Which U.S. companies would suffer in a trade war?
Which U.S. companies and industries will suffer if President Donald Trump's plan to impose stiff tariffs on aluminum and steel imports comes to fruition? It may depend on how other countries react, and whether a trade war ensues.
Mr. Trump's proposal to launch across-the-board tariffs of 25 percent on steel and 10 percent on aluminum last week is still drawing strong reaction from trading partners and Corporate America alike.
Companies from brewer Miller Coors (TAP) to professional associations like the National Association of Homebuilders warned the tariffs will push prices higher for them, and by extension, Americans. "You can win a trade war if your narrow objective is to protect one very small sector of the economy," said GZERO Signal writer Alex Kliment. "But the question that we have to ask, and which everyone is asking, is at what cost to other sectors of the economy, to U.S allies?"
European officials are preparing to target $3.5 billion in American goods through a 25 percent "tit-for-tat" levy across consumer, agricultural and steel imports, Bloomberg reported, citing a list compiled by the European Commission. This came after EC President Jean-Claude Junker on Friday mentioned targeted products like Harley-Davidson (HOG) motorcycles, Levi's jeans and bourbon if the U.S. tariffs are implemented. Canada President Justin Trudeau called Mr. Trump Monday evening to register his "serious concern.
"Retaliation by trading partners is likely," Goldman Sachs (GS) economists wrote in a note. "In the past, retaliatory tariffs have focused on the product in dispute (in this case steel and/or aluminum), consumer goods with a particular focus on luxury items and agriculture. We expect a similar pattern this time."
While retaliation is likely to come in tariff form, "more subtle changes to tax and regulatory policies targeting U.S. companies could also follow," the economists wrote.
Ford (F) and GM (GM) could feel a pinch of about $1 billion each, or 12 percent and 7 percent of each company's respective operating income for 2017, if the 25 percent steel tariff is implemented and prices rise at a similar rate, Goldman Sachs analysts estimated in a recent separate report.
U.S.-based machinery companies would get squeezed as costs increase. Well-known brands with good distribution, like Deere (DE) and Caterpillar (CAT) might do better than Terex (TEX) and Oshkosh (OSK), Goldman said. Oshkosh is based in House Speaker Paul Ryan's home state of Wisconsin.
Ryan said Mr. Trump's plan was "more prone to retaliation" and today urged the administration to take a more "surgical" approach to tariffs because some Republicans argue the duties could have negative impacts on the U.S. economy. The plea comes after Mr. Trump on Monday said Mexico and Canada may be able to avoid tariffs -- if they agreed to make concessions during renegotiations of the North American Free Trade Agreement, known as NAFTA.
"There is clearly abuse occurring, clearly there is overcapacity dumping in transshipping of steel and aluminum by some countries, particularly China, but I think the smarter way to go is to make it more surgical and more targeted," Ryan said.
Canada was America's second-biggest trading partner last year, while Mexico was third. China was the first.
The U.S. is the world's biggest steel importer. Last year, China was the 11th-biggest steel exporter to the U.S., according to the Department of Commerce's International Trade Administration. China has been accused of flooding the market with cheap exports. Yet steel and aluminum make up less than 3 percent of total U.S. imports, according to Capital Economics. So trading partners like Canada, Mexico and the EU aren't happy with the proposed across-the-board tariffs.
Industrial firms with a high percentage of sales from outside the U.S. include Expeditors International (EXPD), 3M (MMM) and Boeing (BA), Goldman said in the report.
Boeing, typically the U.S.'s biggest exporter, has rebounded slightly after its stock slipped on Mr. Trump's announcement. Suppliers to the planemaker, which competes directly with Europe's Airbus in the large commercial aircraft market, could have a harder time coping as the company looks to trim costs, according to a recent note from Melius Research.
Defense companies Lockheed Martin (LMT), General Dynamics (GD) and Raytheon (RTN) should have "limited" problems because of the way long-term supply contracts are structured, Melius analysts wrote. Private-jet makers Textron (TXT) and Gulfstream, a division of General Dynamics, may run into trouble if the global economy slows.
Countries can be expected to immediately appeal the tariffs to the World Trade Organization under the General Agreement on Tariffs and Trade, or GATT agreement, said Jennifer Hillman, a former member of the WTO's appellate body. She spoke on a call with reporters organized by the Atlantic Council, a Washington think tank.
"The challenges will come immediately and will come from all affected countries," Hillman said. The WTO, seen largely as a U.S. created entity, will then form a panel of three people that aren't from the U.S. or any of the involved parties.
How that plays out, she said, may depend on how the U.S. claim that the tariffs are needed as part of America's national defense is viewed.
