Casualties in a trade war fought with tariffs are not measured in lives, but rather the financial fallout that ensues when nations duke it out over economic matters.
A trade war occurs when countries try to protect their own economies and domestic businesses by charging trading partners a tax, or tariff, on imported goods. The toll — or fallout — of such a fight is reflected in weaker economic numbers, such as slower GDP growth, fewer sales of airplanes, wine and other goods, and shrinking profits for companies.
The economic negatives of a trade fight often cause stock-price declines of innocent companies caught up in the spat, a market reaction that could put pressure on your 401(k) balance. This past week, for example, the Dow Jones industrial average fell nearly 6% — its worst weekly drop since January 2016 — on worries related to trade.
So with fears of a trade war on the rise after President Trump on Thursday proposed tariffs on about $60 billion of Chinese-made goods — and Beijing responding with a threat to impose $3 billion worth of tariffs on U.S. fruit, wine and other goods — here’s a list of U.S.-based investments that are vulnerable and under pressure.
U.S. Exporters
When trade friction and tariffs are high, they make goods crossing borders more expensive, which crimps sales and curtails economic activity. And that’s bad news for big U.S. companies that sell a lot of stuff to overseas buyers and get a sizable chunk of their revenues abroad.
“U.S. companies with high exports seem most exposed,” Tobias Levkovich, Citi’s chief U.S. equity strategist, noted in a published Q&A with the bank’s clients. That list includes aircraft manufacturers, defense stocks and capital goods makers.
Boeing (BA), for example, has been cited as the poster child for the type of stock that could be hard hit by a trade war. Not only did the plane maker get more than half of its sales last year from foreign markets, according to Morgan Stanley, it also gets about 11% of its annual revenues from China. Back in November it struck a deal to sell a state-run Chinese company 30 planes valued at $37 billion. Boeing’s shares are down 11.4% since Trump first announced his 25% tariff on imported steel and 10% aluminum levy on Feb. 28.
Other multinational companies at risk in a broader trade conflict are Caterpillar (CAT), which sells iconic yellow-colored earth moving machines and John Deere (DE), a farm equipment maker. Caterpillar is down nearly 7% in March, while Deere has declined 8%.
Big exposure to China
The more a company relies on China for profits, the more its stock is at risk. In the event that the “protectionist push” from the U.S. and other nations gains more momentum, Morgan Stanley’s chief U.S. equity strategist Mike Wilson recommends selling stocks with “high revenue exposure to China.”
The Wall Street firm created a list of U.S. companies that get 10% to 30% of their sales from China. Expeditors International, the transportation company that moves goods across the world via air or sea, for example, gets 30% of its revenue from China. Its shares have tumbled 6.3% since Trump first announced tariffs on steel and aluminum.
Similarly, shares of Apple, which gets more than 22% of its revenues from China and sells millions of smartphones to Chinese shoppers each quarter, have fallen more than 7%. Shares of luxury goods maker Tiffany, which Morgan Stanley says gets nearly 15% of its sales from China, are down 5%.
At the industry level, information technology companies had the highest overall foreign exposure at 56% last year, followed by materials (47%), which includes aluminum and chemical companies. The industrials sector, which aircraft makers and transportation companies are part of, got 39% of their sales from abroad.
U.S. companies targeted for tariffs
Keep alert for foreign nations slapping tariffs on well-known companies, as those stocks are likely to suffer from the stigma of being singled out and the likely hit to sales.
A good example is Harley Davidson, the iconic maker of motorcycles. After the U.S. announced tariffs on steel and aluminum, the European Union threatened to retaliate with tariffs of their own on Harley-Davidson and other All-American goods like bourbon and blue jeans. Since the EU announcement, shares of the U.S. motorcycle maker have fallen more than 8%.
Safter bets?
So what kinds of investments might hold up better if the protectionist trend continues?
Those that rely less on making money outside the U.S., such as small-company stocks, says Alec Young, managing director of global markets research at investment firm FTSE Russell.
Investors should also consider so-called “defensive” stocks, or those whose fortunes are less tied to economic growth and which are more domestically focused, such as telecom, utilities and insurance companies, according to Citi research.
