6 Top US-Focused Stocks To Buy As Trade Tensions Intensify

On May 6, key Trump administration officials raised trade tensions by claiming that China was backtracking from commitments made during the early rounds of negotiations. They indicated that the U.S. President was ready to continue the conflict in order to extract crucial concessions from authorities in Beijing.

Trouble on the trade front was brewing from May 5 when President Trump tweeted that he was preparing to raise tariffs on China. Trump claimed that this had become necessary since Beijing was looking to renege on earlier promises.

Though another round of trade negotiations will still take place this week, it is unlikely that a deal will concluded by May 10 or any time soon. Against this backdrop, investing in U.S.-focused real estate investment trusts (REITs), homebuilders and regional banks looks like a smart option.

Lighthizer, Mnuchin Raise Trade War Pitch

On Monday, U.S. Trade Representative Robert Lighthizer said that trade negotiations were “moving backwards instead of forwards” which was unacceptable according to President Trump. Lighthizer claimed that “an erosion in commitments” was visible on the part of China.

His views were echoed by Treasury Secretary Steven Mnuchin, who claimed that the Trump administration had learnt over the weekend that China was “trying to go back on some of the language” that had been agreed upon during previous rounds of negotiations.

These key members of the Trump administration announced that tariffs on Chinese goods worth $200 billion will be raised from 10% to 25% on May 10. Mnuchin claimed: “There’s no question that some of the trade policies helped in the G.D.P. number,” referring to the strong first-quarter GDP read-out.

Trump Tweets Raise Alarm, Near-Term Deal Unlikely

The ongoing U.S.-China trade conflict had taken a turn for the worse following tweets made by President Trump on Sunday. Accusing China on backtracking from earlier commitments, Trump said tariffs would be raised on $200 billion of the country’s imports on May 10.

Trump also threatened to impose a 25% import duty on $325 billion worth of Chinese goods. The U.S. President claimed that such tariffs “have had little impact on product cost, mostly borne by China.” Trump has been accused of going soft on China and his team seems to think that it is best to raise the protectionist ante ahead of his 2020 reelection bid.

Trump’s tweets have also made a near-term trade agreement politically unviable for China’s government. Sealing a deal ahead of the May 10 deadline would be viewed as an act of capitulation by the Chinese populace. Beijing has also been unwilling to change its state-guided economy drastically even though this has emerged as a key sticking point during negotiations.

Our Choices

Comments from President Trump and key officials from his administration indicate that the United States is prepared to prolong the U.S.-China trade conflict. Their adversarial stance has also made it politically unfeasible for China to agree to a near-term trade deal. It is now amply clear that a trade war which has wrecked multinational stocks, particularly tech and industrials, is far from over.

Investing in stocks of homebuilders, regional banks and REITs with a domestic focus would be prudent in such an environment. They would likely provide better returns compared to their peers with higher overseas exposure. However, picking winning stocks may be difficult.

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Written By: Zacks Investment Research