Is A US-EU Trade War Brewing? Stocks & ETFs In A Soft Spot

The long-drawn rivalry between U.S.-based Boeing (NYSE:BA) BA and Europe-based Airbus brought the continents at loggerheads. The United States and the European Union are preparing to levy tit-for-tat tariffs on each other’s products, as part of the latest flare-up in a 14-year fight over respective government subsidies offered to Boeing and its European arch rival.

“The World Trade Organization finds that the European Union subsidies to Airbus has adversely impacted the United States,” tweeted President Trump and vowed to impose tariffs on $11 billion worth of EU imports. The European Union is also said to be preparing retaliatory tariffs against the United States.

Notably, the World Trade Organization (WTO) ruled in May 2018 that Airbus had received illegal funding for its A380 and A350 models, which indirectly weighed on Boeing sales. However, a countersuit by the EU is still trying to make its way through the trade court, which found last month that about $325 million in tax incentives given by Washington state to Boeing were illegal.

This initiated the U.S.-EU trade war. However, the proposed measures relating to EU tariffs are not as big as they were in case of China tariffs (read: 10 ETF Areas to Gain as Trump Delays Additional Tariffs).

The United States has already imposed tariffs on European steel and aluminum exports and is also weighing the options of levying tariffs of up to 25% on European vehicle imports.

The new list would consider $11 billion of import of products including airplanes, cheese, fish, fruits, wine, nonalcoholic beer, clothing, nails, pipes and clocks. Market watchers are of the opinion that the European Union and China may form a pact in the coming days and open up their markets for each other amid trade tensions with the United States.

Against this backdrop, we highlight a few stocks and ETFs that could be at a loss amid US-EU’s likely trade war.

Airbus

Shares of planemaker Airbus dropped 2.5% following proposed tariffs by the United States. Airbus indicated that the U.S. tariff threat was “totally unjustified” and that it resorted to “all necessary measures” to obey the WTO ruling regarding illegal aid.

Investors should note that iShares MSCI France ETF EWQ invests about 5% of its total assets in Airbus. Airbus suppliers such as Safran (PA:SAF), Leonardo and Dassault lost between 0.7% and 1.2% (read: Eurozone Slows Down in Q2, Puts These Country ETFs in Focus).

Wine

Since wine falls prey to proposed U.S. tariffs, stocks like Diageo (LON:DGE) plc (NYSE:DEO) and Heineken NV (OTC:HEINY) may come under pressure. Diageo — a British multinational alcoholic beverage company — has a portfolio of food and drink brands including Smirnoff, Johnnie Walker, J&B, Gordon's, Malibu, Baileys, Guinness and Tanqueray. And Heineken N.V. is headquartered in Amsterdam, the Netherlands. It offers beer, cider, soft drinks and other beverages.

Europe

Needless to say, most Europe ETFs might feel the pinch. Vanguard FTSE Europe Index Fund ETF Shares VGK thus needs to be closely watched. Spain, in particular, is in a tough spot as it relied on the United States for importing 24,132t of seafood worth $216.6 million last year. So, one should keep an eye on iShares MSCI Spain Capped ETF EWP (read: Eurozone Economy Ailing, ETFs in Good Shape).

Consumer

Since the United States is planning to enact import tariffs on a host of consumer and food products, U.S. consumers might face higher inflation. This could adversely impact staples ETFs like iShares U.S. Consumer Services ETF IYC.

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