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

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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. 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 HRL (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 (FXG - Free Report) , VanEck Vectors Agribusiness ETF MOO and PowerShares Dynamic Food and Beverage (PBJ - Free Report) and S&P 500 Equal Weight Consumer Staples Portfolio (RHS - Free Report) 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 - Free Report) 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 (BA - Free Report) (down 1.7%) and Lockheed Martin (LMT - Free Report) (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 (ITA - Free Report) and SPDR S&P Aerospace & Defense ETF (XAR - Free Report)  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 HSY (down 1.7%) and Mondelez International Inc. MDLZ (down 0.9%).

Beer

Imported aluminum is used to make beer cans. Companies like Molson Coors Brewing Company (TAP - Free Report) (down 1.1%) and Constellation Brands Inc. STZ) (down 0.8%) may face the rising cost issue. At the same time, the announcement puts Spirited Funds/ETFMG Whiskey & Spirits ETF (WSKY - Free Report)  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 - Free Report) in an edgy spot (read: U.S. Auto Tariff Risk Put These ETFs and Stocks in Focus).

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