Shinhan Investment Corp. predicted on the 7th that the effective tariff rate could be offset by a tax cut if it is below 15% in relation to the tariff policy pursued by the Donald Trump administration.

Researcher Kim Seong-hwan of Shinhan Investment Corp. evaluated this based on the proportion of overseas sourcing products occurring in the process of U.S. corporations generating $100 in added value last year.

U.S. President Donald Trump speaks in the Oval Office at the White House in Washington, D.C. on Nov. 6. /Courtesy of AP·Yonhap News

According to Researcher Kim, last year, the operating profit of U.S. corporations, excluding expenses, was $20.2 per $100. The import tax, which includes the tariff, was $0.32 per $100. Considering that last year's effective tariff rate was 2.5%, it can be inferred that $12.8 worth of goods was imported from abroad.

In this situation, assuming a scenario in which the final tariff rate increases by 20 percentage points from last year, the import tax would increase by $2.56. This means that the operating profit could decrease by 12.6% ($2.56) from $20.2 to $17.65.

However, it is highly likely that corporations will not bear the entire tariff burden alone, and even if only about 50% is passed on to overseas production companies and consumers, the decrease in operating profit would be about 6.3%. Additionally, if the Trump administration lowers the corporate tax rate from 21% to 15%, a reduction of 6 percentage points, the net profit would increase arithmetically by 7.6%.

Researcher Kim noted, "If we assume that corporations pass on 50% of the tariff burden, calculations show that a corporate tax rate cut of just 3 percentage points could offset the effective tariff rate if it is established below 15%. We will have to observe whether the economy is damaged until June, but the erosion of profits may not be as serious a variable as expected."

Researcher Kim added, "If consumption does not lose its robustness in the second quarter (April-June) of this year, the 12-month forward earnings per share (EPS) of corporations within the Standard and Poor's (S&P) 500 index will be at a higher position by the end of the year than it is now."

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