Goldman Sachs analysts have identified four companies — including industry stalwart Nike Inc (NYSE:NKE), RH (NYSE:RH), Dollar Tree, Inc. (NASDAQ:DLTR) and VF Corp (NYSE:VFC) — that could get walloped by a new U.S. border tax.
However, Goldman says, the probability is still pretty low.
Each company, along with the broader retail and apparel sectors, is at risk of a GOP-sanctioned border-adjusted tax that proposes, basically, to subsidize exports while levying a tax on imports.
The plan, which was discussed earlier this month, would tax imports at 20% and subsidize exports with rebates. Opponents believe the tax is “regressive” and will lead to higher prices for goods; proponents believe the stronger dollar would offset higher costs as a result of the measure and bring in an extra $120 billion a year.
Consider Nike, which produces pretty much all of its footwear outside the United States. Such a tax would make it harder for Nike to realize its relatively high profit margins. According to JPMorgan analysts, athletic retailers could see earnings hit to the tune of 40%. Luckily, Nike has a hugely profitable international business, while Under Armour Inc (NYSE:UA) would not be so lucky.
As for retail, it’s “the poster child for how negatively impacted [companies] would be” according to Wunderlich Securities chief marketing strategist Art Hogan.
However, the chances of this happening are slim, as President Trump himself called the plan “too complicated,” while New York Federal Reserve President William Dudley called it “pretty dramatic.” According to Dudley, the measure would bring volatility to the value of the U.S. dollar and the price of imported goods in America, as well as a slew of “unintended consequences.”
Goldman estimates a 30% chance of this measure passing, citing hurdles in transitioning to a new system. That, however, doesn’t mean we won’t see a Trump border tax. On Monday, President Trump vowed to impose a border tax on goods manufactured outside the U.S. to discourage companies from bringing overseas products Stateside to sell:
“They’re going to have to pay a border tax — a substantial border tax,” said President Trump.
Other factors that could impact U.S. stocks include regulation, fiscal spending, interest deductibility and depreciation policy, and corporate tax rates. As earnings seasons ramps up, Goldman believes investors should look at these areas increasingly more than fourth-quarter results, as they will be the true driver of earnings in 2017.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.