacts of these new policies on a go-forward basis. In PwC's US Tariff Industry Analysis, the data reflects that the total tariff measures could increase from $0.4 billion a year to approximately $53 billion a year for the Energy, Utilities, and Resources industry, although that figure does not take into account countermeasures that trading partners may impose, or behavioral adjustments that companies may make, in reaction to US policy changes.

These tariffs are expected to increase production costs, potentially leading to higher prices for energy and utility services, and may cause supply chain disruptions, given the reliance on these countries for raw materials and equipment.

Action to consider

As tariff rates continue to evolve, it is crucial for US multinational corporations to assess the impact of these trade policies on their business operations and supply chains.

Each multinational corporation, including those not currently subject to tariffs, should assess the pre/post impact of the tariffs on its earnings per share and overall shareholder returns. Focusing the impact assessment at operating profit potentially could create a drag on earnings per share based on the implication of corrective actions on the statutory model. It is crucial for companies to model the changes to have data-driven insights that inform strategic decisions moving forward. Energy, Utilities, and Resources companies could mitigate tariff impacts by diversifying supply chains, securing alternative suppliers, analyzing the location of manufacturing operations prior to importing, utilizing foreign trade zones, and enhancing logistics to reduce costs. In instances where diversification may not be an option, Energy, Utilities, and Resources companies should analyze other ways to reduce costs. They should assess financial risks and consider negotiating better supplier contracts, and explore efficiency improvements to manage rising expenses. Engaging in policy advocacy, staying informed on trade regulations, and considering alternative materials or technologies can help reduce reliance on tariffed imports. Transparent communication with customers and strategic market adaptations can enhance stability and competitiveness despite trade challenges.

For more details, read the full Tax Insight linked below.