Who Takes the First Punch? By: Gabriel PotterMBA, AIFA® 2019.05.21

The tariff skirmish between the US and China is well underway, and analysts are not happy about it.  Morgan Stanley’s chief economist, Chetan Ahya, says the 25% tariff over $200 billion of Chinese imports (and additional threats over $325 billion of Chinese goods) could drag the global economy into a recession.  That’s obviously bad, but the damage won’t be spread equally among professions, countries, or sectors.  Doctors, attorneys, and other professional service providers are not going to be directly affected by the tariffs since their jobs don’t depend on cooperative labor processing, cheap raw-materials, or overseas supply chains.  So which businesses are vulnerable?  Here are some industries that are going to be hurt first and hit hardest:

  • Technology:the vast systems which US technology giants, like Apple, that used to mass produce their devices depend on Chinese labor and integrated workflow.So, your next tablet or smartphone could get more expensive after June 1st.As a secondary attack towards Chinese industry, the administration recently blacklisted Huawei, a Chinese telecomm giant, preventing US companies from doing business with them.Huawei had been a $20 billion annual purchasers of computer chips from US manufacturers (e.g. Intel and Qualcomm), so the semiconductor industry has lost value over the past few days.
  • Industrials:China has been practicing fiscal stimulus with huge infrastructure projects including dams, power plants, housing complexes, roads, and air travel. These projects had depended on machines from GE, Boeing and Caterpillar and they’re going to suffer if development slows down or if US imports become more expensive.
  • Apparel:manufacturing clothing and footwear is a capital and labor-intensive endeavor.Even if companies ultimately move out of China, it will take years to build the capacity necessary in alternate countries.Major retailers and manufacturers (like Foot-Locker, Under-Armour, and Nike) have signed an open letter to the administration against the expansion of tariffs because the additional prices are likely to be borne directly by consumers, thus lowering total goods sold, revenue, and profitability.
  • Agriculture:the farmers have already taken a hit.The Chinese retaliatory tariffs were directly targeted towards key demographics in the administration’s power base; previously popular Chinese imports (pork and soybeans) have seen a marked downturn.

 

 

 

 

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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