Promoting Domestic Manufacturing – Who Stands to Benefit?

Donald Trump has won the US presidential election and is all set to make his return to the White House after four years for four more years.

In January next year, as President-elect Trump gets sworn in at his inauguration, he’ll join the office, making him the second president to return to the White House for a second non-consecutive term. And with that, he’ll start delivering on his promises made during his campaign.

On the campaign trail, Trump proposed new ideas, including no tax on tips, ending taxes on Social Security benefits, completely eliminating income taxes, and much more.

He has also shared his plans to build on the Tax Cuts and Jobs Act (TCJA), which he enacted in 2017 and brought changes like lower tax brackets, higher standard deductions, and bigger estate and gift tax exemptions, among others.

Most importantly, increasing tariffs on goods that are imported from other countries is one of the key points of Trump’s vision to grow the US economy, which he claims won’t cost citizens anything.

While Trump insists that tariffs are paid for by foreign countries, it is importers, i.e., American companies, that pay tariffs, and then, they pass those higher costs on to their customers with higher prices. However, tariffs also hurt foreign countries by making their products costlier and, in turn, harder to sell abroad.

Besides punishing foreign countries, tariffs are utilized as a tool to promote domestic manufacturers. However, when they provoke retaliation, as they tend to, the net effect of tariffs has been found to be about zero.

Trump’s belief in tariffs is unaffected, though, which he sees as “the greatest thing ever invented.” And the combination of substantially increasing tariffs on foreign countries and lowering domestic taxes, according to the self-proclaimed “Tariff Man,” will make America a manufacturing powerhouse again.

So, let’s take a look at some prominent tariffs proposed by Trump and companies that may benefit from them!

Universal Tariff (10%-20% on all imports)

To start with, Trump has talked about imposing a 10% to 20% tariff on all imports. Yeah, you read it right! Not selective items but a blanket tariff that applies to all foreign goods that enter the US. For context, the US imported around $3.2 trillion in goods in 2022.

According to the think tank Tax Foundation, a 10% universal tariff would raise an estimated $2 trillion from 2025 through 2034, which would increase to $3.3 trillion if a 20% universal tariff is imposed. However, this would increase taxes on US households by $1,253 and $2,045 on average.

Then there’s the rising prices, as a result of increased costs for companies. As Philip Daniele, CEO of AutoZone, told Wall Street:

“If we get tariffs, we will pass those tariff costs back to the consumer.”

The market has already witnessed this. A study by the University of Chicago noted that during Trump’s first term, when he imposed a 20% tariff on imported washing machines, their cost rose by an average of 12%.

According to a note published by rating agency S&P Global recently, this could add as much as 1.8 percentage points to US inflation, which can cause the inflation to rise again. It could also affect output by one percentage point. However, the agency believes it is unlikely that tariffs would be imposed at such high levels and that they are likely only a starting point for negotiations.

Caterpillar Inc. (CAT -3.59%)

As a leading manufacturer of construction and mining equipment, Caterpillar could gain a competitive edge over foreign competitors facing import tariffs, potentially increasing its market share domestically.

As of writing, CAT shares are trading at $405, up over 38% this year. Under Trump’s presidency, if high tariffs get implemented, the $197 billion market cap Caterpillar can see its stock prices rising further. Currently, it has an EPS (TTM) of 21.56 and a P/E (TTM) of 18.93, while it pays a dividend yield of 1.38%.

For Q3 of 2024, the company reported sales and revenues of $16.1 billion, a decrease of 4% from 3Q23 primarily due to lower sales volume. Its operating profit margin meanwhile was 19.5%, and profit per share was $5.06.

The operating cash flow during this period was $3.6 billion, while Caterpillar ended the quarter with $5.6 billion of enterprise cash. $0.8 billion of cash meanwhile was used to make stock repurchases, and $0.7 billion was paid out in dividends.

For Caterpillar, its extensive range of products and intangible assets works in its favor. The demand for its solar gas turbines could be expected to see increased demand from data centers and a growing focus on achieving climate goals. Demand for capital equipment may also see an increase due to rate cuts as monetary policy easing tends to have a positive impact on end-market spending.

Chinese Imports (60% tariff)

China’s President Xi Jinping congratulated Trump on his victory and urged both nations to find the “right way to get along.” Stable and sustainable US-China relations serve the interests of both countries, said Xi.

