It's increasingly difficult to separate the noise from the facts when it comes to international trade, especially that between the U.S and China. Friday morning's press release from the Office of the United States Trade Representative breaks out the specifics in much more detail than a presidential tweet. Of the $50 billion of proposed tariffs, $34 billion, representing 1,102 separate product categories, are scheduled to go into effect on July 6th. An additional $16 billion worth (at 2017 trade levels) have been submitted for public comment.
if you believe in free trade the USTR release -- which contains links to the full Section 301 report -- is chilling in its rhetoric. It is clear that the administration is targeting the official Made in China 2025 policy as a means of exposing the Chinese government's pattern of protectionism and promotion of state industries. It's difficult to take the moral high ground on protectionism when imposing tariffs, though, and it seems the trade hawks at the USTR and elsewhere in the administration are hell-bent on undermining their president's greatest foreign policy achievement -- this week's unprecedented sit down with Kim Jong Un.
So, it's difficult to go through 1,100 separate line items, but in the first portion of the tariffs (the $34 billion) there are many references to finished goods and components. The USTR press release makes specific mention of aerospace, information and communications technology, robotics, industrial machinery, new materials, and automobiles.
So, the biggest loser there would be -- as I have pointed out frequently in my RM column including yesterday - Boeing (BA) . I would also add Lockheed Martin (LMT) , Northrop Grumman (NOG) and larger suppliers such as United Technologies (UTX) and Precision Castparts (a subsidiary of Berkshire Hathaway (BRK.A) , (BRK.B) .) In the auto sector, companies that rely heavily on imports from Chinese auto suppliers would be hit hard, but that list really only consists of one: Tesla (TSLA) . I have no idea why Tesla sources so much from mainland Chinese suppliers while the other U.S. manufacturers (both native and captive) depend on local suppliers. Of course, as a general rule, I have no idea why Musk does what he does from a manufacturing perspective, and I probably never will.
The second list of affected goods (the $16 billion that has been proposed with no date set yet for implementation) is heavily represented by engineered chemical compounds, mainly organics. Seeing styrene on the list immediately brought to mind the tiremakers, whose need for synthetic rubber is obviously large, so Goodyear (GT) and Cooper Tire (CTB) would be losers in that aspect.
From a sectoral basis, the largest importer of chemicals into the U.S. is the pharmaceutical industry, so I would include Merck (MRK) , Bristol Myers (BMY) and Johnson and Johnson (JNJ) on a list of companies that would be hit if the second set of tariffs are imposed.
So, that's a long list of names, and really only covers the impacts of U.S. importers. My inclusion of several of the biggest names in the S&P 500 though, should show that the impact of trade troubles is widespread. We will see how China responds to Friday's announcements, which had been telegraphed for the past few weeks, but a tit-for-tat would not be good for equity holders in any geographies. Trade worries could be the anchor that finally stops the S&P 500 from its wildly bullish run.
