These American Companies Have the Most to Lose from the China Trade War
The trade skirmish between China and the United States has become a full-blown trade war. The United States has raised tariffs on $200 billion Chinese goods from 10% to 25%. The Trump administration said that it may add another $300 billion of goods to the list. China has responded with its own tariff on as much as $60 billion in annual exports to it from America. Some U.S. companies won’t be directly affected by the decisions because most or all of their business is done in America. For others, China is an absolutely critical market.
One reason China became the world’s second-largest economy was its huge manufacturing sector, which made more and more goods from American companies. These range from products found on the shelves of Walmart to parts in Apple iPhones. In turn, the emerging middle class in China bought goods made in the United States. Among the fears that American companies have is not just that they will suffer from tariffs. Retaliation by the Chinese government could sharply affect their ability to do business there. For companies like General Motors, which counts China as its largest market, the impact could be highly damaging.
24/7 Wall St. looked at some of American’s largest companies based on global revenue. We then looked at exposure, depending on which was applicable, in China based on sales, the presence of retail or factory locations, the percentage of total company revenue from China and companies that the government might retaliate against directly if the trade war escalates. Companies that import goods from China to the United States that they need to build their products were also included.
Walmart, the largest company in America, faces two risks in a trade war with China. The first is that Walmart has 433 retail locations in China, of which 412 are huge supercenters. Any restriction of sales from these locations could batter Walmart’s earnings. The problem is even more serious for goods Walmart imports to sell in its U.S. locations. Walmart management went so far as to send a letter to U.S. Trade Representative Robert Lighthizer last year. In it, the company detailed how badly tariffs would undermine its ability to sell many items for its traditional “everyday low prices.”
GM is usually counted as the largest seller of cars in China, although Volkswagen challenges it some years. Many GM products are sold via joint ventures with local Chinese companies. Total sales across all these operations reached 3.6 million units last year, compared to GM’s U.S. sales of 2.9 million. The Chinese government could disrupt these sales as part of a trade retaliation process. Additionally, Chinese media may cast American cars in a bad light as part of rising tensions between the two nations. That, in turn, could affect sales.
Boeing already has tremendous headaches because of deadly problems with its 737 MAX. Added to that, Boeing may be one of the largest casualties of the U.S. trade war with China. Hu Xijin, editor-in-chief of the Global Times, a medium with ties to the Chinese government, recently tweeted that the country could “reduce Boeing orders” as a means to retaliate against U.S. tariffs. As of the end of 2018, Boeing had delivered 2,000 planes in China, and the company has forecast commercial aviation sales there will accelerate in the next two decades.
Apple’s shares have been badly bloodied recently, down 10% in the past five days, almost exclusively due to China worries. The Guardian reported recently, “According to a report by Morgan Stanley, the new Trump-imposed tariff of 25% on $200bn of Chinese-made goods could add about $160 (£124) to the cost of a Chinese-made iPhone XS, which starts at $999.” Apple also could be subject to retaliation inside China. It ranked fourth among smartphone companies in China based on shipments in the final quarter of 2018 at 12% of the market. That puts it below three China-based companies, Huawei, Oppo and Vivo.
Deere is already a victim of the agriculture portion of the trade war. Its tractors are a staple of farms across the United States. China has set large tariffs on farm items and has stopped importing soybeans. Baird analyst Mig Dobre recently told Barron’s “the recent trade flare-up is likely to further weigh on farmer sentiment, stalling the equipment demand recovery.” Ironically, the White House appears to have a great deal of support from states that depend heavily on their agriculture economies, which, in the end, is not good news for Deere.
On the other hand, some companies may suffer very little, particularly those that trade with the countries that buy the most weapons from the U.S. government.