China Tariffs Incite Fear In Trump Heartland: Stocks In Focus

Trump’s attempt to trim the $100-billion trade deficit with China has sent shock waves across the equity universe, landing the American heartland in murky waters.

Beijing has taken an aggressive stance by slapping up to 25% tariffs over $3-billion U.S. imports in response to the recent steel and aluminum import duties announced by Trump on Mar 23.

Either by chance or by design, China’s retaliatory tariffs target the specialty agricultural products grown by the rural communities that had backed Trump’s victory in the 2016 presidential elections.

Republican-supporting states like Iowa and Illinois, as well as the remaining nation’s bread basket will be in trouble soon if agricultural exports to the key overseas market tumble.

Trump stated that trade disputes are “good” and “easy to win”, while the consensus view of economists believe that “all parties lose”.

The ripple effect of these trade restrictions might hit the U.S. agricultural business, as well as Trump’s supporting force in November mid-term elections.

Beijing Hostile Over Political & Retaliatory Causes

China has often levied tariffs on nations for retaliatory and political interests.

Last year, South Korea was targeted on account of Seoul’s choice to host the U.S. Terminal High Altitude Area Defense missile system, which Beijing deemed to be an insult. In sync with this, the South Korean economy downsized $6.8 billion, on grounds of a tourism boycott from China.

Also, earlier in 2008, Beijing’s nationalists had urged a prohibition against the French supermarket chain — Carrefour (PA:CARR) Group — after Tibetan liberation supporters’ advocates objected the Olympic torch’s course through Paris.

China had also barred banana imports from Philippines due to its territorial disagreements with the latter.

Trump Heartland in Murky Waters

American trade supporters have cautioned that Beijing’s tit-for-tat tariffs will impact large volumes of U.S. agricultural exports grown in the heartland states which had voted for Trump.

China has levied tariffs up to 25% on 128 American goods, majorly including luxury agricultural products such as nuts, dried fruits and ginseng. Other products like pork, scrap aluminum and specialized steel products have also been included in this list.

A 25% charge over pork will heavily weigh over Iowa, producing nearly one-third of the aggregate U.S. pork. This mid-western American state had witnessed strong backing for Republicans in 2016.

Furthermore, almond, nuts, and other dry fruits hit by the tariffs imposed by China are the staple products of California’s Central Valley. Despite California supporting Democrats, farmers of Central Valley had voted for Trump.

The U.S. Department of Agriculture predicts that its farm income this year will slide to the lowest level, since 2006.

Now, it remains to be seen if this downtrend will also impact the President’s support for the upcoming mid-term elections this November.

American Food Industry at Stake

American agriculture is one industry that stands to suffer the most in the ongoing U.S.-China trade war.

Exports have altered the U.S. farm economy in recent decades, as investments on massive livestock operations, high-yield seeds and more resourceful logistics have made American farmers the prime supplier of food stuff globally.

Nevertheless, China is the biggest export market of U.S. agriculture products. Soybean shipments to the nation accounted for more than a third of the aggregate U.S. yield in 2017. This East Asian nation is the largest meat consumer in the world and imported nearly 309,000 metric tons of pork from the United States last year. Beijing is also regarded as the second-best export market for U.S. cotton, after Vietnam.

However, now it is feared that the recently-levied $3-billion tariffs will drag down revenues and profitability of the U.S. agricultural companies.

Notably, per media reports, domestic demand for meat-based products has been gradually declining in the United States. At this stage, trade restrictions in the prime overseas market will possibly become the biggest setback for the American meat-product companies.

Stocks in Focus

We have zeroed in on four U.S. agricultural stocks that investors might want to recall in their watch list. These stocks currently carry a favorable Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold), and have performed better than the Original post

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Written By: Zacks Investment Research