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The market, already in turmoil amid the U.S.-China trade war, was hit by another bombshell last week — President Donald Trump's threat to slap tariffs on all Mexican imports. For investors wary of their exposure to the new Mexico tariffs, here's Goldman Sachs' list of stocks to avoid.
Goldman screened Russell 1000 index stocks by their assets explicitly reported in Mexico, revealing that chipmaker Skyworks Solutions, railroad company Kansas City Southern and sensor and electrical protection products manufacturer Sensata Technologies are among the companies most sensitive to the newly-proposed tariffs on Mexico imports.
The average stock on the list is already underperforming the broad Russell 1000 by 200 basis points, Goldman pointed out. Autos and auto components sector, which represent the largest U.S. import from Mexico, has suffered even more, lagging the broad market by nearly 300 basis points through Friday's close.
"Escalation of the trade war poses a risk to both corporate profit margins and the health of the US consumer, who will likely absorb the majority of the tariffs via higher prices," Ben Snider, an equity strategist at the bank, said in a note Friday.
Stocks took a big hit when Trump announced a 5% tariff on all Mexican imports from June 10. The White House said the duties could go up to 25% by October if Mexico does not take action to "reduce or eliminate the number of illegal aliens" crossing into the U.S.
Goldman's economists believe the U.S. will follow through with at least the 5% tariff.
"...At least the first 5% tariff on imports from Mexico planned for June 10 will be implemented," Snider said. "The combination of proposed tariffs on China and Mexico imports would result in roughly 80% of some U.S. imported products being subjected to tariffs, including toys, cell phones, and other consumer electronics."
In addition to the list of stocks with most Mexican assets, restaurants and companies rely on Canadian supply chain would also suffer, Goldman said.
"Mexico represents the largest source of US agriculture imports, adding direct risk to restaurants should the import tariffs be implemented," Snider said, adding that a weaker consumer due to the heightened trader tensions should affect spending on dining and goods like consumer electronics.
As Trump's Mexico tariffs reneged on the proposed North American Free Trade Agreement, a trade deal between the U.S. and Canada also seems less likely, which could hurt U.S. companies using Canadian suppliers, Goldman noted.
"To the extent tariffs on imports from Mexico reduce the likelihood of USMCA passage, companies reliant on supply chains in Canada may also suffer. Our economists believe the implementation of tariffs on Mexico would cause both House Democratic leadership and Mexico to slow their consideration of USMCA, lowering the odds of enactment this year," Snider said.