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Tit-For-Tat Tariffs Hurting U.S. Automakers: ETF in Focus
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The global auto-giants have invested more than $75 billion in the United States and their operations provide livelihood to about 130,000 Americans. But trade tensions may force these companies to reevaluate their strategies related to the United States (see:all Consumer Discretionary ETFs here).
The Commerce Department said that trade gap widened for a second-consecutive month to reach $50.1 billion. The data for June was revised, indicating the deficit has risen to $45.7 billion. The trade deficit with China increased by 10% to a record level of $36.8 billion.
Harley Davidson has shifted its production of Europe bound motorcycles from the United States to escape the additional $2200 tariffs imposed by the European Union (EU). Other examples are Tesla (TSLA - Free Report) and Ford Motors (F - Free Report) , which have taken steps to reduce the burden of tariffs imposed on their products imported into China. In August, Morgan Stanley reduced the price target and EPS estimates for General Motors (GM - Free Report) because of the slowdown in China’s markets. Ford publicly announced its decision to avoid the American market for its small China-made vehicle Focus Active, which could have served as a niche vehicle for U.S market.
U.S. automakers in China are severely affected by the trade war between these two countries.
Per a survey released last week by the American Chamber of Commerce in Shanghai and Beijing-based American Chamber of Commerce in China, the U.S. automakers in China have borne the brunt of tit-for-tat tariffs. The initial round of tariffs of $50 billion has affected 80.5% of respondents belonging to automotive industry while Chinese tariffs affected 75% of them (read: U.S.-Mexico Trade Deal to Revamp NAFTA: ETF Winners).
Among the three to four industries that are affected by tariffs on both sides, auto is one.
Overall, 60% or more respondents were affected by the tariffs form both sides and dread the effects from another round of duties. Recently, the U.S. government has proposed duties on Chinese goods worth $200 billion. China will counter this move with tariffs valuing $60 billion of American goods.
U.S. companies that have supply chains running through China or that conduct a significant part of their operations there face “dual headwinds” from trade tensions, said Hannah Anderson, a global market strategist at J.P. Morgan Asset Management. Such challenges “are especially strong for companies that engage in a high degree of specialization and invest significantly for innovation.”
Nearly 60% of the respondents reported that their cost of sales was increasing. About half of the survey group is thinking of relocating their operations outside of China and the United States.
Nearly a quarter of companies are shifting their manufacturing base from China to Southeast Asia.
The tariffs on imported steel were already affecting the bottom lines of these companies and the top lines are also getting affected with 77% workers driving themselves to work, below 85% in 2007 per Wolf Ritcher. “At this rate, the percentage might drop to something like 69% over the next decade.”
However, demand for comfortable SUVs and pickup trucks are increasing with the aid of tax-cuts. Fuel-efficiency and technologically rich vehicles could be the major drivers going forward.
Trade tensions have affected the performance of this sector majorly and the struggle may continue in the near future as the trade war is heating up once again. This puts the spotlight on the solo ETF for the auto space:
First Trust NASDAQ Global Auto Index Fund (CARZ - Free Report)
It tracks the NASDAQ OMX Global Auto Index. There are 36 holdings in the basket of the fund with Toyota Motor Corp (TM - Free Report) occupying the top weight with 8.53%. Japan, the United States and Germany are major countries in focus with a double-digit weight of 35.2%, 23.3% and 20.4%, respectively. The fund has a low-average traded volume of nearly 12000 shares and has returned nearly 13.3% over the past six months. AUM is $17.9 million and the expense ratio is 0.70%. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
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Tit-For-Tat Tariffs Hurting U.S. Automakers: ETF in Focus
The global auto-giants have invested more than $75 billion in the United States and their operations provide livelihood to about 130,000 Americans. But trade tensions may force these companies to reevaluate their strategies related to the United States (see:all Consumer Discretionary ETFs here).
One of President Trump’s goals was to bring down the large trade deficit. The figures report otherwise as trade deficit increased to a five-month high in July, marking the worst in a month since 2015.
The Commerce Department said that trade gap widened for a second-consecutive month to reach $50.1 billion. The data for June was revised, indicating the deficit has risen to $45.7 billion. The trade deficit with China increased by 10% to a record level of $36.8 billion.
Harley Davidson has shifted its production of Europe bound motorcycles from the United States to escape the additional $2200 tariffs imposed by the European Union (EU). Other examples are Tesla (TSLA - Free Report) and Ford Motors (F - Free Report) , which have taken steps to reduce the burden of tariffs imposed on their products imported into China. In August, Morgan Stanley reduced the price target and EPS estimates for General Motors (GM - Free Report) because of the slowdown in China’s markets. Ford publicly announced its decision to avoid the American market for its small China-made vehicle Focus Active, which could have served as a niche vehicle for U.S market.
U.S. automakers in China are severely affected by the trade war between these two countries.
Per a survey released last week by the American Chamber of Commerce in Shanghai and Beijing-based American Chamber of Commerce in China, the U.S. automakers in China have borne the brunt of tit-for-tat tariffs. The initial round of tariffs of $50 billion has affected 80.5% of respondents belonging to automotive industry while Chinese tariffs affected 75% of them (read: U.S.-Mexico Trade Deal to Revamp NAFTA: ETF Winners).
Among the three to four industries that are affected by tariffs on both sides, auto is one.
Overall, 60% or more respondents were affected by the tariffs form both sides and dread the effects from another round of duties. Recently, the U.S. government has proposed duties on Chinese goods worth $200 billion. China will counter this move with tariffs valuing $60 billion of American goods.
U.S. companies that have supply chains running through China or that conduct a significant part of their operations there face “dual headwinds” from trade tensions, said Hannah Anderson, a global market strategist at J.P. Morgan Asset Management. Such challenges “are especially strong for companies that engage in a high degree of specialization and invest significantly for innovation.”
Nearly 60% of the respondents reported that their cost of sales was increasing. About half of the survey group is thinking of relocating their operations outside of China and the United States.
Nearly a quarter of companies are shifting their manufacturing base from China to Southeast Asia.
Auto sales declined by 0.8% in August.
The rate hikes from the Fed has also increased the cost of financing vehicles and such costs will continue to increase with a couple rate hikes due for the year (read: September Rate Hike Odds Rise: Top Sector ETF & Stock Picks).
The tariffs on imported steel were already affecting the bottom lines of these companies and the top lines are also getting affected with 77% workers driving themselves to work, below 85% in 2007 per Wolf Ritcher. “At this rate, the percentage might drop to something like 69% over the next decade.”
However, demand for comfortable SUVs and pickup trucks are increasing with the aid of tax-cuts. Fuel-efficiency and technologically rich vehicles could be the major drivers going forward.
Trade tensions have affected the performance of this sector majorly and the struggle may continue in the near future as the trade war is heating up once again. This puts the spotlight on the solo ETF for the auto space:
First Trust NASDAQ Global Auto Index Fund (CARZ - Free Report)
It tracks the NASDAQ OMX Global Auto Index. There are 36 holdings in the basket of the fund with Toyota Motor Corp (TM - Free Report) occupying the top weight with 8.53%. Japan, the United States and Germany are major countries in focus with a double-digit weight of 35.2%, 23.3% and 20.4%, respectively. The fund has a low-average traded volume of nearly 12000 shares and has returned nearly 13.3% over the past six months. AUM is $17.9 million and the expense ratio is 0.70%. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
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 >>