The world has been anticipating a trade war between the U.S. and China ever since Donald Trump won the presidential election nearly two years ago. Now that some of those tariffs are actually in place, the trade war is taking concrete shape, and we can now say with more confidence which companies and stocks are on the front lines. It will probably get worse as time passes, given that Trump just announced a new threat to impose tariffs on yet another $200 billion worth of Chinese imports.
As for the tariffs that are already in place, here is the list from CNBC that shows which products are being targeted in what proportions. From this list, we can extrapolate which companies could see the volume of their exports constricted. These are the companies that could get hit particularly hard by the trade war between the U.S. and China, especially if this is not the last round, which so far seems to be the case.
China will be imposing tariffs on $12.6 billion worth of aircraft imports from the U.S. This is the second-biggest tariff category and adds to Boeing’s trouble stemming from the cancelation of $39 billion in total orders from Iran due to the renewal of U.S. sanctions against the country. A look into Boeing’s exports to China shows that $12 billion of the company’s total $93.4 billion, or 13% in total revenues for 2017, come from exports to China. Those won’t go to zero, but they will take a hit.
Given the artificial headwinds against Boeing, the company has no business being near all-time highs.
Boeing has been on a massive parabolic run for over two years, gaining 1,000% since 2009. Penny-stock like movements for a megacap like Boeing, considering the developing trade war, make it a candidate for shorting.
Tesla (TSLA, Financial), Ford (F, Financial) and General Motors (GM, Financial)
Tesla’s pricing for its Models S and X have already spiked 20% in response to tariffs against $11.88 billion American car exports to China, the third-biggest tariff category. Tesla of course has other problems that are much more central than exports to China, but this won’t help the situation.
As for Ford, China is its second-biggest market behind the U.S., comprising 1.16 billion exported units of its total 6.6 billion units sold in 2017, or 17.6%. Ford currently only has two factories in China itself and 26 in the U.S., meaning most of its units sold to China won’t be able to escape the tariffs.
General Motors is in similar straights. Four billion of GM’s 9.6 billion units sold, or about 42%, were for the Chinese market. Some of this is manufactured in China through joint ventures co-owned by GM China. That means tariffs will be dodged but along with the rest of the passenger car industry, continued sales depend on low interest rates, which will not last forever and are already heading up.
Even without tariffs, GM and Ford are in trouble from a business cycle perspective. The trade war only makes things worse than they otherwise would be. The next time a 2008-type situation rolls around, GM may have to be reincarnated once again.
Computer chips are the fourth-largest tariff category China is targeting at $8.7 billion. The biggest U.S. exporter of computer chips to China is Intel. Chips for the Chinese market account for $14.8 billion of Intel’s total $62.8 billion 2017 sales, or 23.6%. Intel’s stock price is near post-dot-com bubble highs. It may be difficult for shares to stay at these elevated levels with a trade war going on.
Tobacco
It's not a major target for tariffs, but tobacco is on the list, meaning it could be a good time to pick up shares of British American Tobacco (BTI, Financial) which is near six-year lows with a dividend above 5%, as it is not an American company and could get a boost. Investors who keep a certain percentage of their portfolios in tobacco, which for better or worse is one of the best-performing investment sectors over the very long term, could rotate somewhat out of Altria (MO, Financial) and into British American in response to news of tariffs on U.S. tobacco products.
Disclusore: No positions.
