The Winners and Losers of Trump’s Tariff Policies: Which Stocks to Watch

Trump’s campaign pitch for the Presidential Election of 2024 was that his government would impose strict tariffs. Apart from slashing the tax credit rate system, Trump’s other campaign promises are sending a wave of concern over the world.

Donald Trump proposed a universal tariff of 20% tax on all imports from all countries but stated a higher rate of 60% for specific countries like China. Trump’s ultimate focus was to develop the domestic soil by moving manufacturing businesses to the U.S. This has alarmed retailers and a wide range of other businesses. With most of the U.S. companies having their manufacturing units set up in China, they are currently seeking detailed solutions to relocate their supply chains.

However, it will prove to be a costly affair since the companies are looking to change their trading route entirely. This is an extensive process that includes a lot of logistical complexities including effective transport and product quality. Some of the most prominent concerns over Trump’s tariffs include: Where do they go? How do they get the components out of China? How do they get the whole supply chain out?

While Trump’s policies aim to reduce the U.S. trade deficit and bring manufacturing jobs back, they also created a wave of effects across multiple sectors. This resulted in significant wins and losses for various companies. Now, with Trump set to enter the White House, the matter of tariff escalation is becoming a more likely yet dreaded reality for various U.S. companies.

 

What’s the story behind Trump’s Tariff Policies

Trump’s tariff policies primarily target imports from China, covering items from steel and aluminium to a wide range of consumer electronics. These tariffs were intended to protect U.S. industries from foreign competition and encourage producers to choose the U.S. for their manufacturing units. This will significantly improve employment in the country. Additionally, tariffs were imposed on imports from other trading partners like Canada, Mexico, and the European Union, particularly on metals and other essential goods.

Trump’s initiatives primarily focus on bringing back jobs to the country and improving its economy. With that objective, the tariffs on imports have been increased. However, in response, countries like Canada and Mexico retaliated with tariffs on American products. This significantly impacted sectors from agriculture to manufacturing.

 

Winners: Sectors and Stocks Benefiting from Tariffs

When a decision is made, there is a side that gains from its impacts.

Steel and Aluminium Producers

While domestic producers like Nucor Corporation and U.S. Steel may benefit from reduced competition due to tariffs on imported metals, these gains will be underscored by the increased production costs and potential retaliatory tariffs. And as these metals are highly required in this industry, it creates a demand for domestically produced steel and aluminium.

Stocks like Nucor Corporation (NYSE: NUE) and U.S. Steel (NYSE: X) saw gains early in the tariff period as the demand increased. Nucor Corporation saw improved profitability due to higher steel prices. This is because of the increased tariff costs of imported steel. This move ultimately made domestic steel more competitive. U.S. Steel Corporation benefited similarly, although the company faced some challenges from rising production costs.

Industrial and Construction Companies

With higher demand for U.S. steel and aluminium, it is expected that sectors like construction and heavy machinery see an indirect benefit as well. Industries demanding the production of steel and aluminium created a huge impact on the U.S. and the companies in construction utilised this demand.

Companies like Caterpillar Inc. (NYSE: CAT) and Deere & Co. (NYSE: DE) continued to show resilience, benefiting from stronger domestic metal industries. However, increased material costs from retaliatory tariffs created mixed impacts on profitability. A strong domestic metal industry, where steel and other metals are made locally, is good because it can make their products cheaper and easier to get.

However, tariffs, which are taxes on imported goods, could make the metals they need more expensive. So, while they might benefit from a stronger local industry, they could also pay more for the materials they need to build their machines. It’s a bit of a mixed bag, with both good and bad sides.

Defence

As Trump’s government aimed to strengthen American manufacturing for security reasons, these tariffs imposed on goods indirectly supported the U.S. defence sector. U.S. military presence only seems to increase and because of that the country is preparing to strengthen their footprint.

Companies like Lockheed Martin (NYSE: LMT) and Raytheon Technologies (NYSE: RTX) enjoyed strong government support, although they experienced some cost increases due to materials tariffs. Making things on the domestic soil of the U.S. could be good for them, but tariffs could make the materials they need more expensive. So, while focusing on domestic manufacturing might be helpful, it could also lead to higher costs for them. These companies must formulate a way to effectively tackle this situation.

 

Losers: Sectors and Stocks Hurt by Tariffs

This is the other side of the coin where certain sectors took a solid blow because of the tariffs.

Agriculture

As a part of retaliatory measures implemented by China, agriculture became one of the hardest-hit sectors. Trading partners’ ties with China imposed tariffs on U.S. soybeans, corn and other crops in response. This affected the agriculture sector and the companies dependent on food processing. These retaliatory tariffs from trading partners have huge negative impacts on certain industries. Agriculture and food processing are among the most affected industries.

