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US Fires Tariff, Wages Trade War With China: Winners & Losers

Ritujay Ghosh
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The United States formally imposed the first set of tariffs on $34 billion worth of Chinese imports on Jul 6. The trade war has finally been triggered, with China firing counter tariffs on an equal amount on imports from the United States.

And if President Donald Trump does what he said he will do, the war will only intensify, with his additional tariffs that could reach an estimated worth of $500 billion Chinese goods. It now needs to be seen, who gains and who loses from the trade war, given that both countries have drawn up a long list of goods and services that will be impacted by higher import duties.

Relief for Domestic Steel, Aluminum Manufacturers

In March, Trump announced tariffs of 25% and 10% on imported steel and aluminum, respectively, from China. The announcement came with the objective of protecting domestic steel and aluminum industry by increasing production, which will eventually help create more jobs.

Trump’s decision was cheered by domestic steelmakers, as they stand to benefit from the newly imposed tariffs. On Thursday, shares of United States Steel Corporation X and Nucor Corporation NUE jumped 3.1% and 2.1%, respectively, while Steel Dynamics, Inc. STLD surged 3.3%. United States Steel Corporation has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Similarly, shares of Alcoa Corporation AA, Kaiser Aluminum Corporation KALU and Century Aluminum Company CENX jumped 2.4%, 1% and 0.2%, respectively, on Thursday.

Manufacturing Sector to Suffer                                        

American companies that earn huge revenues from China or sell products to that country will be hit by tariffs of 15% to 25%. Heavy equipment manufacturers and airplane makers are at the highest risk. Last year, The Boeing Company BA earned 13% of its revenues from China. Moreover, the company also entered into a deal with a state-run Chinese company to sell 300 planes for $37 billion.

Excavator and earth-moving manufacturing company Caterpillar, Inc. CAT has more than 20 facilities in China. Other heavy-equipment manufacturers like Deere & Company DE too will be hit hard as it will find it hard to manufacture equipment with higher-priced steel.

Tough Time for Automakers

Not only the automakers but the overall auto sector, comprising carmakers, auto parts and transportation companies will bear the brunt of tariffs. For them, the tariffs are more like a double-edged sword. While producing vehicles in the United States will attract higher tariffs in China, producing vehicles in China and importing them back to the United States means paying higher import duty.

Almost 30% of General Motors Company’s GM U.S. unit sales are imported from Mexico and China, Ford Motor Company F imports 20% of its vehicles from these two countries. Fiat Chrysler Automobiles N.V. FCAU manufactures almost 50% of its vehicles in the United States, while the rest is imported from its Mexico and Canada plants. 

Tech Companies to Take a Hit

Many tech companies earn a significant portion of their revenues from China. Thus, a trade war will definitely affect tech companies, particularly chipmakers with significant exposure to China.

The United States is the largest semiconductor manufacturing country, with China being its biggest market. Higher tariffs will take a toll on the revenues of these semiconductor manufacturers. Qualcomm has tie-ups with a large number of Chinese companies, including Huawei. Qorvo, Inc. QRVO too generates almost 60% of its revenues from China.

Similarly, other semiconductor giants like Skyworks Solutions, Inc. SWKS and Qualcomm depend heavily on the Chinese market. In fact, Apple and Intel Corporation INTC are among the top 16 U.S. companies that generated a total of $105.5 billion from China in 2017. Qualcomm, Broadcom Inc. AVGO and NVIDIA Corporation NVDA generated respectively 16.6%, 9.5% and 1.9% of their revenues from China.

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