When it comes to trade with China, President Donald Trump hasn’t just stirred the pot, he tossed a lit stick of dynamite in it.
The real estate tycoon seems to be itching for a trade war. He’s threatened to slap punitive tariffs on Chinese imports and has accused Beijing of keeping its currency artificially low and turning a blind eye to the theft of U.S. technology.
What’s more, the former reality TV star has upended more than four decades of U.S.-China policy by speaking with Taiwan’s President Tsai Ing-wen and has blasted the Chinese government’s building of islands in international waters of the South China sea.
I am not going to discuss whether Trump is right or wrong on these issues, though I do agree with critics who say that Trump’s unconventional leadership style can be counterproductive at times. Case in point: scrapping the Trans-Pacific Partnership. The result is that China will fill the vacuum left by the U.S. withdrawal.
Investors, though, need to prepare themselves for trade tensions to rise and perhaps escalate into a full-scale “trade war” even though both countries say publicly they want to avoid one. I don’t want to give odds on whether there will be a U.S.-China trade war, because the Trump era is so unpredictable.
Even so, the time for investors to “China-proof” their portfolios has arrived by selling off shares in companies that are dependent on the world’s largest country (by population) for more than half of their revenues until the situation becomes clear, whenever that may be.
They also need to exercise caution when dealing with stocks that are counting on China for their future growth because they are vulnerable to imposition or punitive tariffs or other types of government harassment.
According to a recent Morgan Stanley note, there are about a dozen or so companies, including Ambarella Inc (NASDAQ:AMBA), which gets 90% of its revenue from China, Marvell Technology Group Ltd. (NASDAQ:MRVL), which generate more than 60% of its sales from the world’s most populous country and Texas Instruments Incorporated (NASDAQ:TXN), which gets about 41%.
Greek shipping companies with U.S. stock listings, such as Diana Shipping Inc. (NYSE:DSK), Genco Shipping & Trading (NYSE:GNK) and Star Bulk Carriers Corp. (NASDAQ:SBLK), each get about 55% of their revenues from China. Chipmakers Broadcom Ltd (NASDAQ:AVGO) and Qualcomm, Inc. (NASDAQ:QCOM), which count on China for 24% and 50% of their revenue, respectively.
Conditions for U.S. companies in China have been getting worse for years and could easily deteriorate further with politically motivated “investigations” and other government red tape. Should a trade war break out, casino operators Wynn Resorts, Limited (NASDAQ:WYNN) and Las Vegas Sands Corp. (NYSE:LVS), which depend on goodwill from Beijing to operate their profitable Macau casinos, could be vulnerable.
The Communist government would also target high-profile companies eager to expand in China, like Boeing Co (NYSE:BA), General Electric Company (NYSE:GE), Apple Inc. (NASDAQ:AAPL) and Tiffany & Co. (NYSE:TIF). Agricultural exports could also take a hit, which would be bad news for Tyson Foods, Inc. (NYSE:TSN) among others.
When it comes to Trump and trade, it’s better for investors to be safe than sorry.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.