8 stocks at risk from Trump's proposed tariffs

• President-elect Donald Trump plans to implement new tariffs, and investors are bracing for impact.
• Tariffs tend to increase the prices of imports, potentially eating into corporate profits.
• Three market experts share the eight companies that could be hit hardest.

Trump will be back in the White House next January, and he's bringing his tariffs back with him.

During his first term in office, Trump imposed tariffs on steel, aluminum, and a wide range of Chinese imports.

The former president and now president-elect has been vocal about his support of protectionist policies this election cycle. In the last few months, Trump has proposed policies — such as a blanket tariff of up to 20% on all imports, and up to 60% in the case of China — with the intention of encouraging domestic manufacturing and reducing US dependence on foreign goods.

"Investors generally are expecting some degree of tariffs. It's not just rhetoric," Clayton Gardner, co-CEO of wealth management firm Titan, said.

Unlike tax legislation, which needs to be voted on by Congress, tariffs can be implemented directly by the president — and Trump's made this issue one of his top priorities.

With this in mind, market experts say investors should brace themselves for the impacts of such policies on some of the world's biggest corporations.

How do tariffs work?

Import tariffs work by placing an extra tax on goods or services entering a country. By artificially increasing the price of imports, tariffs boost demand for domestic products and shield domestic industries from foreign competition. But most economists argue that tariffs ultimately result in companies and consumers alike being worse off.

When faced with tariffs, companies importing products end up passing the effects down to consumers by raising prices, according to Jesus Salas, a finance professor at Lehigh University.

For multinational corporations, this results in lower demand for their products and potentially lower profit margins due to higher prices and operating costs, Salas said.

Companies in the retail, consumer electronics, and automotive industries will be hit especially hard, as many of their business models source raw materials or base their operations overseas, according to Samuel Rines, a macro strategist at WisdomTree.

Luxury consumer goods brands, which have a large market in China, will be in for a rough time, added Gardner. These companies have historically had a significant portion of their growth come from China.

Although companies with supply chains in China will be impacted the most, any country with foreign exposure is at risk, according to Salas: "All companies that import products from Europe, Latin America, or China would be impacted." For example, Trump has recently threatened a 25% tariff on all products from Mexico.

There's also the possibility of counter-tariffs. In 2018, Canada, China, the European Union, India, Mexico, and Turkey reacted to US tariffs on steel and aluminum and foreign products with tariffs of their own. This made American exports such as agricultural products more expensive overseas and hurt US companies.

"Corporate America is very, very global in its investment base. It's very, very reliant in some cases on non-US sales and revenues for their growth," Rines said. A deterioration in trade relations could lead to decreased revenues from important overseas customers, resulting in lower profits and shareholder value.

Tariffs 2.0

One might think that if these companies lived through the first Trump administration's tariffs, they should have already prepared their supply chains.

But that's largely not the case, according to Salas. Although companies did move some of their operations out of China as a result of Trump's tariffs the first time around, there's insufficient labor supply in the US to meet the demands of some large companies like Apple, in his opinion.

Nearshoring, or bringing operations closer to the US to places in Central America, has been on the rise in recent years as corporations worry about exposure to China. But this doesn't protect companies from the effects of Trump tariffs either, as seen by Trump's proposal for aggressive tariffs on Mexican imports.

Additionally, factories are expensive and take a long time to build. Since tariffs are exercised at the discretion of individual presidents, corporations might decide it's not worth it to completely reroute their supply chain for a transitory policy that could change in four years, added Salas.

That's not to say that companies haven't taken any steps to localize their supply chains. Walmart has been increasing its imports from India and cutting back on sourcing from China in recent years, according to Rines. However, large corporations still remain exposed to China — not to mention that Trump's policies aren't just targeting China.

8 stocks at risk from tariffs

For investors, all of this means that some of the biggest blue chip companies in your portfolio could have some bumpy quarters ahead of them as their operating costs may go up and demand for their products may slow.

Rines, Salas, and Gardner identified some of the top stocks that will be most impacted by tariffs. They are listed below.