Companies like Archer Daniels Midland (NYSE: ADM) and Bunge Limited (NYSE: BG) faced considerable hits in their production and operations. Farmers faced lower export demand that led to lower prices of crops. U.S. soybean exports to China, the world’s largest importer, plummeted by over 50% during the trade war. This sharp decline directly impacted the profitability of American farmers and the companies that rely on them. Deere & Co. faced indirect effects as well since it supplies farming equipment. And as the revenues of the farmers fell through, the company served to a decreased demand for new machinery.

Automotive

The automotive sector was also hit hard. Tariffs on imported steel and aluminium increased costs for automakers. Some of the major players include Ford Motor (NYSE: F) and General Motors (NYSE: GM), both of which faced higher expenses for raw materials. These companies either were forced to absorb the costs or pass them on to consumers. This caused higher consumer prices and reduced demand. As these companies struggle to acquire the raw materials, their production capacity is reduced which ultimately causes a significant increase in their production costs.

Ford and GM saw increased production costs, suggesting tariffs of approximately $1 billion added to costs annually for each company. The impacts were much larger for companies that produce EVs and other lightweight models. Because materials like aluminium are highly used in EVs, these industries ended up with a significant blow in their profits.

Consumer Electronics and Technology

Consumer electronics companies, especially those relying on Chinese imports, faced substantial challenges as tariffs increased their manufacturing costs. For example, Apple Inc. and other tech giants were pressured to either pass costs on to consumers or absorb them. This will impact consumer loyalty or eat into the company’s profits.

Apple Inc. saw increased iPhone production costs. For instance, a report by Barron estimated that a 60% tariff on Chinese imports could increase the cost of each iPhone by up to $240. This substantial increase would have directly affected Apple’s business and could have forced the company to raise prices or reduce its profit margins. Apple however managed to mitigate the impending impacts by diversifying its manufacturing locations to countries like India and Vietnam.

 

How Tariffs Affect Small Businesses

While large corporations have the flexibility to adapt, small businesses find it more challenging. A very recent example is when Apple Inc., utilised its resources to mitigate the tariffs on materials by shifting its manufacturing units to India. However, small businesses aren’t scalable like the big players are. Companies that relied heavily on imports saw profit margins shrink. These companies do not have the choice of passing the costs to their consumers as their base is not big enough in the country.

And if small businesses allow these costs to eat into their profits, then their growth and efficiency will significantly drop. They might not have the money to find new suppliers or to raise their prices to cover the extra costs. This can make it hard for them to stay in business. Small manufacturing businesses found that they could not easily shift their supply chains or negotiate better terms with suppliers.

 

How’s the Market Sentiment working out?

With Trump’s tariff policies expected to eat into some of the sector’s profits, investors are under heavy concerns regarding the stability of the stocks.

Stocks in protected industries, like steel, may still have room to grow if tariffs continue, but they’re also volatile to policy changes. In contrast, companies in agriculture and technology might face challenges unless tariff relief is provided or new trade deals are negotiated. Reduced tariffs on Chinese goods could help tech and retail, while heavy industry might face stiffer competition.

Tariffs are not permanent. With different governments, trade policies and tariffs are bound to change. Investors should keep an eye on political developments that could influence trade policy, as changes could quickly alter market dynamics.

Tariffs made the companies rethink their current supply chains, resulting in increased domestic production. However, this localization comes with a cost for major players in the industry. Many companies would revert to resourcing materials from other countries if tariffs were removed.

The investor sentiment is still strong. With a strong government like that of Trump, there’s relatively no way to avoid these policies and tariffs. It’s the company’s strategies that ultimately help them mitigate the majority of the issues associated with it. Companies with a loyal investor base will likely see growth despite any fluctuations. However, wavering confidence in a company will be reflected in its performance.

Industries that are protected by tariffs, meaning they’re less affected by foreign competition, might grow. On the other hand, industries that rely on imported goods could face difficulties. As political situations and trade policies change, the market will keep shifting and changing.

 

What Do You Think?

Trump’s tariff policies have created distinct winners and losers in the U.S. economy. This reshaped some industries and impacted global trade. For investors, understanding the details behind the policies is essential. Sectors like steel, agriculture, and technology will respond differently to any changes in trade dynamics. Thus, it is vital to be mindful of these trends.

However, the ultimate decision lies in the hands of the investors. Because, considering their financial goals and risk appetite, it is up to them to understand the market and identify the company that suits their goals. Be it short-term or long-term, the investor’s decision will help them get profits in a short period or sustain growth in a long period.

 

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