This call to “co-exist peacefully” from Xi came as Trump promised to take a strong stance on China that may kick up the US-China trade war another notch upwards. The conflict started when Trump first set tariffs back in 2018, in response to China imposing their own tariffs on American goods like pork and soybeans.

A study by economists at MIT, Harvard, the World Bank, and the University of Zurich concluded that the taxes China implemented in retaliation on US goods had a “negative” impact on employment, particularly on farmers.

A recent study commissioned by the American Soybean Association and the National Corn Growers Association meanwhile noted that new tariffs could cost local corn and soybean farmers “billions of dollars in annual production value.”

This time, Trump has proposed a 60% tariff on goods from China, which is much higher than the 7.5%-25% imposed the last time, in his attempt to gain economic independence from the country. China is the world’s leading exporter of goods, with its 2023 exports valued at almost $3.4 trillion in 2023.

Source: Statista

Interestingly, fashion company Steve Madden (SHOO -2.13%) has already shared plans to cut down on China-made products by as much as 45%.

While China is better prepared this time to handle Trump’s tariffs, Reuters argues that their economy is currently in a “much more vulnerable position” and as such, the East Asian country faces a bigger threat. The factors working against China at this time are the property market crisis, local governments saddled with unsustainable debt, low wages, and high youth unemployment, which are leading to weak domestic demand and deflationary pressures.

It remains to be seen if Trump tariffs are simply a negotiation starter as S&P Global believes or if they’ll lead to yet another trade war between the world’s two largest economies by GDP.

Nucor Corporation (NUE -1.45%)

A major U.S. steel producer, Nucor, could benefit from reduced competition against Chinese steel imports, which can result in higher domestic steel prices and increased demand for its products.

Back in 2018, Trump imposed taxes on imported steel, but it didn’t have much of an effect on NUE shares, which started that year at around $70 and ended at around $50. The performance of the company’s shares was muted the following year as well.

The quantitative easing in the next few years, however, sent its price up. The good thing is if Trump’s tariffs don’t positively impact NUE share prices, then the rate cuts can be expected to help them ascend.

Currently, NUE shares are trading at $161.17, down 7.4% this year. With that, the $38.25 billion market cap company’s EPS (TTM) is 10.38 and a P/E (TTM) of 15.53, while it pays a dividend yield of 1.34%.

For Q3 of 2024, the company reported $7.44 billion in net sales, a decrease of 8% from the previous quarter, while net earnings attributable to Nucor stockholders were almost $250 million. It also noted $83 million in non-cash charges related to the impairment of certain non-current assets in the raw materials and steel products segments. Cash from operations meanwhile came in at over $1.30 billion.

“Nucor’s market leadership, product diversity, and strong balance sheet enable us to provide meaningful returns to shareholders and execute our growth strategy even in the face of market uncertainty.”

– CEO Leon Topalian

Automobiles (100% tariff on foreign-manufactured cars)

Trump is further raising the ante this time by floating the idea of a 100% tariff on automobiles manufactured outside the US. Back in Sept., Trump said that he’d put a 100% tariff on every car that is imported from Mexico and want German car companies to “build their plants” in America.

He then went on to recommend “putting a 200% tariff” on car producers so that “they are unsellable in the United States.”

Interestingly, many automakers are building lower-priced vehicles in Mexico, a move facilitated by a trade agreement that Trump negotiated during his first presidency. The week before the election day, Trump again targeted European car makers, indicating that fresh import tariffs may soon be coming.

“They don’t take our cars. They don’t take our farm products. They sell millions and millions of cars in the United States. No, no, no, they are going to have to pay a big price.”

– President Trump

With the US being the largest export market of Germany, Trump’s statement sent the shares of the European car manufacturers down. BMW CEO Oliver Zipse, however, was unperturbed as he said:

“We have a strong footprint there, which kind of protects us against anything which might happen on the geopolitical side.”

Puma CEO Arne Freundt is also relaxed about potential tariffs, as he said:

“We can shift volumes to other countries swiftly in case tariffs increase in certain countries.”

Besides tariffs, Trump is also planning to eliminate EV incentives like tax breaks and have the EPA revisit its vehicle rules.

Notably, Tesla (TSLA +8.19%) CEO Elon Musk is likely to influence the Trump administration’s approach to the automotive sector, given that the tech billionaire was the president-elect’s most visible and vocal supporter who donated over $100 million to Trump’s re-election campaign. Trump has also offered Musk a role in his administration.

