U.S. President Trump-imposed tariffs worth $34 billion on Chinese goods were implemented on Jul 6, thereby aggravating the already tensed trade situation between the two largest nations. This is the first time that the United States has officially imposed tariffs targeting Chinese imports, following months of verbal accusations that cheap Chinese imports are unfairly swelling America’s trade deficit.
Adding to the woes of global trade, the China’s Ministry of Commerce announced tariffs of equal size on certain American goods that China imports.
What’s in the Tariff?
The tariff imposition that triggered a full-blown trade conflict between America and China involves the imposition of 25% duties on imports of Chinese products, ranging from farming plows to semiconductors, heavy machinery and airplane parts.
According to major media sources, the Trump administration is preparing to hit China with another $16 billion worth of import duties. This additional tariff is expected to be in effect in another two weeks’ time. Trump further suggested that America may eventually impose a tariff worth $500 billion, a figure that will exceed China’s annual goods exports to the United States.
Such higher import duties will impact U.S. manufacturing industries that rely on cheap Chinese raw materials and in turn will weigh on their revenue growth.
How Will Aerospace Stocks be Affected?
Heavy equipment manufacturers like airplane makers, as well as companies involved in global aerospace supply chain are at the highest risk. Anticipating a significant impact of the recently imposed tariffs on these corporations, investors became skeptical about the stocks’ stability, as evident from the sudden downfall in their share prices.
Moreover, in March 2018, Trump announced tariffs of 25% and 10% on imported steel and aluminum, respectively, from China. While the announcement came with the objective of protecting domestic steel and aluminum industry by increasing production and job creation, the decision does not bode well for heavy duty manufacturers as they will now have to use costlier U.S. origin raw materials.
The latest tariff imposition has added to the woes of the U.S. manufacturers, including Aerospace stocks that export their end products to China and generate a substantial amount of revenues from there. Moreover, China’s imposition of tariff will impede U.S.’ exports to China.
Stocks in Focus
Herein, we have zeroed in on three stocks from the Zacks Aerospace sector that have been suffering a price fall since Jun 1 when the steel and aluminum tariff took effect.
However, the fact that these stocks carry a Zacks Rank #2 (Buy) or #3 (Hold) and have a few metrics going in their favor, one should keep a close eye on them and not entirely nullify them as investment options. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Boeing Company (BA - Free Report) : It is a premier jet aircraft manufacturer and one of the largest defense contractors in the United States.Last year, Boeing earned 13% of its revenues from China. Moreover, the company entered into a deal with a state-run Chinese company to sell 300 planes for $37 billion.
Surely the latest tariffs dealt a blow to this aerospace giant’s bright growth prospects in the Chinese province. As a result, the company’s share price has dropped 6.1% since Jun 1.
However, Boeing carries a favorable Zacks Rank #2. Moreover, the company surpassed the Zacks Consensus Estimate for earnings in the trailing four quarters by an average of 29.51%. Further, given the fact that the United States remains its major playground while emerging nations like India are increasingly adopting its jets, Boeing should be able to carry on with its growth trajectory.
Wesco Aircraft Holdings, Inc. (WAIR - Free Report) : It distributes and provides supply chain management services to the global aerospace industry. Last year, the company earned 35% of its revenues from overseas, with a substantial amount coming from China.
Its share price has dropped 4.7% since Jun 1.
However, Wesco Aircraft carries a favorable Zacks Rank #2 and surpassed the Zacks Consensus Estimate for earnings in the last reported quarter by 29.41%. Further, the fact that the United States remains its major playground, the company should be able to maintain its growth trajectory.
Curtiss-Wright Corporation (CW - Free Report) : It is a diversified multinational company that designs, manufactures and overhauls precision components, such as commercial aerospace and defense electronics as well as nuclear reactor coolant pumps. The company plays a key role in the Chinese expansion of nuclear power plants.
Its share price has declined 7.6% since Jun 1.
However, Curtiss-Wright carries a favorable Zacks Rank #3 and surpassed the Zacks Consensus Estimate for earnings in the trailing four quarters by an average of 16.23%. Since the United States remains its major playground and it operates in Europe too, it should be able to carry on the growth momentum.
If Trump imposes a total tariff worth $500 billion on Chinese imports, a disproportionate trade imbalance will take place across the globe. China has also threatened to increase its tariff on American goods. However, the fact that the nation only has $139 billion worth of American goods in reciprocal tariff might be a breather for U.S.-based exporters. Nevertheless, many analysts fear that to get back at America, China may impose non-tariff trade barriers that would keep major tech companies such as Google and Facebook out of the huge Chinese market. Meanwhile, European nations have started to express their disagreement against such drastic tariff imposition by the U.S. Chief-of-Command, hinting at a possible retaliation.
Considering the aforementioned discussion, investors might get skeptical about the stability of Aerospace stocks with operations in China. While their inherent strength and the fact that China is not their major operational ground should keep them out of harm’s way for now, going ahead, such back-to-back tariffs may jeopardize growth of Aerospace stocks and the global equity market.
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