- U.S. trade policy has become the top concern among chief financial officers, according to a CNBC quarterly survey.
- Roughly two-thirds of North American and Asia-Pacific CFOs say U.S. trade policy will have a negative impact on their company over the next six months.
- Seven of the 16 biggest declines in the Dow Jones Industrial Average this year have been sparked by trade concerns.
U.S. Secretary of the Treasury Steve Mnuchin hit Capitol Hill on Thursday to face a grilling on trade, tariffs and NAFTA from the House Financial Services Committee. Mnuchin attempted to quell growing uncertainty within Congress as President Trump ratchets up a trade war with China. It if the trade war's toll on the economy hasn't been seen yet, recent data from a CFO survey conducted by CNBC suggests the economic hit is coming. And Congress took notice of that data during Mnuchin's hearing.
"CNBC does a survey of CFOs of major U.S. companies and 65 percent have reported that they fear U.S. trade policy will negatively impact their firms over the next six months. How does the administration think about business uncertainty as it calculates its trade policy?" Republican congressman Jeb Hensarling of Texas, who chairs the House Financial Services Committee, asked Mnuchin.
"I can assure you that the President is very much focused on economic growth and I can also assure you that I am motoring the situation very carefully," Mnuchin told Hensarling. "We have not yet seen any negative impact."
Trade uncertainty has risen to be the biggest risk for corporations, according to the latest CNBC Global CFO Council quarterly survey. To that point, 35 percent of global CFOs say U.S. trade policy is the biggest external risk their company faces, up from 27 percent in Q1 and tripling from the 11.6 percent who cited trade policy in the fourth quarter of 2017.
Amid strong gross domestic product and job growth and profit-friendly corporate tax cuts, nearly 65 percent of North American CFO respondents said U.S. trade policy is likely to negatively impact their firms over the next six months; 20 percent of CFOs indicated the impact would be "very negative." Sixty-six percent of Asia-Pacific region CFOs expect a negative impact on their firms.
"What is interesting is business leaders as well as investors don't like uncertainty, and I think we are being exposed to an abnormal amount of sausage-making in the process," said MongoDB CFO and CNBC Global CFO Council member Michael Gordon on CNBC's Worldwide Exchange earlier this week.
The uncertainty has taken a toll on stocks. Seven of the 16 biggest Dow declines this year appear to have been sparked by trade concerns, according to CNBC data. There have been 35 moves of 1 percent or more in the Dow Jones Industrial Average this year, 12 of which CNBC found were entirely or substantially related to trade-related news. There has been an even greater rattling of global markets.
Still, 60 percent of North American CFOs say the full benefits of the Trump tax cuts remain, regardless of the trade risks. Forty percent say that uncertainty around trade is hurting their firm's ability to take full advantage of tax reform.
And despite the trade uncertainty, the CFO Council's global economic outlook remains rosy. Not one global region was seen as worse than "stable" for the sixth straight quarter. The United States was seen as "improving" for the eighth straight quarter.
(Note: The CNBC Global CFO Council represents some of the largest public and private companies in the world, collectively managing more than $4.5 trillion in market capitalization across a wide variety of sectors. Forty-three of the 103 current members of the CNBC Global CFO Council responded to this quarter's survey, including 20 North American-based members, 17 EMEA-based members and 6 APAC-based members. The survey was conducted from June 1–17, 2018.)
Complete survey results below: