You’ve got to give it to Trump.
He’s a tough negotiator… and not afraid to deliver on his threats.
It takes a lot of courage to walk away from high-level negotiations the way he has done almost nonchalantly. I’d say the Chinese weren’t expecting that. Not when the talks were going well. Trump is definitely not your run-of-the-mill politician.
So here we are.
Just two weeks ago, the U.S.-China trade dispute seemed almost resolved… and, now, the tariffs are higher than ever.
Sure, the talks are resuming. But how far the two negotiating teams are from resolving the key issues, no one knows but them.
Meantime, the global economy suffers.
Days when all stocks moved in the same direction are over. Most investors are now so confused about what to buy that they prefer to stay out of the market.
Don’t be one of them.
The tariffs are not affecting every stock in the market. Seventy-percent of the revenues U.S. companies earn are domestic. So, in fact, only a handful of industries are suffering from the additional trade tariffs.
These are the ones you should avoid.
Not All Technology Stocks Are A Buy
The first one on the list of stocks you should not own or buy in the wake of new China tariffs is semiconductor companies. This is one sector that relies on Chinese revenues more than any other.
The United States is the de facto leader in this space. IT manufacturers around the globe use their chips… and no market is bigger than the one in China. Companies like Broadcom, Qualcomm, and Micron Technology, for example, earn more than half of their revenues there.
In addition, many U.S. hardware manufacturers have production facilities in China. Their profit margins will decrease significantly as a result of the tariffs. I am talking about companies such as Hewlett¨-Packard, Western Digital, and Amphenol.
More Pain Ahead For U.S. Soy Farmers
I am sure you’ve heard Trump’s latest promise.
He’s going to save the world by buying U.S. farm produce and shipping it to Africa to feed that continent’s poor. This is one of the most ludicrous ideas I’ve ever heard. How, exactly, would that work?
China knows that Trump is hurt more by agriculture tariffs than he is by any others. And, now that they’ve established a new soy supply from Brazil, there’s no need for them to switch back to U.S.-grown soy.
You can be sure that, with every escalation of this trade war from here China will target the agriculture sector. This is not the time to own Deere & Company, Bunge Limited, or Bayer.
When Global Growth Slows Down, These Two Sectors Follow
Finally, you want to avoid companies dependent on global economic growth for their revenues. I’m speaking of industrials and materials.
These two sectors behave very similarly, as they are key components in the manufacture and distribution of goods.
Industrials are companies that offer industrial and commercial equipment, transportation, and distribution services. While the materials sector is involved in the discovery, development, and processing of raw materials.
When the global economy slows, consumers buy fewer products. Consequently, fewer goods move around, production quotas decrease, along with the demand for raw materials.
In such times, it’s best to avoid companies like Eastman Chemical, 3M, and Boeing.