As world leaders descend on Charlevoix, Quebec for this week's G7 summit, trade has to be the first topic of discussion. One can question the relevance of the G7 on a global scale since it doesn't include China or Russia (booted from the G8 after the annexation of Crimea in 2014) but trade agreements affect U.S. relations with all countries. From an investor's perspective the prospect of trade wars is generally not a palatable one. For every national champion company that would benefit from protectionism, there are probably three or four others that would be hurt by it.
So, while I don't expect fireworks from this weekend's meetings, if you own stock in major multinationals, you should do homework on how less free trade could impact your portfolio holdings. China is the most frequent offender when it comes to trade barriers, in my opinion, but since Xi Jinping is not going to be in Charlevoix this weekend, we have to focus on relations between the countries that will be. So, here is a list of companies that could be affected (positively or negatively) by disagreements among the developed world's powers.
Boeing (BA) -- It is fitting that the leaders of France and Italy will be attending the G7, since BA's stock chart is a thing of beauty that would not be out of place in the Louvre or the Uffizi. It's just been a 45-degree line for Boeing's chart since the beginning of 2016, and that momentum can really only be stopped by one of two things: a rollover in the aerospace cycle or inter-country strife that would hurt Boeing's strong order book for both commercial and defense aircraft. At a valuation of 25x analyst consensus for 2018 earnings, BA shares are well above their historical average P/E, and it is fair to say those shares are priced for perfection. So any turmoil coming out of the G7 would be a rare bit of bad news for BA shareholders and could cause a 5-10% pullback in the shares.
Dry bulk shippers -- As it appears that China is agreeing to buy more U.S agricultural products (mainly soybeans) the Baltic Dry Index has jumped this week. Free trade is a boon for shippers of cargoes like coal, iron ore and grain, and I have been adding to and reinitiating positions in my favorite dry bulk names -- Navios Maritime (NM) , Star Bulk (SBLK) , and Eagle Bulk (EGLE) -- this week.
Autos -- President Trump's conjecture about increasing tariffs on imported cars was chilling to hear for someone who followed auto companies both in the U.S and Europe for 11 years. I'm a long-term fan and shareholder of both VW (VLKAY) and BMW (BMWYY) . Those two companies would be hurt the most (along with Daimler) from an auto trade war. Again, it is China and its ridiculous 25% tariff on imported autos that is the main offender in the restriction of free trade for autos. That said the E.U.'s 10% tariff on imports of autos from the U.S. is also indefensible in a world of free trade, and the U.S. 2.5% tariff on imported cars represents an imbalance. Those who focus on the so-called "chicken tax" of 25% on vans and pickups imported to the U.S. have zero understanding of the realities of modern offshore car production. That U.S. cars are taxed at a rate that is 4x higher when exported to Europe is simply not fair, and our 45th president has a keen sense of winning and losing at everything. Any progress on lowering trade barriers, therefore would be a huge win for the German carmakers, and also beneficial, albeit less so, to Ford F, GM GM and Fiat Chrysler FCAU.
