Financial Voice

Alpesh Patel Tuesday 13th March 2018 12:13 EDT

Dear Financial Voice Reader,

Which stock that may be affected by the impending tariff war?

Just a few days ago, Trump signed the deal on tariffs. More specifically, a tariff on aluminum and steel imports that will take effect soon in full force. This move has brought caused people to speculate on a possible trade war. For us traders, it begs the same questions traders always ask, ‘what does this mean for me?’

However, before going any further, let us first start by defining tariffs. According to CNN, a tariff is a form of taxes imposed on a category of imported goods. This then causes the particular goods or products to be more expensive. In turn, this should benefit the manufacturers of the product.

This then begs the question, what prompted such a move from President Trump? His move was prompted by the need to revive two industries in the U.S: The aluminum and steel industry. These particular industries have been performing poorly in terms of employment rate and so forth .

The tariff that President Trump is imposing is a 10% tariff on the aluminum imports. Whereas, he is imposing a 25% tariff on steel tariff imports. This move, of course, was much anticipated after President Trump assumed office. Nonetheless, experts foresee a possible trade war, perhaps even a global one.

Why so? It is very likely that the country affected will retaliate as well. Of course, the retaliation will be in the form of tariffs of their own. This would not only hurt the country's economy, it would affect stock markets as well.

Of course, they are a lot of theories on this matter. Stock markets are likely looking at a negative future due to impending trade wars. Which stock markets, specifically, are going to be affected by this move?

It goes without saying that the Tech market is definitely not directly affected, but tech stocks could be the subject of, say, Chinese retaliation. However, steel companies are affected, and not in a positive way.

Since the announcement, certain companies such as Steel Dynamics (STLD) experience a drop in stocks. The S&P 500 experienced a decrease as well. More specifically, a 1% decrease.

The copper and aluminum industry seems to have also been affected. In recent news, they have experienced a drop by 1%. Most experts expect the drop to increase if, in fact, a trade war breaks out.

Treasuries are also said to have increased considerably. Moreover, most investors expect inflation to increase rapidly, as a result of looming trade wars.

Back to America’s strong global brand in the corporate world - when I look at Tech stocks over the past 2 weeks on, I find it difficult to see much impact as a cause of anything to do with tariffs.

So you are left with the conclusion as ever in the markets to ask the question: ‘is the market underpricing, or correctly pricing, the news?’

Personally, as I said on the BBC – the market is correctly pricing the threat – and that is not something which will happen in any meaningful, significant way.

Alpesh B Patel

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