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Winners and Losers in the U.S.-China Trade War

Lou Carlozo

Buried somewhere in the headlines there remains a matter with much more consequence on the economy and investing: the Trump administration's ongoing U.S.-China trade dispute.

For indeed you can't spell "tariff" without "tiff" and the spat between the two global trade juggernauts could soon bruise everyday American companies -- if that hasn't happened already. If the war drags on, then companies that export soybeans and pork, for example, or import footwear and toys, could see investor confidence sag.

"Chinese tariffs on U.S. agricultural exports have landed a heavy blow on U.S. farmers," says Steven Skancke, chief economic advisor at Keel Point in Vienna, Virginia. "Efforts to mitigate the damage have not been effective and although grain markets are global and mostly fungible, U.S. grain prices have suffered."

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And that could pose a problem for companies such as Canadian Pacific Railway Ltd. (ticker: CP), where grain shipments account for 9% of its loads. So far so good, as the stock is up 27% since Dec. 24 (trading at $290 per share). But grain shipment volumes dropped roughly 5% year-over-year in January, according to a recent Susquehanna Rail Report. So it remains to be seen whether CP's rally will derail.

At the heart of the trade dispute you'll find concerns over U.S. intellectual property and technology. The back and forth has proven acrimonious, with the government cracking down on Huawei Technologies Co., a Chinese telecommunications giant. The Trump administration also went after telecom giant ZTE, which has fallen almost 20% on the over-the-counter market over the last year.

Yet if tariff in either Cantonese or American English translates to "tit for tat," the Chinese set their sights on Micron Technology ( MU), with some apparent degree of success. It's slumped 14% since last April.

"China appears to be using its commercial dispute as a means to force technology transfer and inflict pain on Micron as retribution," says Ed Mermelstein, a real estate attorney and foreign investment adviser based in New York City at One & Only Holdings.

Meanwhile, "In our view, small-cap firms in growth sectors like industrials, technology and consumer discretionary are most vulnerable because their supply chains are most rigid," says Max Gokhman, head of asset allocation at Pacific Life Fund Advisors in Newport Beach, California.

Next on the most vulnerable list are "large multinationals whose revenue is more dependent on open global trade," Gokhman says. That's meant trouble for Caterpillar ( CAT) and United Technologies Corp. ( UTX) due to the steel and aluminum import tariffs last year.

"Ford ( F) has been especially blunt about tying their malaise to the tariffs," Gokhman adds. He notes that the company has complained about American steel as the world's most expensive, "and Chinese sales that dropped more than 40% last September."

This has caused a share price tanking just shy of 40% since April 2018; Ford now trades at about $9.50. This has triggered some speculation that the automaker is seriously undervalued. Surely, no major analyst firms call Ford a "sell" and three label it a "strong buy." But perhaps wary of trade fight escalation, eight signal it as a "hold."

[7 Signs It's Time to Sell an Investment.]

Meanwhile, talk of a new U.S.-China trade deal could end the tariff war. And some market watchers see the trade war as an inevitable win for the U.S., since the Chinese economy cannot afford to shut its own industries out of American import markets for too long.

"We hear of domestic companies like Ford and Harley-Davidson ( HOG) being impacted by the trade war and the financial toll on these firms cannot be discounted," says Kenneth Ameduri, chief editor and co-founder at "But for innumerable Chinese companies, losing the U.S. market is the equivalent of a death sentence."

As for obvious beneficiaries, you could count the steel industry -- thanks to 25% tariffs that kicked off in March 2018 -- but it's complicated. United States Steel Corp. ( X) is still down 55% year-over-year and has been plodding since late December, a time period that has buoyed many other companies. It's off 5% since Dec. 24 to the neighborhood of $16.50 and won't surge soon, based on disappointing profit guidance for the first quarter of 2019. So for uncertain investors, X doesn't mark the spot.

Yet "one can find winners in consumer goods industries that normally benefit from high employment and a pro-growth environment," says Juscelino Colares, a business law professor at Case Western Reserve University. Though tariffs represent "a short-term, occasionally painful strategy, the timing could not be better because the U.S. economy is running hot and some lost demand in China can be made up here."

That's true, but...

"The no-brainer answer is that any company on the tariff list is getting hammered by the tariffs and that goes for both Chinese and American companies," says Stanley Chao managing director of All In Consulting, which assists Western companies in their China business strategies.

As someone with a bird's-eye view of the trade war in real time, Chao rattles off -- and with some resignation -- a list of exported U.S. goods having a tough go of it these days.

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"Many of my consulting clients are unfortunately on the list: Napa Valley wines, Maine lobsters, American furniture importers, and many American industrial companies purchasing equipment made of metal piping, HVAC parts, auto parts, ladders, hammers, etc.," he says, "In some cases, sales to China have dropped by 80% and the reasons are all due to price increases."

It's enough to send a despondent investor over to the nearest bar for a shot of whiskey. Just don't try doing it in downtown Beijing.

"With China's 25% tariff also hitting alcohol companies," Mermelstein says, "the $8.9 million whiskey market -- which has seen a 1,200% increase since 2000 -- will be put to a halt."

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