Ongoing trade war tensions between the U.S. and China, have strained industries with reliance on foreign business, leaving investors to speculate total long-term economic impact as negotiation attempts continue to fall apart.
In China, economic slowdown is already immanent. In 2018, China’s economy grew ~6.6 percent -- the slowest rate it’s seen in nearly 30 years. In March 2019, China further lowered its GDP growth target to ~6-6.5 percent. Several months later, China began exploring options to help spark economic growth.
Conversely, United States Q1 GDP growth rested at ~3.2 percent, beating expectations that hovered around the 2 percent mark, despite ongoing speculation and market uncertainty, with some firms projecting weaker growth into the second half of the year. As of March 2019, the trade U.S. trade deficit hovered at $50 billion.
The potential impact of global economic slowdown is shaping financial conversation across sectors while companies brace for policy change and potential challenges. AlphaSense trends data shows an increase in mentions of “economic slowdown” steadily pick up into 2019, as different industries begin to feel the ripple effects of new tariff policies set the year prior.
A closer look at Earnings transcript data over the last six months reveals where these conversations are happening most. For this article, we’re going to look at three industries that have been thrust into the spotlight recently: auto, retail, and oil & gas.
In May, the Trump administration decided to place a 6-month delay on deciding whether to place tariffs on auto parts. But for the automotive industry, fluctuations in demand and production coupled with economic slowdown has a ripple effect outside of U.S.-China, and into the European Union, where potential tariffs could impact car manufacturers in countries like Italy and Germany.
“We recognize that the world's political and economic situation surrounding the automotive industry is clearly worse than it was last year. Globally, the trends impacting our industry include the trade friction between the U.S. and China and between the U.S. and Europe as well as a trend of economic slowdown, capital outflows from emerging countries and the currency market fluctuations.” - Mitsubishi, May ‘19 (Log in for full transcript)
Steel tariffs, implemented in 2018 under Section 232, pose a continued threat to automakers production capabilities and budgeting. The Trump administration’s recent decision to lift steel tariffs on Canada and Mexico also poses new speculation on impact for EU manufacturers into 2019.
According to CNBC, China’s retail sales slowed to 7.2 percent in April -- the lowest pace seen since 2003. In the U.S., tariffs pose a threat to store closures and thinning profit margins due to additional tariff-related costs associated with materials, production, and manufacturing. UBS recently projected a potential loss of up to $40 billion in potential sales, and an increase in store closures, which could lead to broader economic repercussions like job loss and more conservative consumer spending.
“We're also continuing in China to diversify the product offers -- offerings as we've talked about to make sure that during the time of the economic slowdown that we have price points that people really are able to be engaged with us.” - Tupperware Brands Corp, ‘19 (Log in for full transcript)
Oil & Gas
Though the oil and gas sector has not been directly hit with tariffs, concerns over economic slowdown and trade war impact on U.S.-China have seeped into Earnings conversations, especially in regard to demand and oil pricing. Steel tariffs have also placed a burden on the sector, which relies on imports for pipe construction. China’s recent threat to cut off rare earths exports, which play a role in refining gasoline, could pose another potential blow to the industry. The U.S. currently relies heavily on China’s dominance in rare earths production.
Now that we are more than one year into the trade war, instances of economic impact are beginning to surface, with effects felt in the U.S, China, and on a larger global scale. Though slowdown is apparent in some cases, shifting markets and strategy also pose potential upside as countries move resources into new territories, over time. Understanding these shifts and tracking movement can help better predict outcomes and make strategic investments, even in more volatile market climates.