Key American industries, including apparel, technology and manufacturing, could emerge as the biggest losers from new tariffs on Chinese goods, according to Wells Fargo.
In a research note this week, the bank cited leather, computers, machinery and textile as among the most vulnerable as the U.S. and China continue to drag out bilateral trade negotiations.
Several industry organizations have already sounded warnings on how tariffs will impact business, while retail behemoth Walmart (WMT) has warned that the extra costs would likely be passed on to consumers.
All of the industries cited by Wells Fargo rely significantly on imports, and have a significant share of Chinese imports, according to the report.
“American producers of import-competing goods could realize a bump in profits, at least in the near term, if tariffs push up their selling prices,” Wells Fargo’s analysts said in the report.
“However, any such boost likely would not fully offset losses among other firms due to higher input costs and slower economic growth,” they added.
U.S. consumers can expect higher prices on goods in these industries as escalation in the trade war between Beijing and Washington has increased the tariff rate to 25 percent on around $200 billion U.S. imports from China.
About 45 percent of goods produced in China are now subject to the 25 percent rate, up from the $50 billion tariff that was imposed last summer which affected about 8 percent of imports from China.
The trade war could lead U.S. companies in the industries most affected to raise their own prices, thereby bumping their profits. However, Wells Fargo believes that ultimately growth will slow — and producers and consumers will be negatively affected by the tariffs.
“There is potential for U.S. producers of goods exposed to tariffs to see stronger profit growth as less foreign competition allows these firms to increase prices and/or gain market share,” the bank wrote.
“However, we suspect a weakening in demand associated with higher prices and widening net of industries exposed to tariffs will more than offset any gain in profits for U.S.-based producers,” it added.
Tariffs currently in place will significantly affect growth industries such as computer and electronics manufacturing, which is the second hardest hit after leather manufacturers.
What Wells Fargo and other Wall Street analysts are fretting, however is an all-out trade war. Under that scenario, a 25 percent tariff would be imposed on all imports to the United States from China.
Analysts believe the possibility of a bilateral trade war, while still relatively low, is increasing. These potential tariffs would hit the apparel and toy manufacturing sectors of the economy hard, as both are “highly exposed” to new tariffs.
While immediate uncertainty lies in the leather and computer and electronics industries, fears extend beyond those sectors of the U.S. economy for Wells Fargo. May’s weaker-than-expected payrolls data have already stoked worries about prolonged trade tensions.
“The risk for the broader economy is that the slowdown in profit growth curtails businesses’ ability and willingness to invest and expand payrolls here in the United States.”
Calder McHugh is an Associate Editor at Yahoo Finance. Follow him on Twitter: @Calder_McHugh.
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