Click here for a list of top EV stocks.

Ford Motor Company (F +0.09%)

As foreign-made vehicles become more expensive under the Trump administration due to tariffs and domestically produced cars become more attractive to consumers, Ford, which has significant manufacturing operations in the US, can potentially see an increase in its sales.

The $43.5 billion market cap company’s shares, as of writing, are trading at $10.91. This year hasn’t really been a positive one for Ford, whose shares dropped over 10%. It has an EPS (TTM) of 0.88, a P/E (TTM) of 12.52, and a dividend yield of 5.47%.

For 3Q24, the automaker announced an increase of 5% in revenue to $46.2 billion, with which CEO Jim Farley wasn’t “satisfied at all.” The net income on an unadjusted basis was $892 million, which was a decline of 24% from a year earlier due to problems with electric vehicles, warranty costs, and other factors.

Ford’s operations in China actually contributed over $600 million to the company’s EBIT. Last month, Fraley said in an interview that he has been driving a Xiaomi EV from its Chinese competitor for the past six months, and he doesn’t want to give it up.

The company reported strong growth in the Ford Blue and Ford Pro divisions, while its EV unit, “Model e,” recorded $1.22 billion in losses during the third quarter, which was less than what Ford lost a year earlier.

Farley has reportedly told employees that the company needs to speed efforts to lower costs and improve quality. Moreover, manager bonuses, which under the new performance system introduced by Farley are directly tied to these metrics, would be slashed to 65%.​​

A positive thing for Ford has been the US National Highway Traffic Safety Administration ending a two-and-a-half-year investigation into the company’s engine failures after it recalled 91,000 vehicles and replaced their engines.

Specific Companies (200% tariff on companies relocating production abroad)

Late in September, Trump said he would impose a whopping 200% tariff on imports on companies moving their manufacturing to other countries. This hefty tax was announced by Trump in response to Deere‘s (DE -4.17%) announcement that it plans to increase its production capacity in the neighboring country.

​​”(Deere) announced a few days ago that they are going to move a lot of their manufacturing business to Mexico. I am just notifying John Deere right now that if you do that, we are putting a 200 percent tariff on everything that you want to sell into the United States.”

– Trump said at an event held on Sept. 23

After Trump’s remarks, John Deere pushed back by saying that it is not moving production to Mexico, but rather “we’ve strategically leveraged our footprint in Mexico for cab production,” which was originally announced two years ago and all set to complete this year.

The company further shared that less than 5% of its US sales are manufactured in Mexico, where the company has had a presence for over seventy years. Meanwhile, more than 75% of all US sales are from domestic manufacturing facilities. In the US, the weakening farm economy this year has led to many layoffs at Deere.

Deere & Company (DE -4.17%)

While it was Deere’s plan to move some of its production overseas that had Trump raising the tariff rates even higher, it really won’t have to worry about tariffs given that it is not moving its operations out of the country.

Moreover, the company maintains substantial manufacturing operations in the US, meaning that if its competitors face steep tariffs for moving production overseas, it can actually strengthen its position in the agricultural equipment market. As local demand rises due to high prices for foreign equipment, the company stands to benefit.

The $109 billion company’s shares, at the time of writing, have been trading at $399, up 2.82% year-to-date (YTD). Deere has an EPS (TTM) of 29.31, a P/E (TTM) of 13.64, and a dividend yield of 1.47%.

For 3Q24, the company reported net income of $1.734 billion, a significant decline from the same quarter last year when net income was $2.978 billion. Its global net sales and revenue meanwhile dropped 17% to $13.152 billion, and net income for fiscal 2024 is forecasted to be $7 billion.

These results, as per CEO and chairman John C. May, showcase the company’s “disciplined execution in the face of challenging conditions in the global agricultural and construction sectors.” He further noted that Deere took “difficult” decisions of reducing costs in response to weak market conditions.

Conclusion

As we saw last time under the Trump presidency and as promised by him numerous times already, tariffs are a key part of Trump’s economic agenda. While the extent of tariffs might not be as aggressive as Trump stated on his campaign trail, it should be expected that tariffs are coming.

Studies have shown that tariffs usually end up having a net zero impact on strengthening the job market. While one particular industry may get benefits, retaliation from target countries affects others.

This means there will be some winners and some losers in the stock market. So, as Trump vows to put “America first” and achieve success together, investors must make sure that they are positioned on the winning side over the next four years and make the most of what’s to come!

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