There’s a lot of uncertainty right now, and investors hate uncertainty. USA TODAY
The list of companies caught in the brewing trade war between the U.S. and China reads like a who’s who of American commerce: Boeing, Caterpillar, Deere, Tesla.
By virtue of their sizable business in China, shares of these and other brand-name U.S. stocks are at risk if the trade spat between the world’s two largest economies worsens.
More pain is ahead if tariffs are announced that go beyond the initial $34 billion of the $50 billion targeting hundreds of Chinese goods that President Donald Trump says will go into effect July 6. China has retaliated with tariffs of equal value aimed at U.S. products. The U.S. is also drawing up a list of $200 billion more of additional Chinese goods that could be subject to tariffs.
A tariff is an import tax countries levy on goods entering their borders. It’s a tactic used to protect their own economies with the hope of keeping domestic companies competitive.
The biggest losers? U.S. corporations that get a hefty chunk of their sales from China or those that sell products on Beijing’s growing list of U.S. products that will be hit with an import tax ranging from 15 to 25 percent.
Wall Street fears business will slow for these firms, as their products will be more expensive for Chinese shoppers and manufacturers. That’s bearish for stocks, as higher prices can lead to fewer sales and smaller profits and ultimately lower share prices.
Here are some U.S. stocks facing a tariff-related hit:
The airplane maker earned nearly 13 percent of its revenue in China in the past fiscal year, according to Bloomberg. Its share price was down more than 9 percent thru Thursday afternoon trading since its recent high June 6, due largely to the escalating trade dispute. In November, Boeing struck a deal to sell a state-run Chinese company 300 planes for $37 billion. Any loss of orders due to trade tensions would be costly. “Aircraft deliveries to China have a growing importance to Boeing,” Morgan Stanley analyst Rajeev Lalwani noted in a report.
Big industrial companies such as Caterpillar that sell into China’s fast-growing economy, which grew 6.8 percent in the first three months of the year, are also vulnerable to a slowdown triggered by a trade dispute. The company’s shares have slid about 9 percent in the five trading sessions since Trump announced he was going through with tariffs against China and warned of $200 billion more in levies. Caterpillar, which sells iconic yellow-colored excavators and other earth-moving machines, has roughly two dozen facilities in China. The company said about half of its first-quarter 2018 revenue in its construction business was mainly in North America and China. Part of the reason it increased its forecast for full-year earnings was a “strengthening” of its construction business across Asia, but primarily in China, it said.
The maker of tractors, combines and harvesters could be hit with a double whammy in the trade dispute. Trump’s 25 percent tariffs on steel will have a negative financial impact because it will cost Deere more to build its heavy equipment with higher-priced steel. China has also targeted U.S. farmers by levying tariffs on soybeans, wheat and other agricultural crops that are harvested by Deere machines. And if sales of these commodities falter, purchases of that equipment by U.S. farmers could also take a hit.
Fatal crashes, production bottlenecks and alleged employee sabotage aren’t the only problems Tesla CEO Elon Musk is facing. Tesla makes one of the products on China’s updated list of potential tariff victims: electric cars. And that’s bad news for the upstart automaker as it made Morgan Stanley’s top-20 list of stocks with the highest revenue exposure to China. Tesla gets 19 percent of its sales from China. The 25 percent tariff set to take effect July 6 could put the price of a Tesla out of reach for many Chinese buyers.
The auto parts supplier has two things working against it: One, it gets an estimated 13 percent of its revenues directly from China, according to Morgan Stanley. Two, it sells clean-tech components to companies that build hybrid and electric cars, which are targeted by Beijing. BorgWarner shares are down nearly 6 percent since Trump confirmed last Friday that he was moving forward with planned tariffs against China.
The company just happens to be in the industry that Morgan Stanley says has the highest exposure (52 percent) to China: semiconductors and chip equipment makers. Qualcomm, whose processors are used in mobile phones, gets 65 percent of its revenue from China, according to Bloomberg, putting it – and other chip makers such as Micron, Intel and Invidia – at risk.
Expeditors International of Washington (EXPD)
The global transportation company moves goods around the world via air and sea. It also provides services such as temperature-controlled transit, cargo insurance and logistics management. That’s all good, except for the fact that it gets an estimated 30 percent of sales from business ties with China, Morgan Stanley data show.
The upscale jewelry seller, known for its signature blue box, diamond rings and edgier image under new CEO Alessandro Bogliolo, is a favorite of China’s growing class of aspirational shoppers. While that’s a plus in good times, it could cause problems during periods of trade strife if Chinese shoppers turn away from U.S. retailers such as Tiffany or if the economy slows, making jewelry sold by Tiffany’s less affordable. The jeweler gets roughly 14 percent of its revenue from China, Morgan Stanley data show, which makes them even more vulnerable if China retaliates with tariffs on products it sells.
Cummins, which makes products including diesel and natural gas engines, gets 10 percent of its revenue from China, according to Bloomberg, and is the type of industrial company that can be dinged by the tariff fight.
A.O. Smith (AOS)
One of the world’s leading manufacturers of water heaters for homes and commercial buildings also ranks high when it comes to exposure to China. Bloomberg pegs its China sales at nearly 35 percent. In this year’s first quarter, sales in China rose 13 percent measured in U.S. dollars, the company said in its earnings release. Any interruption in trade between the two economies could cause part of its earnings stream to dry up.