Never let it be said that, if nothing else, President Donald Trump doesn’t keep things interesting. His latest controversial threat? Closing the border between the United States and Mexico until the nation’s neighbor to the south does more to help shore up the free flow of potentially dangerous immigrants.
He has since backed off on the threat, at least partially heeding concerns voiced by corporate leaders worried that such a move could stifle trade.
He has hardly ruled out a complete border closure, however.
To that end, should President Trump still follow through on his innuendo, a handful of companies could readily feel an adverse effect. These outfits rely heavily on a relatively open border, with more than $600 billion worth of goods shipped between here and there every year.
Mexico is the United States’ third-biggest trade partner.
Here’s a rundown of nine of the market’s most vulnerable names if Mexico and the U.S. are effectively cut off from one another, in no particular order.
Ford Motor Company (F)
It may have been overstated for effect than for fact, but the point was well taken all the same when Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research, commented “You can’t sell cars with missing pieces. You’ve got to have them all. I see the whole industry shutdown within a week of a border closing.” An estimated 37% of the parts imported for use on U.S.-made automobiles come from Mexico.
A closed border could prove doubly difficult for Ford (NYSE:F), however, which has established so many production and assembly facilities in Mexico over the course of the past several years. It has assembly plants in Hermosillo and Cuautitlan, a transmission factory in Guanajuato, and three engine plants in Chihuahua.
Archer Daniels Midland (ADM)
The threat of a border closure has, for some reason, thrust avocados into the spotlight. Mexico produces more of them than any other country in the world, and if they can’t be transported across the Mexico/U.S. line, some fear the United States would run out of avocados in three weeks.
While it might be tough to believe, the U.S. can survive without avocados. The fruit is only a microcosm for a much bigger food fight that would extend well beyond avocados. A whole variety of produce and packaged foods would soon be in short supply.
Enter food giant Archer Daniels Midland (NYSE:ADM), which ships a great deal of corn and sugar to Mexico. While scarcity would initially beef up prices of ADM’s goods, such a price hike would ultimately prove damaging in the long run for companies that ship foods in either direction.
Werner Enterprises (WERN)
Werner Enterprises (NASDAQ:WERN) is a major logistics outfit in the United States … a fancy term for trucking, with a lot of “value add”‘ that makes matters simple for the shipping companies’ customers.
It matters. More than 80% of the goods transported between the two countries are carried by tractor trailers, and Werner is one of the key companies ferrying goods to and from Mexico.
It’s not just Werner that could run into a roadblock, literally and figuratively, at the border though. The United States’ entire trucking industry could experience a fiscal flat tire.
Bob Costello, chief economist and senior vice president with the American Trucking Associations, explains “Last year, just to haul freight to and from Mexico, the American trucking industry employed over 31,000 U.S. truck drivers (full-time equivalent) and nearly 47,000 total workers to support this truck-transported trade. This business generated $6.6 billion in revenue last year, and U.S. truck drivers were paid nearly $2 billion in wages to haul this freight.”
Although Archer Daniels Midland may enjoy an initial bump in pricing power as the supply of food goods shrinks, as was noted, there’s more long-term downside than upside.
ADM isn’t the only player in the food distribution game that’s apt to run into a headwind, however. The outfits on the frontline that put food on families’ tables will also be crimped, by being forced to charge higher prices as well as simply not having all the goods their customers want (like avocados!) to sell.
That makes Kroger (NYSE:KR) especially vulnerable, being not only the nation’s biggest grocer but also focusing solely on groceries. At least rival Walmart (NYSE:WMT) can offset any softness in food sales with its general merchandise sold on the other side of its stores.
VF Corp (VFC)
VF Corp (NYSE:VFC) isn’t exactly a household name. In fact, most investors may have never even heard of it. That’s by design. The company is far more interested in promoting the brand names it owns and operates, which include Vans, The North Face, JanSport and Lee and Wrangler jeans, just to name a few.
Many of those brands’ production facilities, however, have migrated to Mexico where labor is usually much cheaper. Now getting that apparel into the United States could prove costly, if not impossible.
The double whammy: While VF will find it challenging to get goods into the United States, it may find it just as tricky to get raw materials like the cotton needed to make denim out of the U.S. and into Mexico.
Kansas City Southern (KSU)
While most of the goods shipped between the United States and Mexico are delivered by truck, a respectable chunk of the $600 billion in trade the two nations engage in is facilitated by railroads.
That puts Kansas City Southern (NYSE:KSU), more so than any other rail name, in the crosshairs of this political standoff. For perspective, while roughly one-tenth of the volume Union Pacific (NYSE:UNP) handles crosses the Mexico/U.S. line, almost one-third of Kansas City Southern’s traffic crosses the very same border.
It’s not just intercontinental deliveries that could be stymied for Kansas City Southern, however. The subsequent economic slowdown stemming from a border closure would also sap demand for shipping just within the United States as well.
Constellation Brands (STZ)
It’s not just a marketing gimmick. Constellation Brands (NYSE:STZ) beer band Corona really is brewed in Mexico. That presents a real problem for Constellation Brands, as Corona is America’s favorite imported beer.
The potential impasse couldn’t be taking shape at a less opportune time against an already difficult backdrop. Although Corona has to be brewed in Mexico, Constellation has wisely set up brewing facilities Mexicali … a town technically located in Mexico, but for all practical purposes is located in southern California. The company, and its Corona partner AB InBev (NYSE:BUD), set up shop and have plans to expand there due to its propinquity to a key U.S. distribution hub. The development of those facilities, however, poses a threat to the town’s water supply that has desperately needed local farmers.
Already fighting a war of words over a border closure, Constellation doesn’t have a lot of friends on the other side of the fence either.
Tyson Foods (TSN)
Add Tyson Foods (NYSE:TSN) to the list of food names — a list that already includes Kroger and Archer Daniels Midland — that could be hurt by a closure of the U.S./Mexico border.
Mexico buys more U.S.-produced chicken than any other nation, and the United States is by far Mexico’s biggest chicken supplier. Last year, the U.S. delivered 675,653 tons of poultry south, easily outpacing Mexico’s second-biggest supplier, Brazil, which only delivered 95,500 tons of chicken to United States’ strained trade partner.
In the shadow of trade-tensions largely inspired under Donald Trump’s Presidency, however, late last year Mexico authorized 26 new Brazilian chicken providers to start shipping poultry into the country.
A closed border could sever Mexico’s ties with Tyson and other chicken providers for good, with the country clearly starting to shop around for alternatives.
While American’s love Constellation Brands’ Mexican-made Corona beer, Mexicans love Coca-Cola (NYSE:KO). But, it’s complicated.
Mexican-bottled Coke is rumored to be different (for the better) than U.S.-bottled Coke, with the point of contention being the use of cane sugar or corn syrup, depending on the intended consumer. Mexico’s version of Coke is so well-loved, in fact, that it’s become a key part of the country’s culture.
Even so, though loyal to the brand, Mexico’s consumers have proven even more loyal to their country. Mexicans already boycotted Coca-Cola products in early 2017 in response to President Trump’s proposed border wall tax. They may well boycott again, and more vehemently, if the border between Mexico and the United States is completely closed, pushing the struggling country closer to a recession.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.