Stocks to Gain and Lose from Trump’s Tariff Threats

This approach mirrors President-elect Trump's recent tariff threats toward Canada and Mexico. Both countries quickly announced measures aimed at addressing U.S. concerns, underscoring the influence of Trump's negotiating tactics. Canada, for example, pledged to enhance border security by increasing enforcement measures, deploying more resources, and addressing U.S. concerns about illegal immigration and contraband. Similarly, Mexico tightened its own border controls and reaffirmed commitments to combat drug trafficking and migration issues, signaling a willingness to align with U.S. demands. This swift response highlights Canada and Mexico’s reliance on the U.S. as their largest trading partner. As we mentioned in our note last week, we believe Trump's tariff threats are part of a broader negotiating strategy aimed at securing concessions from trade partners. 

BRICS Nations and the Move Away from the Dollar

The BRICS nations have been exploring alternatives to reduce their reliance on the U.S. dollar in international trade. Initiatives include conducting trade in local currencies and discussions about creating a common BRICS currency. For instance, China has encouraged Middle Eastern suppliers to accept its currency for oil trades, and Russia has required certain countries to settle gas contracts in rubles.  South American nations are exploring the creation of a regional currency, reflecting a broader trend of de-dollarization across emerging markets. 

Impact of Trump's Proposed Tariffs/Negotiation Strategies and Opportunities

• Strengthening of the U.S. Dollar: We believe Trump's threats reflect a high-stakes negotiation strategy aimed at preserving the dominance of the U.S. dollar.
• Impact on Commodities: A stronger dollar typically exerts downward pressure on commodities like oil, gold, and industrial metals since these are priced in dollars globally. 
• Increase in Domestic Manufacturing: Higher tariffs on imports may incentivize domestic industries to ramp up production to fill the void left by pricier foreign goods. 

Sectors Likely to Benefit:

• Import-Dependent Industries: U.S. industries that rely heavily on imports may benefit from a stronger dollar, as it reduces the cost of imported goods and materials. This includes sectors like retail and manufacturing that source components from abroad. Companies like Walmart Inc. (NYSE: WMT) and Target Corp. (NYSE: TGT) import a substantial portion of their merchandise. A stronger dollar reduces the cost of these imports, potentially enhancing profit margins.
• Domestic explorers and miners of EV metals: We believe North American explorers and miners of EV metals (lithium, cobalt, graphite, nickel, and copper) will be increasingly sought after as battery and auto manufacturers seek to diversify their supply chains and reduce dependence on China. Companies under our coverage that we like in this space include Noram Lithium (lithium), DLP Resources (copper), South Star Battery (graphite), Fortune Minerals (cobalt), and Power Nickel (nickel).
• Energy: Oil companies such as Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) conduct transactions primarily in dollars. A stronger dollar will lower operational costs abroad.
• Travel and Tourism: A stronger dollar increases the purchasing power of American tourists abroad, potentially boosting the travel and tourism industry as international travel becomes more affordable for U.S. citizens.

Sectors Likely to Face Challenges:

• Export-Oriented Industries: U.S. companies that depend on exports may face challenges due to a stronger dollar making their products more expensive in foreign markets, potentially reducing competitiveness. Industries such as agriculture and automotive manufacturing could be particularly affected.
• Technology Sector: Many U.S. tech companies generate substantial revenue overseas. A stronger dollar means that profits earned in foreign currencies translate to fewer dollars, potentially impacting earnings. 
• Agriculture: U.S. agricultural products become more expensive for foreign buyers when the dollar is strong, potentially leading to a decrease in exports and affecting farmers' revenues.
• Manufacturing: Firms such as Caterpillar Inc. (CAT) and Deere & Co. (DE) rely heavily on exports. A stronger dollar makes their products more expensive in foreign markets, potentially reducing competitiveness and sales.

Takeaway for Investors: 

President-elect Trump's aggressive tariff strategy aims to deter the BRICS nations from undermining the U.S. dollar's dominance. While this approach may yield short-term negotiating leverage, it risks triggering retaliatory measures and escalating trade tensions, which could disrupt global markets. Investors should monitor these developments closely, as the strengthening of the U.S. dollar and potential shifts in trade dynamics could have far-reaching implications across various sectors.