Whose Ox?

Barack Obama frequently espoused the sentiment that “elections have consequences” during his 2008 campaign and subsequently. The world is adjusting to the realities and priorities of the second Trump administration, so to borrow Obama’s phrasing, “trade wars have consequences.”

Finance

Investors are concerned that trade wars and mass deportations will raise consumer prices, accelerating inflation.

Since dipping to 2.4% in September, prices have again been rising at a 3% annual rate and are likely to continue rising. Economists also worry that mass deportations will tighten the labor market, leading to wage inflation.

Tariffs are also likely to squeeze margins, and if the Fed raises rates too high, a recession will result.

Since its third rate cut of the year on December 18, the Fed has been on hold, awaiting more data on prices and the labor market. With only minor signs of a weakening labor market and inflation accelerating, the FOMC will find it difficult to cut rates further despite President Trump’s pleas. Note how closely recessions have tended to follow peaks in the Fed Funds rate.

The equities of companies with the most significant exposure to tariffs have lagged the broader market since the Inauguration.

Here are ten large-cap companies vulnerable to increased Trump tariffs due to their heavy reliance on global supply chains, imported raw materials, or overseas manufacturing. The actual will differ because each company’s ability to pass on cost increases or shift sourcing varies.

1. Apple Inc. (AAPL): Since a large share of its components and assembly come from China, rising tariffs will increase production costs.
2. Boeing Co. (BA): It relies on imported raw materials, especially aluminum, and complex global supply chains so that tariffs will hurt its margins.
3. General Motors (GM): Heavy exposure to steel, aluminum, and imported auto parts tariffs will reduce profitability.
4. Ford Motor Co. (F): Like GM, Ford’s reliance on overseas sourced-materials makes it vulnerable to increased input costs.
5. Caterpillar Inc. (CAT): As a heavy machinery maker that sources many components internationally, tariffs may raise costs and disrupt operations.
6. Nike Inc. (NKE): With nearly all of its manufacturing overseas, it faces rising production costs.
7. Intel Corporation (INTC): Its semiconductor supply chain has significant international components.
8. 3M Company (MMM) uses a wide range of imported inputs to produce its diversified product line.
9. Procter & Gamble (PG): Global packaging and materials sourcing makes it vulnerable to tariff hikes.
10. Walmart Inc. (WMT): Estimates suggest that roughly 80% of the non-food merchandise sold is imported, and the company is sensitive to cost increases along its supply chain.

Most of these stocks have been unable to keep up with the S&P500’s 2.5% gain since the beginning of the year. Intel is a special case as two competitors, Taiwan Semiconductor and Broadcom, weigh independent deals that could split up the embattled chipmaker. 3M is rising after beating 4Q24 estimates and speculation that the company has a jump on competitors as it integrates AI in its product development and other divisions.

Administration Actions

Since taking office last month, the administration has:

• Imposed and then withdrew tariffs on imports from Columbia.
• Imposed and then delayed 25% tariffs on imports from Canada and Mexico.
• Imposed 10% tariffs on imports from China, characterizing them as an “opening salvo.”
• Eliminated “de minimis” duty-free treatment of goods valued less than $800 and later reinstated it.
• Announced its intention to impose reciprocal tariffs on goods imported from countries that tax US exports, upending eight decades of US trade policy and the global trading system.

What's Next?

Predicting the future is risky, and the White House is clearly in charge without effective opposition. Please share your thoughts on what’s coming next on the trade front in the comments.