Here are the US conglomerates that will be hit hardest by Trump escalating the trade war with China

  • President Donald Trump’s tariffs have already had a significant affect on companies operating across several industries.
  • These multi-industry companies will suffer further declines in profitability should the trade war escalate, according to a report from RBC.
  • Visit Markets Insider’s homepage for more stories

The companies that operate across multiple industries are likely to suffer from an escalating trade war.

President Donald Trump on Sunday threatened to raise the tariffs on $US200 billion worth of Chinese goods from 10% to 25%, and slap a fresh 25% tariff on another $US325 billion worth of Chinese goods. The new tariffs are set to go in place on Friday.

In response, China has decided to continue trade talks scheduled for this week in Washington, after previously threatening to cancel them. Stock-market volatility has increased markedly on the news, with the S&P 500 falling sharply at Monday’s open before recovering throughout the day. On Tuesday, the S&P 500 was down more than 1.5% as trade worries persisted.

Multi-industry companies are particularly at risk to new tariffs as many have significant sales exposure to China, according to RBC analyst Deane Dray. These include US conglomerates such as 3M and Honeywell, as well as several other smaller companies.

“We emphasise that most Multi-Industry companies had already conservatively included the List 3 tariff hike in 2019 guidance frameworks,” Dray wrote. “We also have no visibility on the goods that would fall under the newly-revealed $US325 billion bucket,”

She added: “That said, the bottom line is that the deterioration in US-China negotiations threatens to prolong the pain of the global trade war and exacerbate the slowing economic growth across both countries.”

Markets Insider has highlighted companies from RBC’s report below, ranked by sales exposure:


Emerson Electric Co.

Ticker: EMR

2018 China sales exposure: 10%

2018 expected gross tariff headwind as a % of cost of goods sold: 0.3%

2019 share price performance: positive 13%

Market cap: $US41 billion

RBC commentary:

“Sizes $US125 mil of tariff impact in FY2019, up significantly from $US25 mil in FY2018. EMR’s fiscal year starts in Sept, which may elevate its FY2019 tariff impact vs. peers. Aims to pass through price increases to keep price/cost net neutral.”


3M

Ticker: MMM

2018 China sales exposure: 10%

2018 expected gross tariff headwind as a % of cost of goods sold: 0.1%

2019 share price performance: negative 5%

Market cap: $US104 billion

RBC commentary:

“Expects $US100 mil of cost headwinds (or 10-15c of EPS) from tariffs in 2019. However, pricing gains should more than offset cost inflation to keep the price/cost spread positive.”


Gates Industrial

Ticker: GTES

2018 China sales exposure: 9%

2018 expected gross tariff headwind as a % of cost of goods sold: 0.6%

2019 share price performance: positive 18%

Market cap: $US5 billion

RBC commentary:

“Sized total tariff impact at $US10-$US15 mil in 2018. Expects to offset input pressures with pricing and/or productivity given its manufacturing footprint, +60% replacement market focus, and brand strength.”


Idex Corporation

Worldsteel/Getty

Ticker: IEX

2018 China sales exposure: 9%

2018 expected gross tariff headwind as a % of cost of goods sold: 0.6%

2019 share price performance: positive 22%

Market cap: $US12 billion

RBC commentary:

“One of the sector’s ‘Price-Makers’, with positive price-cost YTD; focuses on maintaining its 20-40 bps of pricing net of inflation spread; the company’s pricing actions include a combination of actual price increases and surcharges.”


Danaher Corporation

Ticker: DHR

2018 China sales exposure: 9%

2018 expected gross tariff headwind as a % of cost of goods sold: 0.3%

2019 share price performance: positive 28%

Market cap: $US94 billion

RBC commentary:

“Tariffs expected to be a $US12-$US13 mil per quarter headwind. Four-pronged countermeasures: (1) price increases; (2) changes to supply chain; (3) modifying manufacturing locations; and (4) seeking exemptions for certain products.”


AMETEK Corporation

aviation-images.com/UIG via Getty Images

Ticker: AME

2018 China sales exposure: 9%

2018 expected gross tariff headwind as a % of cost of goods sold: 0.2%

2019 share price performance: positive 27%

Market cap: $US20 billion

RBC commentary:

“Sizes $US125 mil of tariff impact in FY2019, up significantly from $US25 mil in FY2018. EMR’s fiscal year starts in Sept, which may elevate its FY2019 tariff impact vs. peers. Aims to pass through price increases to keep price/cost net neutral.”


Fortive Corp.

Ticker: FTV

2018 China sales exposure: 8%

2018 expected gross tariff headwind as a % of cost of goods sold: 1.6%

2019 share price performance: positive 23%

Market cap: $US28 billion

RBC commentary:

“Section 232 should have a small impact, but Section 301’s focus on electronics will impact Fluke and Tektronix. Fortive’s strong pricing power and global supply chain/manufacturing footprint helps offset any inflationary pressures.”


Graco Inc.

Ticker: GGG

2018 China sales exposure: 8%

2018 expected gross tariff headwind as a % of cost of goods sold: 1.0%

2019 share price performance: positive 22%

Market cap: $US8 billion

RBC commentary:

“Mixed exposure to tariffs; US-centric manufacturing model suggests more products need to cross borders, but Graco’s robust gross margins and pricing power help offset tariff pressures; managed situation in 2018 and expects to pass ~2.0ppts in pricing in 2019.”


Ingersoll-Rand

Ticker: IR

2018 China sales exposure: 7%

2018 expected gross tariff headwind as a % of cost of goods sold: 0.6%

2019 share price performance: positive 34%

Market cap: $US30 billion

RBC commentary:

“Expects gross tariff headwinds to be ~$US70/~$US100 mil in 2018/2019; saw some pause in China Industrial frontlog activity in 3Q18; baking in a jump to 25% tariffs, though does not expect to capture any spread as pricing should adjust.”


Eaton Corp.

Wikimedia Commons

Ticker: ETN

2018 China sales exposure: 7%

2018 expected gross tariff headwind as a % of cost of goods sold: 0.4%

2019 share price performance: positive 17%

Market cap: $US34 billion

RBC commentary:

“Sizes $US65 mil tariff impact for 2018 and expects to offset it with price and cost-out with no negative EPS impact; expects an incremental $US100 mil headwind in 2019; more concentrated in Electrical.”


Honeywell Inc.

Ticker: HON

2018 China sales exposure: 7%

2018 expected gross tariff headwind as a % of cost of goods sold: <0.1%

2019 share price performance: positive 30%

Market cap: $US125 billion

RBC commentary:

“Confident that 2018 tariff impacts should be ‘minor’; coping with direct and indirect pressures through pricing increases (~2/3) and alternative sourcing (~1/3); 2019 headwinds could be ‘hundreds of millions.'”


Johnson Controls

Ticker: JCI

2018 China sales exposure: 6%

2018 expected gross tariff headwind as a % of cost of goods sold: 0.3%

2019 share price performance: positive 34%

Market cap: $US35 billion

RBC commentary:

“Assumes full impact of Section 232 and 301 tariffs, which will present a $US130-$US140 mil cost headwind, split roughly evenly between FY2018 and FY2019. Expects to maintain positive price/cost spread in FY2019.”


Dover Corp.

Dmitry Kalinovsky/Shutterstock

Ticker: DOV

2018China sales exposure: 6%

2018 expected gross tariff headwind as a % of cost of goods sold: 0.2%

2019 share price performance: positive 37%

Market cap: $US14 billion

RBC commentary:

Sized a $US55 mil commodity headwind for 2018 (-6% EPS headwind) including a minor contribution from tariffs; evaluating potential alternative sourcing.


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