- President-elect Donald Trump plans to implement new tariffs, and investors are bracing for the impact.
- Tariffs tend to raise the prices of imports, potentially affecting corporate profits.
- Three market experts share the eight companies that could be hit the hardest.
Trump will return to the White House next January, and he will bring his charges with him.
During his first term in office, Trump imposed tariffs on steel, aluminum and a wide range of Chinese imports.
The former president and now president-elect has been vocal about his support for protectionist policies this election cycle. In recent months, Trump has proposed policies — such as a total tariff of up to 20% on all imports and up to 60% in the case of China — aimed at encouraging domestic manufacturing and reducing the U.S.’s dependence on goods the foreigner. .
“Investors generally expect a scale of fees. It’s not just rhetoric,” said Clayton Gardner, co-CEO of wealth management firm Titan.
Unlike tax legislation, which must be voted on by Congress, tariffs can be implemented directly by the president — and Trump has made the issue one of his top priorities.
With that in mind, market experts say investors should prepare for the impacts of such policies on some of the world’s largest corporations.
How do fees work?
Import tariffs work by imposing an additional tax on goods or services entering a country. By artificially increasing the price of imports, tariffs stimulate demand for domestic products and protect domestic industries from foreign competition. But most economists argue that tariffs ultimately make companies and consumers worse off.
When faced with tariffs, companies that import products end up passing the effects on to consumers by raising prices, according to Jesus Salas, a finance professor at Lehigh University.
For multinational corporations, this results in lower demand for their products and potentially lower profit margins due to higher prices and operating costs, Salas said.
Companies in the retail, consumer electronics and automotive industries will be hit particularly hard, as many of their business models source raw materials or base their operations overseas, according to Samuel Rines, a macro strategist at WisdomTree .
Luxury consumer goods brands, which have a large market in China, will be in for a tough time, Gardner added. These companies have historically had a significant portion of their growth come from China.
Although companies with supply chains in China will be most affected, any country with foreign exposure is at risk, according to Salas: “All companies that import products from Europe, Latin America or China will be affected.” For example, Trump has recently threatened a 25% tariff on all products from Mexico.
There is also the possibility of counter-fees. In 2018, Canada, China, the European Union, India, Mexico and Turkey responded to US tariffs on steel and aluminum and foreign products with their own tariffs. This made American exports of agricultural products more expensive overseas and hurt American companies.
“Corporate America is very, very global in its investment base. It is very, very dependent in some cases on sales and earnings outside the US for their growth,” Rines said. A deterioration in trade relations could lead to reduced revenues from important overseas customers, resulting in lower earnings and shareholder value.
Fees 2.0
One might think that if these companies were to live through the first Trump administration’s tariffs, they should have already prepared their supply chains.
But this is largely not the case, according to Salas. Although companies moved some of their operations out of China as a result of Trump’s tariffs the first time around, there is an insufficient supply of labor in the US to meet the demands of some big companies like Apple, in his view.
Rapprochement, or bringing operations closer to the US in countries in Central America, has been on the rise in recent years as corporations worry about exposure to China. But that doesn’t protect companies from the effects of Trump’s tariffs either, as evidenced by Trump’s proposal for aggressive tariffs on Mexican imports.
Furthermore, factories are expensive and time-consuming to build. Since the tariffs are exercised at the discretion of individual presidents, corporations may decide it’s not worth completely rerouting their supply chain for a transitional policy that could change in four years, Salas added.
This is not to say that companies have not taken any steps to localize their supply chains. Walmart has increased its imports from India and reduced sourcing from China in recent years, according to Rines. However, large corporations still remain exposed to China — not to mention that Trump’s policies aren’t just targeting China.
8 stocks at risk from tariffs
For investors, all of this means that some of the biggest blue-chip companies in your portfolio could have a few bumpy quarters ahead of them as their operating costs may rise and demand for their products may slow.
Rines, Salas and Gardner identified some of the key stocks that will be most affected by the tariffs. They are listed below.