Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Trade War Tensions Flare Up: Must-Watch ETFs & Stocks

Published 06/01/2018, 03:53 AM
Updated 07/09/2023, 06:31 AM

Trade war fears between the United States and its trading partners have been rife since March. Trump’s announcement in early March that the United States will impose a 25% tariff on steel imports and a 10% tariff on aluminum imports first spooked the market.

The situation eased a little when Trump administration granted a temporary relief from tariffs to some of its key allies like European Union, Canada, Mexico, Argentina, Australia, Brazil and South Korea. However, China was not part of that exemption and a tussle over trade with China has been going on since March (read: ETFs to be Impacted by Trump's Tariff Exemptions).

Trump Flip-Flops on Trade

United States and China announced a $50-billion import tariff on each other, only to put the war “on hold” for a while. Then again, at May-end, Washington announced a 25% tariff on $50 billion worth of goods from China and imposed new limits on Chinese investments in the United States (read: Trump, Tariff & Geopolitics Lead May: 10 Top ETF Stories).

Plus, tariffs on metal imports from the EU, Canada and Mexico will be put into effect from Jun 1, as exemption offered earlier in the year lapsed. Needless to say, the United States now needs to be prepared for a chain of tit-for-tat tariffs on a range of products.

Retaliations in Cue

Mexico has already retaliated by levying measures on U.S. farm and industrial products, targeting pork legs, apples, grapes and cheeses. Investors should note that about 22% of U.S. pork is exported out of which Mexico buys the maximum.

Canada plans to slam retaliatory tariffs on $12.8 billion worth of U.S. exports and contest the steel and aluminum tariffs under the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO), per Reuters. The EU is also planning a legal challenge via the WTO.

Against this backdrop, we highlight some industries that could be impacted the most by the tariffs.

Food and Meat Producers

The S&P 500 Packaged Foods and Meats index shed about 2% on the retaliation news, per Reuters. A professor of agricultural economics at Purdue expects this tariff along with supply glut in the meat market to cause average losses for U.S. hog farmers of about $9 per animal in 2018 and $13 in 2019. No wonder, Tyson Foods Inc. (NYSE:TSN) , processor and marketer of chicken, beef, and pork, lost about 4.3% on May 31 on Mexico’s tit-for-tat tariff announcement.

Food and beverage companies like Kraft Heinz Company KHC (down 2.3% on May 31) and Hormel Foods Corporation (NYSE:HRL) (NYSE:HR) (down 3.4% on May 31) also featured in the losers’ list.

Consumer Staples ETFs like First Trust Nasdaq Food & Beverage ETF FTXG, First Trust Consumer Staples AlphaDEX Fund (MU:FXG) , VanEck Vectors Agribusiness ETF (V:MOO) and PowerShares Dynamic Food and Beverage PBJ and S&P 500 Equal Weight Consumer Staples Portfolio (AX:RHS) have exposure to the afore-mentioned companies and could thus be hit hard.

Semiconductor

U.S. chipmakers have the largest sales exposure to China. So, renewed tariff tensions with China could bring back pain in the semiconductor space. iShares PHLX Semiconductor ETF SOXX was down about 0.7% on May 31 (read: 4 Best Performing Sector ETFs of May).

Aerospace

U.S. aerospace industry thrives on steel and aluminum imports to construct aircraft. About 80% of an aircraft is made of aluminum. Companies like Boeing Company (NYSE:BA) (down 1.7%) and Lockheed Martin (NYSE:LMT) (down 1.9%) may come under pressure.

Also, China is a key market for Boeing where it serves as the largest exporter of America. So, any tension with China doesn’t bode well for Boeing. Aerospace and defense ETFs like iShares U.S. Aerospace & Defense ETF (HM:ITA) and SPDR S&P Aerospace & Defense (NYSE:XAR) ETF (LON:XAR) may also feel the pinch.

Candy

Aluminum foils are used to wrap chocolates. So, the tariff could lead to higher input costs for Hershey Company (NYSE:HSY) (down 1.7%) and Mondelez International Inc (NASDAQ:MDLZ). MDLZ (down 0.9%).

Beer

Imported aluminum is used to make beer cans. Companies like Molson Coors Brewing Company (NYSE:TAP) (down 1.1%) and Constellation Brands Inc (NYSE:STZ). STZ) (down 0.8%) may face the rising cost issue. At the same time, the announcement puts Spirited Funds/ETFMG Whiskey & Spirits ETF WSKY in focus.

Auto

Both steel and aluminum are vital to the production of cars and trucks sold in America and would drive the sale prices of those vehicles considerably. Also, the Trump administration has initiated a national security investigation into auto imports. All these put First Trust NASDAQ Global Auto Index Fund CARZ in an edgy spot (read: U.S. Auto Tariff Risk Put These ETFs and Stocks in Focus).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>



The Boeing Company (BA): Free Stock Analysis Report

Lockheed Martin Corporation (LMT): Free Stock Analysis Report

Molson Coors Brewing Company (TAP): Free Stock Analysis Report

ISHARS-PHLX SEM (SOXX): ETF Research Reports

FT-CONSUMR STP (FXG): ETF Research Reports

ISHARS-US AEROS (ITA): ETF Research Reports

GUGG-SP5 EW C S (RHS): ETF Research Reports

PWRSH-DYN FD&BV (PBJ): ETF Research Reports

FT-NDQ GL AUTO (CARZ): ETF Research Reports

SPDR-SP AER&DEF (XAR): ETF Research Reports

ETFMG-WSKY&SPRT (WSKY): ETF Research Reports

ISHARS-US CN CY (IYC): ETF Research Reports

VANECK-AGRIBUS (MOO): ETF Research Reports

Hershey Company (The) (HSY): Free Stock Analysis Report

Tyson Foods, Inc. (TSN): Free Stock Analysis Report

Healthcare Realty Trust Incorporated (HR): Free Stock Analysis Report

Original post

Zacks Investment Research

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.