Trump’s proposed tariffs could have far-reaching effects.
Everyone knows that elections always have winners and losers. However, the list isn’t limited only to political candidates and their supporters. Stocks can be affected by election results, too.
UBS recently evaluated the potential impact of former President Donald Trump’s proposed tariffs. The investment bank says it expects that U.S. stocks will fall “by around 10%” if Trump is elected and implements his steep across-the-board tariffs.
But some industries could be hit harder than others. Could these three stocks be in trouble if Trump wins in November?
Image source: Official White House photo by Shealah Craighead.
1. Target
Retail was the first sector identified by UBS as potentially experiencing the biggest effect from Trump’s proposed tariffs. Many retailers import a high percentage of the products they sell, and tariffs are basically a sales tax on these products.
Retailers have two options, neither of which is good. They can absorb the higher costs. Or they can pass the higher costs along to their customers, which could cause the customers to reduce their spending.
Target (TGT 0.65%) could especially feel the sting of Trump’s tariffs. The company ranks as one of the largest U.S. retailers. A large portion of the products it sells are imported, and China is its biggest source of merchandise. That’s problematic because Trump has singled out the country for high tariffs of at least 60%.
What might Target do if Trump wins and implements his tariffs? The company stated in its latest 10-K regulatory filing that additional tariffs could cause it to raise prices and/or look for alternative vendors. It added, “Any of these actions could adversely affect our reputation and results of operations.”
Perhaps the greatest concern for Target in a higher-tariff environment is that its customers could decide to shop elsewhere. Some of its competitors, notably including Walmart, already often offer lower prices than Target.
2. General Motors
Auto manufacturing was the second industry singled out by UBS as being especially jeopardized by Trump’s proposed tariffs. Carmakers with operations in Mexico could be hurt more than others because the former president has threatened to impose a 2,000% tariff on vehicles made in the country.
General Motors (GM -1.23%) is one of the Big Three U.S. automakers. Roughly 12% of the company’s long-lived assets (notably including plants and equipment) are in Mexico, the only country that represents more than 10% other than the U.S. The percentage of those long-lived assets in Mexico has increased in recent years.
Could GM shift production to the U.S. to minimize the harm of the tariffs? Yes, but that’s easier said than done. The company would have to spend a lot of money to build new factories in the U.S. This process would also take time.
GM’s other options aren’t great, either. The company could eat the costs associated with higher tariffs, but that could significantly reduce its profit margin of around 6%. It could raise the prices of its vehicles. This alternative, though, could cause customers to hold off on buying new cars and trucks or push them to rivals with lower prices due to having less exposure to Mexico.
3. Intel
Which industries does UBS think will feel the brunt of Trump’s proposed tariffs nearly as much as retailers and automakers? Tech hardware and semiconductors. Intel (INTC 1.52%) could be among the most severely hurt semiconductor makers.
The company acknowledged the risks it faces from tariffs and protectionist trade policies in its 2023 annual report. Intel said that these measures “can increase our manufacturing costs, make our products less competitive, reduce demand for our products, limit our ability to sell to certain customers, limit our ability to procure components or raw materials, or impede or slow the movement of our goods across borders.”
Intel is already struggling. Its revenue fell 14% year over year in 2023. The company’s latest quarterly results were disappointing. It announced the suspension of its dividend along with major cost-cutting initiatives. It can ill afford additional headwinds.
Keith Speights has positions in Target. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool recommends General Motors and Intel and recommends the following options: long January 2025 $25 calls on General Motors and short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.