5 min read
Reactions to Trump’s steel tariffs are all over the map
March 18, 2019
5 min read
Trade topics have been dominating headlines recently. While a certain number of these topics, such as the U.S. relationship with China, might be too opaque, investors and analysts can gather exciting intel about the tariffs already in place, mainly steel tariffs.
The Trump administration initiated the first round of steel tariffs in early March. After this, a volatile discussion ensued about who could or should be exempt and how other countries will respond. Soon, it was clear that tariffs were going to impact many key global economies. For example:
- Canada, the E.U., and China cannot negotiate with the Trump administration.
- According to Reuters, South Korea or Australia could benefit because of exemptions.
To understand who will benefit or not from these policies, I use AlphaSense. It’s an efficient way to double-check a macro thesis or check the micro-level impact on individual companies.
To see a high-level trend chart of the number of mentions of “steel tariffs” across global company filings, company presentations, call transcripts, industry reports, etc. I first run a keyword search in AlphaSense for steel tariffs.
I’ll narrow by geography to refine my results because I’m looking exclusively at U.S.-based companies.
I’ll also refine by type of filing since I am primarily interested in conference call transcripts and press releases, which provide a slightly more granular discussion than the regular 10Qs and 10Ks.
While it is clear that steel producers such as U.S. Steel or Timken will become beneficiaries (both have voiced positive comments about the tariffs), the rest of the players could face an uncertain future, according to several mentions.
The most concerns were voiced by oil & gas companies that use steel to construct wells and pipelines. C&J Energy Services was one such example. According to Forbes, one-quarter of steel pipe and tube purchased by U.S. companies was imported, meaning the effect could be pronounced.
American Railcar Industries, a large manufacturer of hopper and tank railcars, also mentioned its raw materials costs had already gone up, and the company is looking to adjust its supply chain. LCI Industries, an R.V. parts manufacturer, said similar points and concerns about margin pressure.
Interestingly, there could be unforeseen negative impacts as well. A recent example is Brown-Forman, a liquor company (owner of Jack Daniel’s), which mentioned that it is likely to be impacted as Mexico has slapped retaliatory tariffs on American whiskey.
The Federal Reserve Districts also had their say on the tariffs. According to the New York Fed’s Liberty Street Economics blog, it is likely that the policy is going to destroy more jobs than it creates, citing historical examples. In addition, Chicago Fed surveyed the business owners of the area, who voiced similar opinions.
In the U.S., steel producers are likely to generate extra profits. However, the steel tariffs will likely affect the oil & gas business because they rely on imported steel. Other industries could also be impacted because the countries affected by steel tariffs can retaliate. More generally, several companies and institutions have raised doubt about the overall positive effect of the taxes on the U.S. economy.
Now, let’s dig into the reactions from companies outside the U.S.
Using the AlphaSense PDF summary feature, I can quickly pinpoint several interesting comments, such as the following from Triton International, a global lessor of container ships.
Triton International was not alone in questioning how much impact the tariffs would have on the global economy. Seafarms, an Australian agri-company, has also mentioned in their economic outlook that the effect on the global economy should not be outsized. They were joined by the ECB, which is one of its monetary policy updates, noting that the targeted products do not constitute a large part of the U.S. or world trade.
Other players noted that their impact should be limited due to domestically sourced products. This was the case with several companies, including Irish-based Johnson Controls International, a global manufacturer of automotive parts, electronic and HVAC equipment, and Sensata, a British electronic manufacturer or Honeywell Automation, which is listed in India.
Others like the Canadian Linamar Corp., the second-largest automobile parts manufacturer in the country, think they can pass the increased cost onto the customer.
Renold PLC, a British industrial manufacturer, could benefit because U.S. steel manufacturers could increase investment in their infrastructure. The same goes for Advanced Metallurgical Group, which notes that as the U.S. increases its steel production, it will be able to increase its sales of vanadium used in one of the steel alloys.
However, some companies could feel the pressure. For example, ADF Group, a Canadian steel parts manufacturer, said it lost three new projects in the U.S. due to the recent developments.
A Japanese steel producer, Nippon Steel, ended their comments on a more relaxed note. In their recent investor presentation, they mentioned that the price volatility could weaken and demand remains firm because Chinese President Xi maintained he would lower tariffs and push to open the Chinese economy more, which could help the Asian players balance the impact.
Overall, the global players do not see immediate challenges stemming from the policy.
Despite the significant amount of discussion that the Trump administration caused by the tariffs, the actual impact of the policy might be less severe for companies outside of the country due to various factors, such as supply chains or the overall size of the U.S. steel trade.
Tariffs are a complex topic, but with AlphaSense, I reduced my initial research from hours to just minutes. In addition, by searching with just two keywords, I identified players that might have significant exposure to the policy. I can stay on top of what’s happening through my AlphaSense saved search alerts.
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